8: Economic Dreams and Realities

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Economics is at the heart of relations between Mexico and the United States. There are people in both countries who understand that a well-developed Mexico would have a much greater economic exchange with the United States than it has now, to the advantage of both. Truly drastic changes in economic ties will be difficult to arrange, however, both because vested political and economic interests will object and because the two countries are so mismatched in economic and social development. The balance of payments favors the United States, which Mexico resents; but perhaps the new oil exports will help enough to satisfy them south of the border. But it is unlikely. The import of Mexican vegetables draws angry American farmers to the border crossings to blockade shipments. Suggestions that the United States has to let in more Mexican manufactures draw almost irresistible objections from organized labor and industrialists. Mexico needs private investment capital but impedes its entry in many ways, rejects American suggestions that loosened regulation would help, and replies that it would prefer low interest loans, paid for directly or indirectly by the American government--that is, taxpayers. So that raises the question: How much does the American public want to pay for Mexican development? And just as difficult is the question of how much more aid Mexico could use effectively.

Payments and Nationalism

Mexico's balance of payments with the United States long has been unfavorable. Essentially, Mexico's shipments of raw materials are of less value than its imports from the United States, primarily of manufactured goods. Mexico also ships out money in profits from United States corporate affiliates operating in Mexico, and in interest on American loans and investments. These and other flows to the United States are only partially offset by American tourism. The imbalance is the more serious for Mexico because its trade with the U.S. is some 60 percent of all Mexican foreign trade. As a result, Mexico wishes to improve its access to the American market. The United States, on the other hand, carries on only about 4 percent of its total world trade with Mexico; so the importance of the Mexican share does not loom large in Washington.

The United States has been Mexico's major trading partner since the late nineteenth century. Commodity exchanges between the two countries surpassed $9 billion in 1978; the United States sent almost $4 billion worth of machinery, parts, chemical products, and finished metals in exchange for Mexican food, raw materials, minerals, and manufactures. By late 1976, this pattern produced a $2 billion trade balance in favor of the United States; but the gap narrowed to less than $200 million in 1978 as a result of increased Mexican oil exports. The current account deficit of over one billion dollars may increase, however, with rising profit remittances and necessary purchases of capital and petroleum equipment. If United States trade patterns or policies shift dramatically against Mexico, the latter's oil cannot cover the resulting trade deficits.

Unfortunately for Mexico, its imbalance with the United States is only part of a generally unfavorable Mexican situation with regard to international payments. Mexico's imports, largely for equipment, technology, and raw materials to operate and expand its industrial plant, have simply been allowed to outrun income from exports. In addition, Mexico has borrowed large sums abroad to finance its imbalance in commodity exchange, to pay for a variety of projects that give no immediate return (e.g., electric power), and to service the foreign debt. The Echeverría administration from 1970 to 1976 ran up the international debt to unprecedented levels and left the new president, López Portillo, to sort out the mess.

The external public debt went from about $2.2 billion at the end of 1967 to $9.8 billion at the end of 1974, to $20 billion at the end of 1976, and reached about $25 billion in 1978. In the years 1967-76 the external debt rose from 11 to 21 percent of the gross domestic product. The situation was such in 1978 that the government borrowed $8 billion abroad, but $5 billion went to service foreign debts.

These practices led to severe inflation in Mexico and forced in 1976 a devaluation of the currency for the first time since 1953. It also caused a loss of confidence among public and private investors and among businessmen generally. Pessimism also resulted from the fact that the generally good Mexican economic growth record since 1940 was not maintained. In 1976 production rose only 3.2 percent, which was less than half of the average growth per year since 1940. It also was less than population growth, so that per capita production actually declined. And 1977 was even worse, while improvement in 1978 was modest.

Echeverría devised a method of escape that he promoted in the United Nations: the Third World would control the prices of world exports and imports. Understandably, the developed countries resisted this extreme expression of the Third World desire for assistance. Echeverría's relations with the United States were not warm enough for him to make an effective effort to get concessions there. His successor could and did try, but with moderate success by the fall of 1979. Washington had its own economic problems, including inflation and big deficits in international accounts.

The devaluation of 1976 at the end of the Echeverría term, and other measures taken after December 1976 by López Portillo, did reduce the deficits in foreign trade and in the national budget, and somewhat lowered inflation. It also appeared that new petroleum exports soon would greatly relieve the situation if spending could be kept down. But it was irritating to Mexico to be required by the International Monetary Fund, as the price of aid, to exercise a fiscal restraint imposed from outside.

