Cancun Confusions
My first visit to your country was when as Prime Minister I attended the “North-South” Summit at Cancun in 1981 following which I came on to Mexico City. But I was always well aware of your country's long and fascinating history and its cultural diversity. Recently it has been depicted so well in the exhibition devoted to Thirty Centuries of Mexican Culture seen in Brussels and Paris as well as here in Mexico City.
In 1981 the days I spent here left two strong impressions with me.
The first was of Mexico itself. Yours is a country of extraordinary, inspiring and sometimes for the visitor from misty North Europe, stark contrasts. There are, to begin with, the contrasts of climate and terrain–tropical rain forests, fertile temperate zones and (in the North) near deserts. There are the cultural contrasts. As Mexico's great national poet, Octavio Paz, has put it:
“the paradox of Mexico is that it is at once the most Spanish of Latin American countries and the most Indian.”
How true that is. In Mexico one has a profound sense of the grandure of Spanish imperial achievement by the side of barely changed Indian cultures. Moreover, you have understood that the story of your alternately glorious and tragic past requires portrayal in precisely the right setting and conditions. Surely your great Anthropological Museum, which I marvelled at and enjoyed on my last visit, must rank as one of the world's most impressive modern cultural buildings?
And this leads me to observe a further contrast, equally obvious to the visitor, but one whose implications are frequently misunderstood. When I came to Mexico City in 1981 I could not but reflect upon the contrast between the technical and artistic achievement exemplified by the challenging architecture of your modern churches and towering sky scrapers on the one hand, and the human pockets of desperate, grinding poverty on the other. The automatic reaction is to say that the money spent on the former should have gone to alleviate the latter. But that would have been precisely the wrong analysis, and indeed it was one which I did not make, convinced as I was that it is not the state but individuals and businesses which create wealth and jobs. For what I saw of Mexico City confirmed my view that the human flair and vision which had produced magnificent buildings must now be liberated through free enterprise and open markets to give poorer Mexicans the chance in life they really deserved. Such, then, were my impressions of Mexico.
Perhaps for the sake of completeness I think I should record that there was an earthquake during my stay here in 1981 of about six points on the Richter Scale. Fortunately the damage was limited. However, for me it was my first such experience and the only time in my life when I was in danger of going wobbly! The political lesson was not lost on me.
My impressions of the Cancun Conference, it must be said, were a little negative. This had nothing to do with the charm and hospitality of our Mexican hosts, which were perfect. It had a great deal to do with the false and damaging arguments which were advanced by various heads of government at that meeting.
The underlying assumptions behind all of the fashionable discussions about “North-South” dialogue which was such a part of the political rhetoric of the 'seventies and early 'eighties, were damagingly, even dangerously wrong. It was in any case untrue that the world was divided into a homogenously ‘rich’ north and a homogenously poor ‘south’: there were so many exceptions that the rule just did not hold.
But worse than that was the idea that some countries were poor because other countries were rich. Such an attitude not only made for envy and tension in international affairs. It also led to emphasis being placed at both international and national levels on the distribution of wealth rather than the enormous potential for its creation. In fact, as the post-Cold War world now largely recognises, the main cause of poverty and under-development is that many countries have not pursued policies conducive to wealth creation.
Mexico since Cancun
In fact, the outcome of the Cancun Summit did reafirm some fundamental principles. Above all, the integrity of vital international financial institutions like the IMF and World Bank was protected. But, even more important, from then on there was increasing emphasis in international circles on the need for financial orthodoxy. Countries like Mexico which had run up huge debts in pursuit of over-ambitious policies of public spending very sensibly turned their back on the failed prescriptions of fashionable development economics. President de la Madrid began the difficult task of returning Mexico's finances to soundness. President Salinas has seen it through–and in the process shown himself to be one of Mexico's most successful Presidents and indeed one of the most remarkable and courageous world leaders.
So let me say immediately that you have been right
to take the tough action required to bring down inflation
to bring the public finances into order
and to do all this in close relations with the international financial community.
You have also been right to embark on the equally essential structural reforms
cutting tariffs, opening your economy up to the wider world and creating the North American Free Trade Area (on which I shall wish to say more shortly)
curbing the power of the trade unions
and pressing ahead with privatisation.