That the restraint came from outside, as did pressures from the United States, pricked Mexican pride, ambition, and desire for more freedom of action-in short, the spirit of nationalism. Deficits in the billions stimulated extreme nationalists and demagogues in Mexico to make wild charges with little regard for fact. In both Mexico and the United States, responsible interest groups naturally used national interest as one basis of their arguments. The calmest of political leaders bent to the winds of asserted national interest and danger to the fatherland; leaders in both countries feared political repercussions if they made concessions. Mexico declared that it merely wanted fair treatment by greater access to United States markets for its exports, but it maintained strict barriers of its own against the import of many types of goods that were manufactured in Mexico. The United States posed as a world leader of lower trade restriction but kept out many Mexican goods. Charges of insincerity on both sides were spread through the constituencies of leaders and over the waves of television.

Exchange of Commodities and Services

The goods, investments, and services exchanged between Mexico and the United States naturally reflect their resources. Mexico has subsurface resources and tropical crops that the United States wants, customers for American manufactured goods, fine beaches and interesting Indian relics for tourists, and opportunities for investment in a developing country. But Mexico wants to be less a supplier of raw materials and more an exporter of finished goods-that is, a fully industrialized nation. It is even wary of its new petroleum surplus, and as soon as it can build facilities wants to ship much of it as refined products.

Commodities

The tropical agricultural products the United States imports from Mexico include coffee, sugar, sisal, fruit, and cacao. Since the United States does not produce most of these tropical agricultural items, there is no cause for problems, so long as two conditions are met. First, Mexican prices and quality must be competitive. Second, other things being equal, Washington must not favor one tropical country over another. The tropical nations watch that closely, especially in connection with commodities in which there are frequent surpluses, notably coffee and sugar.

It is a different matter with Mexican crops that compete with United States producers--strawberries, citrus fruit, tomatoes, other vegetables, and meat. American producers resent the competition. They put pressure on members of government at all levels. They also strive to gain public sympathy for a variety of protests. A striking example occurred in early March 1978, when farmers blocked traffic at the international bridge at McAllen, Texas, to stop trucks bearing farm produce from Mexico. Police arrested about two hundred fifty of the farmers, whereupon many others converged on the lower Rio Grande Valley to protest. Much of the activity in the area was organized by American Agriculture, a group hopeful of arousing farmers on a national basis. News pictures showed policemen forcibly detaining farmers in overalls.

In view of such opposition, it may be doubted that much will result from the commercial treaty signed by Mexico and the United States in 1977, the first between them since the agreement of 1942, which ran out in 1950. The 1977 agreement only provides for about $100 million more per year in tariff concessions on both sides, more trade, but it involve tariff concessions on both sides, more by the United States than by Mexico. This is in line with international suggestions that concessions on tropical products by industrialized nations is a useful way of helping development. In this case it includes fruits and vegetables and other agricultural products. Although the amount of trade is not large, it brought objections from American farmers.

In March 1980, the Commerce Department again replied to the petitions of Florida farmers that the prices of winter vegetables from Mexico were not fair. The department rebuffed the petitions. That was, of course, bad news for Florida farmers and good news for North American consumers and Mexican farmers. It was good news also for President López Portillo, who had been refusing to sign a new commercial agreement with Washington.

Mexican minerals have been important to the United States since the later nineteenth century, both for export to the United States and as a focus for investment. Lead, zinc, and sulphur are among those still of strong interest; also of actual or potential importance are deposits of copper, iron, and silver. Although Mexico in the 1970s began the nationalization of ownership of Mexican mining, foreigners were allowed to retain some interest. It became a favorite claim of Mexican nationalists that huge hidden Yankee ownership in minerals was a threat to Mexican control and policy. Finally, the American interest in Mexican petroleum in the early twentieth century that had died as other producers became important and as Mexico nationalized the industry, was revived in the 1970s.

Mexico buys a copious amount of American manufactures, especially producer goods to build her own manufacturing facilities. She closely restricts imports to Mexico of some manufactured products where Mexico has producing capacity: for example, textiles, clothing, television sets, refrigerators, and automotive vehicles.

The examples given are seldom competitive with American products in quality or price, but they sometimes are. In any event, large quantities of such items are bought by Mexicans in U.S. border towns and smuggled into Mexico, which would like to stop that traffic and integrate the border area more closely into the national economy. Mexico has, however, since 1966 created a special problem for itself in the border area. Its government encourages U.S. corporations to lease land in Mexico's border cities, there to import raw materials free of duty as long as the finished products are exported to the United States, where some of them are bought by Mexicans and smuggled into Mexico. The lure of these "in-bond" plants to American manufacturers is the same as in Hong Kong and Taiwan-cheap labor. By 1977 there were more than six hundred such plants just south of the Mexican border, assembling such items as radios, electronic equipment, pharmaceuticals, and clothes. Some of America's best-known corporations thus carry jobs to Mexico, as American organized labor complains; and Mexico derives income from wages, taxes, and the sale of supplies and services.