As you may imagine all this is so familiar to me and I was delighted to see that the result of these policies has been to restore the peoples' faith in the future of this remarkable country.
Privatisation
Over the last five years the most significant growth in world privatisation schemes has taken place in Latin America. And Mexico has been part of that. But there is further to go, as I am sure you would agree. One reason to do so is simply to raise money to cover government spending and borrowing. But that is not the main justification.
Privatisation of state owned industries is important because it is an essential part of creating the structure of a successful free enterprise economy. State owned industries are a drain on the public purse, lack the competitive spur to success and are unresponsive to customers. The state has far too many other testing functions to perform without also being in the business of running businesses–and what is more, politicians are not very good at it!
Different countries with different financial systems and traditions will approach privatisation in different ways. But generally it must take place so as to maximise competition and to promote wider shareholding. There is now a wealth of experience, not least from Britain which was so frequently in the vanguard, on which those faced with thorny privatisation problems can draw.
The British Example
In Britain we had our own special difficulties. A deep recession in the early 1980s made it harder to sort out the industries' finances and bring them to the point at which privatisation was possible. In some cases there was also fierce trade union resistance. But we privatised telecommunications, a freight company, bus companies, British Airways and Britoil. We privatised some local government services. We privatised technology companies, the motor vehicle industry, steel, ship building, ports and eventually gas, water and electricity. The list will sound familiar to you.
It was a huge success. Privatisation put a stop to the idea that inefficient management would always be subsidised by the taxpayers. Once in the private sector, business had to lower its costs to keep customers. Henceforth, shareholders provided the capital for investment that had hitherto come from the taxpayer. So money raised by taxes could instead be spent on schools, roads and hospitals.
Of course, there are always faint-hearts. When water was privatised some of them said “look she's even privatising the rain which falls from the heavens” . I had to retort that the rain may come from God, but he didn't send the pipes, plumbing and the engineering with it!
Such was our experience in Britain, but your own achievements in Mexico have been equally outstanding.
Mexican Miracles
The privatisation programme started by the Mexican Government in early 1983 has been the most effective contribution to Mexican economic reform and thus ultimately, to a successfully negotiated NAFTA deal. At the onset of the programme the Mexican public sector controlled 1,155 companies. Since then, 996 of these companies have either been sold, merged or closed-down. President Salinas' administration alone has sold some 390 companies and of the 209 that remain in state hands 50 are currently in the process of liquidation, closure, sale, merger or transfer to local state governments.
One reason for the speed and success of privatisation policy during President Salinas' administration has been the President's strong direct involvement in the programme. His government has conducted by far the largest single transactions. It is also no coincidence that the largest and most complex privatisations have been completed towards the end of this well-established process. The small transactions formed part of the overall restructuring of the economy–making distribution of goods and services more efficient–both through the shift of industry into the private sector and the deregulation of such areas as transportation. Thus the privatisation programme has played an enormous part, along with rigorous fiscal and monetary policies and a more liberal trade regime, in revitalised growth, low levels of inflation and renewed domestic and international investor interest in Mexico.
The sale of Mexico's 18 state banks which began in May 1991 and was completed by July 1992, represented the largest mergers and acquisition process ever executed in the Financial Services sector anywhere in the world. During this period the government sold one bank every three weeks achieving a sales price averaging 3.1 times their book value.
The Government has also decided to embark on its plans to privatise the country's port system, made up of 73 ports.
What a fantastic transformation you have achieved in the course of a decade!
The Benefits of Trade
The other aspect of structural economic reform has been the opening up of your economy to world trade. This, of course, is of direct significance to Britain, for Mexico is now our largest market in Latin America and we are Mexico's second largest overseas investor.
But for Mexico itself the significance is far deeper. Deeper economically because after the initial shocks have passed, competition and lower prices from cheaper imports which characterise an internationally open economy lead to growing prosperity. Deeper politically because the new policy of open trading with the United States, which the North America Free Trade Agreement represents, marks an end to many years in which the full benefits of cooperation between the USA and Mexico were not achieved due to historically rooted suspicion and protectionism. I am convinced that NAFTA will bring greater prosperity and new jobs to Mexico and that it will cement relations still more securely with your northern neighbour. So enthusiastic am I that there is nothing I would like more than to see such arrangements extended across the Atlantic to include the European Community in a great new open trading zone.