While Mexico faces the problems of large Mexican purchases in United States border towns, smuggling from the United States and other countries, and in-bond plants, it wants the American market opened to many Mexican manufactures. American unions and manufacturers say no. The ILGWU, for example, which protected Chicano workers in Los Angeles, has lost much membership because imports of garments from the Far East and Latin America are made by workers whose wages sometimes are only one-tenth of those of ILGWU members. If the United States opens its markets wider to such low-cost producers, either on political or economic grounds, ways must be found to compensate or appease American workers.

Investment

There is a sizable American investment in Mexico on the order of $4 billion, which is more than 70 percent of total foreign investment in the country. It is not large by American standards, but important to those involved, who are ready to spring to the defense of their interest. And such defense is necessary because Mexican nationalists say that American investment is a threat to their independence. That, at least, misleadingly ignores the fact that some 90 percent of all investment in Mexico is Mexican, which is a far cry from the days before the Revolution of 1910-1911, when half of investment in Mexico was foreign. Foreign investment in Mexico today is even less than it was when rapid industrialization began there during World War II, and the economy now is enormously larger than it was then, The present proportion of foreign investment has not changed significantly for some years and probably will not, if for no other reason than intense Mexican interest in the matter.

Mexican nationalists assert that foreign investment is larger than the official figures because dummies in Mexico hide some foreign holdings, especially when foreigners gain control of enterprises that by law are to be Mexican-controlled. That certainly underplays the brilliant success of Mexico's efforts to push foreigners out of many sectors of the economy: for example, banking, insurance, primary chemicals, automotive vehicles, minerals, petroleum, electric power, and railways. That policy of Mexicanizing (majority local ownership) or nationalizing (total Mexican ownership, by the state or by private funds, or a combination of the two) drove foreign investment almost entirely into manufacturing, and only into portions of that sector.

Mexican critics are fertile in arguments. They find that some foreign investment in manufacturing is in "strategic" lines that give foreigners critical leverage in the economy. In this argument, statistics scarcely matter. Equally imaginative is the use of statistics to show that a majority of Mexican industries are not totally owned by Mexicans. They sometimes complain that profit remittances by foreign affiliates are greater than new investment; or even, simply, that profits are too high. There is complaint when American-owned enterprises sell only in Mexico. Also, when they sop up local investment funds instead of bringing them in from abroad.

There is no question that much complaint about foreign investment is political or emotional. Some Mexicans mistakenly suppose that it is clear that the country would be better off with no foreign capital. Others, with considerably more rationality, want capital only from international organizations. Many Mexicans, like most people in the world, are eager to assign their troubles to foreign devils.

The Mexican government and the official party try constantly--and obviously with less than total success--to put across the thesis that foreign investment is helping build a new Mexico. The government joins the critics, however, in complaining that foreign investment charges are exploitative. Proof on that subject often is irrelevant to political argument.

Such nationalist pressure, and common prudence in politics, have impelled Mexico to encourage more co-ventures between Mexican and foreign investors, with the majority share in Mexican hands. That "Mexicanization" does something to defuse nationalist cries. In any event, Mexico needs great sums of investment capital and the ruling party has emphasized this fact for decades. What is required is an even wider repertory of institutional arrangements to permit investment with a minimum of political repercussions. It is certain that intelligent leaders in Mexico and the United States will not advocate a return to foreign investment in Mexico without regulation.

Services

There are a number of service exchanges between Mexico and the United States. Tourism flows heavily both directions--labor largely from Mexico to the United States, and other exchanges flowing largely from the United States to Mexico. The largest flow to Mexico other than tourism involves technical and managerial personnel hired by Mexican firms or American affiliates in Mexico. The numbers of these have for a long time been limited by Mexico, but many still are required. The need for engineers is possibly more obvious than for managerial talent. But the latter is of critical importance to all developing countries. Mexico long has used not only American managers but American managerial methods, imported texts, and professors to spread the word. In addition, many Mexicans have gone to the United States for managerial experience and to study the theoretics of modern administrative methods.

Mexicans also have gone to the United States to study other subjects, often for advanced degrees in universities. Those subjects include economics, public and business administration, all sorts of engineering, and natural and computer science. Given the cost of higher education and the peculiar deficiencies of the universities of Mexico, this exchange is likely to continue for many years.

A small amount of exchange of persons occurs within some of the less populous occupations. There are a few international law firms in the two countries, with personnel transferring between both countries. American advertising agencies have been establishing branches or affiliates in Mexico for some years, and individual Yankees try their hand at it. Public relations as theory and practice has been exported from the United States to Mexico and has struggled to establish itself there as a vocation separate from advertising.

In addition to scientific and technical personnel, the United States provides Mexico with technological processes, some thing a developing country badly needs. Mexico cannot afford the expense or provide the skilled personnel for an effective research establishment of its own. It knows that, but nationalists complain about the price of the imported technology in license fees and other charges, and about restrictions on the export of goods produced under license. These complaints, particular favorites of nationalists, have forced the Mexican government to make gestures toward control of profits made by foreigners from the sale of their science and technology. In fact, however, there is little that countries like Mexico can do about the problem except to try to play suppliers against each other, and gradually build up domestic scientific and technological capabilities. Since the latter is a difficult proposition, probably little will change for decades.

There has been some exchange in the movie industry--of players, directors, cameramen, capital, and technical equipment. Some Mexicans have been stars in Hollywood: Ramón Navarro, Dolores del Río, Lupe Velez, Cantínflas, Katy Jurado, Anthony Quinn. Mexico is a popular location for American movie companies: Elizabeth Taylor and Richard Burton at Puerto Vallarta for "The Night of the Iguana," as well as many western companies in the rugged country of Durango and other Mexican states. U.S. movies are immensely popular in Mexico and are shown with the original soundtracks and Spanish subtitles, a curious practice when compared with a smaller Spain, where nearly all foreign-language films are dubbed in Spanish. The large export of American films probably will continue as the Mexican film industry continues in the doldrums that have afflicted it for years--a situation apparently induced by the political bureaucracy. Experience in many countries suggests the improbability of rapid change.

The tourist exchange between Mexico and the United States is large and may grow much larger. For some years a rapidly growing tide of American tourists provided Mexico with lush income; indeed, at times this "industry without chimneys" has been a major element in the Mexican balance of payments. In 1978 some 3.5 million American tourists went to the interior of Mexico, and spent about $1 billion; visitors to the border area left about $1.6 billion in Mexico.

However, that income from American tourism became increasingly offset by the loss of revenue resulting from Mexican tourism within the U.S. interior, as well as American border cities. That loss during 1978 totaled nearly $1.2 billion. The government of Mexico complained often about the situation but did little to alter it. The currency devaluation of 1976, however, made the peso so much less valuable in relation to the dollar that Mexican tourism and border transactions declined drastically. They began to recover, however, and Mexico would find it very difficult to keep them permanently depressed.

There is a large potential for further growth of American tourism in Mexico. A startling glimpse of what that potential might be is suggested by the fact that Spain (population of 35 million) in 1978 was host to 40 million tourists, and that was largely a development of the last two decades. There are about as many Americans and Canadians (260 million) panting to flee the snow to tropical Mexico as there are Europeans aiming at Spain. And Mexico has at least as many exotic "natives" and archaeological and architectural marvels as Spain. Furthermore, Mexico is much more reliably warm during the winter than the Sunbelt of the United States.

Mexico is aware of this great potential, and public and private funds are constantly being pumped into new beach havens and other resorts. There is, to be sure, an old nationalistic outcry against a tourism that creates a nation Of "bus- and shoeshine-boys"; this outcry conveniently overlooks the haughty headwaiters and well-paid hotel managers, to say nothing of chefs, car rental services, and tour operators.

This great tourism bonanza, that no other country in Latin America enjoys, is partly due to the next-door-neighbor position of Mexico. Not only is it relatively cheap to fly there, but Americans also can drive across the border. Proximity and convenience of travel to Mexico built that nation's tourist industry from almost nothing in the years after 1940. Travelers to Mexico--and to Spain--in the nineteenth century left accounts of vile inns and worse roads. Both have improved almost beyond recognition. Tourism has helped, requiring a big investment in highways, airports, hotels, and restaurants. Motels, then trailer parks, began to spring up. At border crossings, quarter-mile lines of camper trucks belonging to tour clubs signaled the need for more entry points. Big American organizations found it convenient to alternate their convention sites between Miami Beach and Mexico City or Acapulco.