Unfortunately, such thinking is out of line with the narrow vision that characterises trade policy discussions in many parts of the world. The strains and stresses which almost led to failure in the recent GATT negotiations show how far we still have to go in convincing continents, countries and pressure groups that open trade is in the interests of all.
Mexico will, I hope, learn from Europe's mistakes. We in Britain joined the European Community and were at the forefront of creating the Single European Market because we saw it as a means of expanding trade. Sadly, in recent years, the contrary trends towards keeping imports out of the Community and towards over-regulation have been in the ascendant. It was shameful, but all too predictable, that the European Community should have proved so obstructive in the GATT Round.
For open trade is not, I insist, just to be regarded in terms of the dry statistics of balance of trade and theories of relative advantage. Trade is a vibrant, living thing which brings movement, variety and colour to great trading nations. Moreover, freer trade brings three huge benefits.
First, it is a force for political cooperation, harmony and peace. It is no mere chance that rising protectionism in the 1930s preceded global conflict. And, by contrast, the arts and conditions for peace flourish through free exchange of goods and services.
Second, free trade allows small enterprises and indeed small countries to compete on equal terms with the commercial and political giants. If there is one single trend which we can associate with the advance of liberty it is that towards small economic and political units in which people can feel more comfortable and at home.
And finally through free trade poor regions and countries can penetrate international markets and raise their peoples' living standards. If just a part of the energy put into arguing for redistribution of resources between rich and poor countries had been invested in elaborating ways of getting poor countries access to rich countries' markets, there would be a great deal less poverty in the world.
So for all these reasons we have to honour the GATT, but also go beyond it. That is how we should approach regional trading arrangements like NAFTA and the European Community which are the two overwhelmingly powerful trading blocs in the world today. The task of defending the liberal global economic order depends to a great extent on how these two blocs behave because their actions have a profound effect on the whole business world.
Regional trading arrangements are excellent as long as they take place within the GATT rules and are a spur towards lowering world wide tariffs, rather than part of a movement towards competing protectionist trade blocs. Our trade policies should be enlightened and imaginative, not confined to narrow horizons. The West's post-War prosperity could never have been achieved without the orderly framework of freer trade.
Asia/Pacific: Fulcrum of World Growth
Perhaps some of the greatest exponents of freer trade are to be found among your Pacific Rim neighbours whose success has been phenomenal. Today the Asia/Pacific has the highest growth rates in the world despite the recession. Asia is constantly becoming more efficient, and saving and investing more–savings rates are typically running as high as 30% of GDP; output per person is doubling every ten years; Asian banks now hold over one third of the world's foreign currency reserves. The result is that trade and investment within the region are growing exceptionally fast and will continue to do so.
It is always very interesting that the two main exponents of Communism, the former Soviet Union and China, have chosen different routes out of their decades of repression. Former President Gorbachev began by giving personal and political liberty including more freedom to travel and leave the USSR, an enormous change which altered the whole atmosphere from one of fear and furtiveness to a more open society.
Doubtless Mr Gorbachev and then President Yeltsin hoped that economic enterprise would follow. But Russia had only ever known a few decades of a market economy before it was snuffed out when Lenin seized power in 1917. Her people were not natural traders and after 70 years of Communism, which strangled all initiative, the Russian's have been slow and fearful of taking advantage of the new opportunities which arose when Communism collapsed.
When Deng Xiaoping was restored to power in China he whole-heartedly began spreading economic liberty and introduced a market economy which has grown rapidly. But he retained centralised political power in the hands of the Communist Party and its leaders.
The Chinese people are born traders and, unlike Russia, have a large diaspora in the other nations of the Pacific (Hong Kong, Taiwan, Singapore) who poured investment and management into the coastal provinces. China's transformation has been without precedent in the annals of economic growth. I know there are problems with over-heating and speculation at present but they are problems of success. I do not believe it is possible to turn the clock back on economic reform even if anyone should want to do so; rather I would expect to see Hong Kong's return to China in 1997 speed it up still further. All the indicators point to China, Hong Kong and Taiwan becoming the main powerhouse of world growth in the opening part of the next century.