The attractions of Mexico have included not only beaches, but exotic food; folk art; jewelry and silver objects; bullfights; colonial palaces, churches, and monasteries; and a generally 'brant and cheerful foreign atmosphere. There are in Mexico more ancient pyramids than in Egypt. There are charming old colonial towns, such as Taxco, San Miguel de Allende, Oaxaca, and Morelia. And there is Mexico City, with well over 12 million inhabitants, apparently destined (or condemned) to be the largest city in the world.

Mexico also offers a stable political system and a well-policed environment for the tourist, who naturally is not looking for coups d'etat, revolution, civil war, rampant crime, or terrorism-all of which in recent years have badly damaged tourism in some countries. The growth of the Mexican tourist industry depends on the continuation of a social environment acceptable to the tourist. When in 1976 a few acts of violence against Americans were committed, and some U.S. publications and organizations badly exaggerated them, some oversensitive Mexicans charged a "conspiracy" to wreck the tourist industry south of the border. This conspiracy charge was stimulated also by sensitivity about the Echeverría administration's poor relations with Washington, and nervousness about the problems distorting the Mexican economy. And finally, it was stimulated by the fact that in 1975 American Jews boycotted Mexico's tourist centers as a result of Mexico's vote in favor of a U.N. resolution equating Zionism with racism. Not even sales of margaritas and beach umbrellas were immune from political considerations.

Mexico's New Oil Power

Nothing is less immune to political considerations than oil; and suddenly Mexico had oceans of it.

Reserves and Production

As far as Mexican oil is concerned, the big drama has involved the figures on reserves. At the end of 1970 Mexico's proven reserves of hydrocarbons (oil plus natural gas) were 5.5 billion barrels; the official figure at the end of 1975 was 6.3 billion; at the end of 1976 it was 11.16 billion. By then excitement was in the air because many people in the oil industry, within and outside Mexico, had good reason to believe that new finds, especially in southern Mexico, were being under reported. Rumors circulated that Mexico was sitting on news of "another Saudi Arabia."

The government was unable to maintain its cautious attitude, or perhaps it simply was issuing news on a planned schedule. In any event, by 1977 the estimate of "probable" reserves of hydrocarbons in Mexico was 60 billion barrels, which was six times that of Alaska's North Slope. By early 1981 Mexico's official estimate of "proved" reserves was tripled from 20 to 60 billion barrels, with another 40 billion "probable" and total "potential" reserves (including proved and probable) of 250 billion barrels. Again the whispers were that Mexico would prove to be another Saudi Arabia; after all, careful oil exploration had covered only a small part of the country.

Production also rose. In 1973 daily production of crude oil averaged 470,000 barrels; by February 1977 it passed one million a day, and each day the equivalent of about 300,000 barrels of condensates and natural gas were being produced as well. By early 1981 daily production of crude oil and liquid gas was more than 2.2 million barrels. PEMEX (the national oil monopoly) planned to level off in 1982 at 2.7 million barrels a day, and to stay at that level for two years. At least that was what the Mexicans have said. But plans could change for apparently the oil can be produced at a much faster rate. A U.S. government study, released early in 1979, said that Mexican production could go to 3.8 million barrels a day within a decade; another put it at more than twice as high.

Mexico has suddenly changed from a net importer of petroleum to a sizable exporter. Its petroleum industry exports in 1976 were worth about $560 million. It expected daily exports of crude in 1977 to be at a daily average of about 200,000 barrels, worth nearly $1 billion. About 80 percent of Mexican oil exports went to the United States. By January 1979 that amounted to about 400,000 barrels a day, and the bill for the year might have come to more than $2 billion. Of course, that was only a small part of the total American consumption of 18.5 million barrels a day. By 1980 total exports reached a million barrels a day, resulting in an annual income of some $15 billion. And, by other PEMEX estimates, possibly a bit more than that by 1982, to which could be added $2 billion for exports of natural gas each year. Although the projected figures for 1982 would only bring Mexico's exports to about 2 percent of total world trade in oil, they have become immensely important to Mexico, of considerable significance to the U.S., and of some interest to all the Free World.

The Natural Gas Controversy

The new Mexican oil fields are also rich in natural gas, and the shortage of that fuel in the United States in the winter of 1976-77 suggested that Americans would be happy to import from Mexico. Plans were quickly laid for a pipeline. In August 1977 PEMEX signed a letter of intent with six American gas distribution companies whereby those companies would provide some of the financing. The price of the gas was set by a formula that came to $2.60 per thousand cubic feet, considerably higher than the price of Canadian natural gas. The line was to link pipelines at McAllen, Texas, with gas fields eight hundred miles away in southern Mexico. The line would carry 2.5 billion cubic feet a day, which compared with 2.2 billion handled by the trans-Canada line. But the Mexicans hoped to have their line in operation by late 1979, whereas the Canada line was expected to go on stream no earlier than 1982. These plans were boosted in September 1977, when the United States Export-Import Bank approved a $590 million credit for equipment for the pipeline project in Mexico, apparently seeing no fault in the price or anything else.