The political consequences cannot be evaded. When the market is allowed to work and prosperity spreads, you create a society where people are more educated, have more contact with the outside world and outside ideas, have more money to spend as they wish, travel more widely, speak more freely and work for inividual firms and not for the state. Communists can denounce democracy as much as they like now, but as recent events have shown elsewhere, democracy follows economic freedom sooner or later and no-one can stop it.
New World Disorder–the Need for Strong Defence
Mexico's rightful place in the world community is as a partner with the United States and other Western nations, committed to the steady advance of free enterprise and democracy and staunch in opposition to tyranny and aggression.
The heady talk which followed the end of the Cold War of a “New World Order” or indeed, more bizarrely still, “the end of History” has been stilled. Indeed, I seem to detect in some international quarters a peculiar nostalgia for the atrophied certainties of the Cold War world. I do not share it. Of course, in a sense life was simpler then. Where a balance of terror keeps the peace; where national identities are supressed by police states; where power bloc politics prevails over issues of justice and self-determination–this is a world which politicians and civil servants find easier to manage. But it could always have gone wrong even in terms of the “stability” which seemed to prevail. In many parts of the world–including Latin America–the “Cold War” was far from being “cold” . Revolutionary violence was promoted by the Soviet Union in every continent. Its appalling legacy is still felt. Above all, the monstrous evil of communism not only denied the fundamental rights of human beings to self-expression and self-development: it actually sought to change the nature and instincts of human beings, corroding loyalty to family, love of country, respect for truth, belief in religion. So I assert that the fall of communism through most of the world between 1989 and 1991 was the most profound and beneficial revolution of our times.
A world without the Soviet Union and its constant threat is a different place: it is a better place: but we have to remember the lessons we learnt in the struggle against communism and put them into effect in this freer but barely less dangerous and certainly more disorderly world in which we find ourselves. The victory over communism in the Cold War was only achieved because the United States, staunchly supported by its allies including Britain, remained strong and because we had the will to use that strength.
It was right that there should be a reassessment and some reduction in the West's armed forces once the threat from the Soviet Union receded and then the Soviet Empire itself crumbled. But we still have to ensure that military superiority–particularly technological superiority such as SDI–remains with nations (above all the United States) which can be trusted with it. We must never allow the sanction of force to rest exclusively with those who have no scruples about its use. There is now a real danger that in one of those periods of false optimism to which Western democracies are all too prone we will cut back our defences too far.
For there is no shortage of threats to peace–indeed the skies are darkening. I have the greatest admiration for President Yeltsin and I believe that wealthy Western nations should have done more, earlier to assist Russia to build a market economy and the structures of sound administration. But I also believe that the West must now take full account of the trends and risks which are ever more clearly apparent in Russia. There are ample grounds for disputes, not least concerning the Russians outside the Russian state itself, what they call the “near abroad “, which could tempt malign forces towards military or other forms of intervention. The Russians certainly still have the means to embark upon such policies.
So far, we in the West could not have done more to demonstrate our weakness in the face of future threats by the way we are all rushing to disarm and showing such grave divisions and such wavering will-power over the fate of Bosnia–an internationally recognised sovereign state in the heart of Europe. The fact that even at this belated hour the threat of air strikes against the Serbs besieging Sarajevo had such a salutary effect demonstrates how much, earlier, decisive action could have achieved.
I repeat that I have every confidence in President Yeltsin. With him at the helm, the Russian ship of state has every chance of navigating the reef strewn waters which lie ahead. But the Russians are now installed in Sarajevo at the traditional fault line of East and West. There are significant problems over Ukraine and the Baltic States. In Russia itself there are signs that the reformers are out of favour and influence. Prudence both on our own behalf and on behalf of the sincere democrats in Russia itself therefore requires that we prepare for the worst even though working, hoping and praying for the best.