Some Mexicans, however, objected to the line as increasing dependence on the United States. The government replied that only leftovers from Mexican use would go to the Yankees. That appeasement of Mexico's nationalists went for naught, because Washington vetoed the price of $2.60 per thousand cubic feet. Over succeeding months the argument over the technical, economic, political, and supposedly moral aspects of the $2.60 price lost the interest of many observers. The Washington decision certainly had been to some extent influenced by the fact that natural gas pricing is a touchy matter, both for the public, and between Congress and the president as well.

The Mexican reaction was strongly nationalistic, and President López Portillo canceled the plan for the pipeline to Texas, asserting that Mexican industry would adapt from oil to natural gas. He was under heavy political pressure to make such a decision, whether or not he thought it economically sound. In early 1979 he said that Mexican natural gas would not be available for the United States, being used by Mexican industry, but reversed himself in September.

After months of negotiation, Mexico agreed to sell limited amounts of natural gas to the United States at $3.63 per thousand cubic feet, a price which would be adjusted quarterly. The 300 million cubic feet being pumped across the border is considerably less than the 2.5 billion agreed upon several years before and only a drop in the United States's daily 55 billion cubic feet consumption. Some citizens still resent what they call a "holdup," but others press for a reasonable compromises. Influential senators Frank Church (D.-Idaho) and Edward Kennedy (D.-Mass.) early in 1979 said they hoped that the U.S. government would settle the natural gas argument with Mexico. The symbolic September 1979 agreement only temporarily quieted them on this issue. The new Mexican petroleum age promises to present many more policy problems to the neighboring countries.

The Policies of Neighbors

The trouble with the game of "chicken" is that either one or both players may be badly hurt. In the petroleum contest between Mexico and the United States in the late 1970s it has not been just a question of economic muscle; political factors have been at least as important. Which leader would first feel inclined or compelled to make a concession? Would it be met in kind, or with obstinacy, or even escalated demands? Could simultaneous and offsetting concessions be arranged? The Mexican president has less room for economic maneuvering than his Washington counterpart, but does he have more political room in a country with a "one-party-dominant" system? At least, he hopes so. But Mexican policy focuses on the United States in a way that United States policy does not focus on Mexico. That alone makes decisions on petroleum exports to the United States more important to Mexico City than to Washington.

The U.S. president, in fact, has little political room for maneuver. Policy is made against a backdrop of trouble. In 1978 the American trade deficit soared to a record $28.5 billion, much of it due to petroleum imports, which had inexorably risen--or been allowed to rise--until they were about half of American oil consumption. In 1978 and 1979 American newspapers carried rueful cartoons showing the country begging for Mexican oil. Late in 1978 a National Security Council study found Mexican oil so important that it proposed enticements to Mexico: more imports of Mexican farm produce and textiles as well as establishment of quotas for Mexican immigrant workers.

That was too radical for Congress, some of whose members believed that the oil shortage was contrived by the oil companies to make big profits on foreign oil. Probably none of the congressmen approved of the enticements suggested by the NSC. Furthermore, despite the natural gas controversy with Mexico, that country's oil exports to the United States continued to rise. President López Portillo stated that the United States would continue to be the chief customer for Mexican oil, although he also said that Mexico wished to diversify its customer roster.

Energy Secretary James Schlesinger made another sort of suggestion in January 1979: since the United States now had a surplus of natural gas (despite the problems of two winters before), industry should temporarily (for six or seven years) emphasize use of gas fuel rather than coal. Having just made some conversions from oil to coal upon government urging, industry has not been attracted to another switch. Besides, it is not fond of short-term expedients.

One scheme has proposed that Mexican oil replace Alaskan on the West and Gulf coasts of the United States. That would require revocation of the prohibition on exports of Alaskan oil. The switch, so the argument runs, would raise Alaskan production slowed by West Coast oil gluts; and higher Alaskan output means lower prices. Cynics say that nothing means lower prices.

Yet another suggestion is a three-way swap of Alaskan oil to Japan in exchange for Mexican oil diverted from Japan to the American West Coast. That would save transportation charges, including those to the Gulf Coast via the Panama Canal for Alaskan oil. It also would raise Alaskan production. By early 1981 the Congress had not agreed on either scheme.

Another possibility, much discussed, has been to raise the price of U.S.-produced oil from the government-mandated average of $9 a barrel to the average of about $1 5 a barrel, paid in March 1979 for imported oil. Such a change has been considered with great caution by politicians, who are unable to find a sure formula for appeasing everybody. Oil companies would reap huge profits, unless they were heavily taxed, and consumer prices would go up. Could a way be found to compensate or appease the citizenry? It is not surprising that there was hesitation and contradiction in Washington. Nor is it surprising that Mexican leaders have concentrated on their own problems. López Portillo at the beginning of 1979 stated that oil output would be tied to the pace of Mexican development and not allowed to exceed the nation's ability to "digest" the income effectively, or to cause inflation. That is in line with the latest international thought on development, and it has met the fears of Mexicans engaged in the great oil debate.

The expansion of the oil industry has been enormously expensive, and that has worried some Mexicans. It appears that investment in various aspects of the industry will amount to $15 billion or more during the years 1977-82. Not only is crude oil production being increased, but Mexico is building refining facilities in order to increase the proportion of processed materials shipped. It also is pushing the petrochemical industry, a heavy user of capital.

Oil revenues also are tied to agriculture in Mexico. The country has developed a growing deficit in farm output. Food imports in 1977 were up to $700 million, compared with $400 million in 1976. There were scary reports that they might go to $3 billion by 1982, which would be about half of the oil revenues expected in that year. A government official in 1978 had that in mind when he said that Mexico did not want to export oil and import food--which is what Venezuela and some other countries have done. López Portillo tried to calm such fears by stating that oil gave Mexico financial self-determination--that is, freedom to solve her own problems, including food production.

Such statements have been reassuring to nationalists, when they choose to believe them; but they do not assuage all Mexican fears, one being of famine. The country historically has suffered many periods of food shortage and skyrocketing prices. The recent peasant past of many Mexicans has locked in their breasts a belief that self-sufficiency in maize and beans is the only basis for prosperity. In the 1970s many people were unable to believe in arguments supporting food imports paid for with other commodities. Furthermore, some political leaders worked hard to appeal to this simple faith. That was the easier because runaway population growth was a specter visible to most Mexicans.

Mexico has not joined OPEC, apparently wanting independence of action; and why not, since it can receive OPEC, or higher, prices for its oil exports. Washington seems curiously optimistic about the value of this policy to American objectives, supposing that it would be damaging to OPEC. In any event, Mexico can join OPEC when it chooses, which would delight the other oil exporters.

With so much at stake, the rumor factories have been busy. Invention and trial balloons could scarcely be distinguished by the man in the street, and apparently not always by responsible officials. It was reported in January 1979 that Mexico was asking concessions for the export of 2,700 items, some to be let in free of duty charges. Even if a Mexican official made such a suggestion, he knew it to be an ostentatious bluff. An even more incredible report was that the huge Mexican oil potential was known in Mexico at the time of the 1938 oil expropriation but kept secret lest foreign capitalists get control of the country. It was supposed to have been confined to a group called "Guardians of the Secret." But the information on the southern Mexican oil fields was not available in 1938. Oil exploration is not done secretly with shovels. In addition, information of that magnitude could not be kept secret by a group. Finally, some statesmen before López Portillo would have been irresistibly tempted to exploit the "hidden" oil. However, the story is an interesting reflection of extreme nationalism in Mexico, where the protection of "nonrenewable natural resources" from Yankee imperialism is an article of faith.

At first glance one might have supposed that the Mexican petroleum bonanza would make the two countries better neighbors, but three or four years after the bonanza was revealed that no longer seemed certain.

Cost of the Immigration "Safety Valve"

There is no single formula for calculating the costs of Mexican illegal immigration to the United States. It depends on the assumptions allowed and the adopted conceptions of benefits and debits. Those conceptions are, at times, simplistic, with people making the common remark that "it costs the United States a packet." That usually means that the speaker is thinking of Social Security, welfare, and education costs.; the expense of border patrols and installations; internal searches by the Immigration and Naturalization Service for aliens; deportation proceedings and shipments; and jobs and wages "taken" from Americans by alien workers. Some fairly firm dollar figures can be assigned to many of those factors, but it is more difficult to estimate costs in social division and unrest.

In either case, it is arguable that costs are outweighed by the productive activities of low-cost Mexican laborers, who work at jobs Anglos--and many Chicanos--will not take. It might even be suggested that costing include a guess at the value to the United States of a culture-group more driven by the work-ethic than the increasingly hedonistic and pension-oriented population of longer residence.