Nor, of course, can we always hope to foresee where the next threat will arise. We know something–enough to be seriously alarmed–about the military capabilities of the dictatorship in North Korea. But how many more dictators thrown up by some brutal totalitarian creed, some fundamentalist fanaticism or some primitive dream of national glory or racial destiny will we see in our times? How many more in the century about to unfold?
People often talk about the “peace dividend” . It is an expression which can be misunderstood. The peace dividend is not the quantity of money and resources available to be used on other things because peace is now secured and defence can be reduced. That is the wrong way around. Peace is the dividend that comes from sustained and heavy investment in weapons and defence technology. For peace is guaranteed not by weak but by strong defence in the hands of peace loving powers.
Perhaps the single greatest imperative in the Western world today is to reassess our defence requirements on cold, realistic and even pessimistic assumptions and to apply ourselves urgently to fill the gaps.
As the poet T.S. Eliot put the point so well in his Choruses from ‘The Rock’:
“It is hard for those who live near a Police Station to believe in the triumph of violence. Do you think that The Faith has conquered the World? And that lions no longer need keepers? Do you need to be told that whatever has been, can still be?”
Democracy and Capitalism
Just as we have to be strong in defence of liberty, so too we must go on fighting the battle of ideas. For this is a struggle in which there can be no final victory. In turning decisively towards sound finance and free enterprise economics and in entering the new relationship with the United States that NAFTA will bring, Mexico is a shining example of a wider international movement. And the fact that political reform is linked with economic reform is equally representative.
In 1993 Freedom House, an organisation which monitors these things, found that there were 75 democratic countries, up from 55 a decade earlier; but 31 per cent of the world's population, the greater part in China, still live under repressive regimes, this is down from 44 per cent a decade ago. The combination of instant information flashing across the world, economic interdependence through trade, and the appeal of individual liberty is a powerful force for democracy.
I hope that 1994 may see another addition to the role call of freedom: Cuba.
But just before we raise the roof with shouts of joy let me add a further reflection on this connection. Wherever we find signs of a reversal of free enterprise economic reforms, we must be on our guard against threats to political liberty also. And we know from past experience in dealing with the old Soviet Union that countries which do not respect the liberties of their own people cannot be trusted to respect the rights of other members of the world community.
Ours must be an age in which democracy and capitalism work together for the benefit of all. Indeed, they are but two sides of the same coin–be it pound or peso.
Both democracy and capitalism require a fair and just law which applies to everybody–rich and poor, citizens, politicians and government alike. Without the assurance such a law, impartially administered and effectively enforced, brings with it, the citizen will feel insecure and the enterprise will misapply its resources.
Both democracy and capitalism are means of giving power to the people. In even the most active form of political democracy, individuals are only asked to cast their votes on the performance of politicians after a period of years nationally, or once or twice a year locally. Yet in the market place of capitalism men and women are making their economic choices every minute of every day through the goods they buy.
Both democracy and capitalism are bulwarks of liberty because they check state power. Democracy does this by holding politicians to account. Capitalism does so by removing industry and management from the hands of government, by promoting private shareholding and opening government policies to the scrutiny and judgment of domestic and foreign markets.
A New Revolution
Mexico is a country which seems paradoxical to British eyes because you have a revolutionary tradition. It is for Mexicans rather than their foreign guests to debate the pros and cons of the Mexican revolution and its legacy. But the new capitalist revolution which is poised to sweep through your country and indeed is in ferment across Latin America is the true liberation movement bringing greater potential benefits than any mere change of regime or institutional reform. We now know beyond peradventure the system which creates undreamt of wealth, unimaginable varieties of goods and services, new businesses and expanding employment. Sound money, limited government, noncorrupt administration, an independently adjudicated rule of law, low taxation, a minimum of regulation –then add to all this the catalyst of enterprise–and success will follow.
And that success will be distinctively Mexican. Mexicans have always reflected profoundly on their country's destiny and identity. Octavio Paz has compared this with the kind of self discovery by the young person of his or her own existence “as something unique, untransferable and very precious” . Mexico has no need to fear for her distinctiveness, no need to shelter from the open competitive world of opportunity. This is a country born for success and not submission. Have the confidence now to complete the task.