The dominant political thought in Mexico considers the value of the safety value to that country to be beyond question. Nationalist critics have to be assuaged, but they will not be allowed to make policy. In any event, it is unlikely that the Mexican government could do much to control migration at a cost it would be willing to pay. The pressure of population growth on workers simply is too great. Mexico cannot increase jobs or decrease population growth fast enough to permit much change in this situation for some time.

If Mexican population growth cannot be forced down, America may be needed as a safety value indefinitely--not an attractive prospect to the United States. That growth rate long has been well over 3 percent annually--one of the highest in the world, and more than three times that of the United States and the Soviet Union and higher than that of China or India.

From its present population of about 64 million, Mexico at current rates probably will reach more than 100 million in the year 2000, 200 million by 2025, and 400 million by 2050, incredible as that seems. Some people tell us that it cannot happen, that too many factors-famine, bourgeois prudence -must intervene to prevent it, but no one really knows. What has happened in the last forty years says it may happen.

There is an influential minority in Mexico that advocates population control. President Echeverría put himself on the side of "family planning," considered more acceptable to Catholic Mexico than "control" or the even worse, "prevention." There has been a small amount of progress, but it is not clear that much more can be achieved. Middle-class Mexicans in the cities conspicuously limit the size of their families. But poor farmers and workers have little reason to limit family size, indeed, often preferring to have as many workers in the family as possible. Change is especially needed in the huge bloc of poor peasants, which supplies the immigrants to the United States. For them, probably only economic improvement, education, and changes in values will much slow the birth rate.

Mexico's leaders say they favor a lower birth rate, preferring to export goods rather than workers. And the United States is invited to help by taking more Mexican commodities. So American policy and expenditures are tied to Mexican family life and that to illegal immigration.

On Helping Mexico's Development

It has been observed that many of the economic relations between Mexico and the United States are strongly--if not quite immovably--fixed in differential natural and human resources. The countries are vastly different in human resources because the institutional bases for their development have been so sparse in Mexico. History shows that human resources as molded by institutions--educational, moral, familial--usually are not easily altered. It is therefore best to assume that without some extraordinary measures, there will be no revolutionary change in economic relations between Mexico and the United States. It may be hoped that incremental changes may some day add up to significant gains.

If drastic measures are suggested, they will have to contend with the argument that year by year it is clearer that nations essentially develop themselves, that gobs of petroleum money, for example, may be indigestible and may distort a society rather than develop it. National development is one of the most complex of human endeavors, as much social and political as economic. It might be sensible to ask, Would a large-scale crash effort by the United States to help develop Mexico be realistic, or just a expensive dream?

If such drastic measures are suggested, there will be disagreement both within and between Mexico and the United States over what types are wanted. A part of that relates to "costs"--who will pay for change? While we might hope to enjoy a few delightful changes that cost no individuals or groups anything, there would be even more that cause dislocation and damage. Drastic changes in flows of commodities, services, or money could be expected to hurt someone in Mexico, the United States, or other countries. Presumably, special interests and individual laborers, employers, consumers, and taxpayers would retain their capacity to complain.

If Mexico is reluctant to settle for gradual improvement in economic relations with the United States, it can increase economic ties with other countries, but probably that would not be fruitful. Heavy, deliberate Mexican reordering of economic exchange with the United States almost certainly would hurt Mexico considerably. Furthermore, it is unlikely to find another country any more willing than the United States to finance rapid Mexican development.

Possibly Mexico could accept less rapidly improved trade with the United States if Washington more clearly acknowledged that proper understanding of Mexico's needs requires that the United States defer to Mexican knowledge of the Mexican culture. Also, a big comfort to both countries would come from an American decision to put some special resources to work for Mexican development on a more long-term basis. It need not be only money but could include such things as scholarships and regularly scheduled tariff reductions in Mexico's favor.

Such special treatment, particularly on tariffs, would meet a storm of criticism around the world. It might be best explained as a necessary special relationship with a next-door-neighbor, who was unavoidably exporting poverty to the United States in the form of poor citizens. The nations would object but would secretly think it understand it understandable.

There might be less sniping by politicians and others in the United States at such a program because it would be an agreed-upon long-term policy, so that the fundamental debate would not be required each year. If it was thus institutionalized Americans might eventually think it as precious as the Monroe Doctrine or the Panama Canal. Also they might find that it makes good business.

The mind boggles at the thought of children in Boston and Bangor learning in school that improvement of the lives of our neighbors in Michoacán was what the Pilgrims had in mind all along. And the imagination simply cannot cope with the notion of Mexican youngsters in Querétaro and Oaxaca singing "God Bless America!" But we can hope.

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