INTELLIGENCE MEMORANDUM MEXICO: ECONOMIC PROGRESS AND PROBLEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030008-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: October 18, 2011
• Sequence Number: 8
• Publication Date: January 1, 1970
• Content Type: IM

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~j 0 70- U
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Mexico: Economic Progress And Problems
'SUreI,
ER IM 70-8
January 1970
Copy No.
45
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
January 1970
INTELLIGENCE MEMORANDUM
Mexico:
Economic Progress And Problems
Introducti,m
By most standards, Mexico's economic progress
since the mid-1930s has been exceptional. This
progress owes much to the political stability and
economic policies experienced under the long rule
of the Institutional Revolutionary Party (PRI),
which has a near monopoly of political power.
Some serious social and economic problems remain,
of cours.e., and they may intensify during the next
several years unless appropriate measures are taken.
These problems could in time undermine political
stability and the- responsible- economic approach
that rests on it. This memorandum reviews Mexico's
record. of. economic progress since 1950 and focuses
on the issues that the country will be facing under
Luis Echeverria, who recently was selected as the
PRI's candidate-for President in the July elections
and --'barring some mishap -- will begin a six-year
term in December 1970.
Note.- This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
teZZigenee.
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Factors in Development
1. Sixty years ago a great social revolution
swept Mexico. Its violent phase lasted until 1930
and entailed heavy costs. The population fell
from 15.2 million in 1910 to 14.3 million in 1921
in spite of relatively high birth rates. Produc-
tion of corn and beans -- the staples of the
Mexican diet -- declined by one-third during this
period. Mineral output dropped about 65% during
1910-14. The transportation system was almost
totally destroyed during the two decades of vio-
lence, and a large part of the nation's educated
minority was killed or fled into exile. Foreign
investment, which had been substantial during the
Porfirio Diaz dictatorship (1876-1910), came to a
stop. Yet, within this period of chaos and national
catharsis, the basis was laid for impressive
economic success. The average 6% growth rate that
Mexico has achieved since 1935 exceeds that of the
United States and Japan and probably is the world's
highest for this period.
Political Stab;, ii ty
2. The leadership of the Revolution, which
eventually coalesced into the PRI, has been singu-
larly successful in creating a political environ-
ment favorable to economic progress. The PRI
established its rule by absorbing almost all ele-
ments of Mexican society and breaking the power
of those that it could not absorb (the aristocracy,
the church, and foreign investors). It promised
land to the peasants, higher living standards for
the workers, and reasonable profits for businessmen.
By redeeming these promises effectively for most
Mexicans, the PRI has muted class divisions and
secured political stability.
Sound Economic Strategy
3. Political tranquility has permitted Mexican
governments to follow reasonably balanced
forward-
,
looking economic policies since the mid-1930s.
Their strategy for economic development -- although
never clearly formulated in public statements and
changing in emphasis from administration to admini-
stration -- has had the following four main elements:
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a. Maintenance of conservative
fiscal and monetary policies.
b. Strong emphasis on domestic
savings rather than on foreign capital
in obtaining an adequate rate of invest-
ment.
c. Careful development of industry
to satisfy a growing share of domestic
needs.
d. Achievement of relatively rapid.
agricultural growth, even though natural
conditions are unfavorable in some respects.
Pursuit of these objectives has, in turn, helped
to encourage foreign investment, to increase job
opportunities, and to diversify and otherwise ex-
pand exports.
4. The program for agricultural progress has
been a mixture of radical land reform, extensive
public investment in infrastructure projects,
technical and financial assistance to farmers, and
strengthened incentives to produce. Mexico's
attempts at land reform before 1934 were formulated
for social and political reasons and may have con-
tributed to the temporary drop in agricultural
production. Although land reform has permitted
creation of many small peasant-operated plots of
continuing low productivity, it also has consid-
erably increased the number of moderate-sized
private commercial farms, which have accounted for
a large part of the increase in agricultural produc-
tion. Although land reform has permitted creation
of many small peasant-operated plots of continuing
low productivity, it also has considerably increased
the number of moderate-sized private commercial
farms, which have accounted for a large part of the
increase in agricultural production. Between 1950
and 1960 the total cultivated area increased 21%
and the irrigated area 40%. Since 1960 the culti-
vated area has been expanded by another 25%,
largely through the extension of irrigation. In
1968 alone, almost 250,000 acres were put under
irrigation for the first time. Widespread construc-
tion of farm-to-market roads and provision of ex-
tension services and easy credit also have contrib-
uted to agricultural progress.
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5. Industrial development policy has focused
largely on import substitution. Although many
peasants remain outside the money economy, the
Mexican market is large enough -- population is
nearly 50 million and per capita incomes are in-
creasing -- to allow greater diversification of out-
put and more economies of scale than are feasible
in most other Latin American countries. In order
to create domestic industry on the doorstep of
one of the world's greatest manufacturing nations,
however, Mexico has had to resort to high protec-
tive tariffs. At the same time, costs have been
held down by keeping wage increases in line with
productivity gains in most cases and by imposing
low prices for energy inputs such as oil and
electricity? Mexican economic strategists generally
recognized that prices for Mexican-built machinery
and equipment would be relatively high and that
continuing imports of many types would be necessary
for a long time. But they anticipated correctly
that domestic industry could supply most needs for
consumer goods and industrial raw materials and
also help to diversify exports.
6. Careful fiscal and monetary management has
been a hallmark of postwar Mexican governments.
They have consistently maintained substantial sur-
pluses in the public sector's current account.
Although these savings have not been sufficient to
cover investment expenditures fully -- the balance
being financed by borrowing from banks -- the re-
sulting deficits have had little inflationary im-
pact because of the tight credit policy for the
private sector. All public enterprises except the
railroads generally have been profitable and have
not required transfers from the federal government.
Most of them have financed some of their investment
programs by issuing bonds and other interest-bear-
ing obligations in foreign markets. By limiting
budget deficits and private credit, the governments
have held the expansion of the money supply to an
average rate only slightly above that of real out-
put. No devaluation of the peso has been necessary
since 1954.*
7. In a continuing reaction to the pre-revo-
lutionary situation wherein foreign capital
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dominated the economy and domestic capital looked
for safe havens abroad, postwar governments have
stressed the financing of investment with domestic
savings. This has been accomplished by creating
conditions under which domestic capital could
safely earn profits in Mexico at least as great
as those obtainable elsewhere. Foreign capital
has been sought only to the extent consistent with
the policy of "Mexicanization," which generally
prohibits majority ownership of Mexican firms by
foreign interests.
Effective Government Control
8. To promote their economic programs, Mexi-
can governments have strongly influenced decision-
making in the private sector. Since 1955, for
example, private investment has been guided by the
Law of New and Necessary Industries, which provides
various tax concessions for favored industries.
The government also has channeled domestic savings
by allowing specified types of loans and investments
to be applied against specified proportions of a
100% reserve requirement against new bank resources.
Since March 1967, for example, commercial banks in
the Federal District have had to maintain the
equivalent of 25% of their new demand liabilities
in specified lending activities -- notably credits
for agriculture, producers' equipment, and mortgages.
This system has been used to direct a large part
of private savings into production as opposed to
commercial activity. Most of the governments have
stimulated and diversified agricultural output by
providing price supports and credit for certain
crops.
9. Since foreign competition is felt only
weakly or not at all in the protected domestic
market, the governments sometimes have pressured
enterprises to modernize. Firms reluctant to
introduce new technology, to reinvest an appropri-
ate share of their earnings, to cut costs, or
otherwise to follow the dictates of the government
have sometimes come under considerable pressure.
In some instances, for example, the government has
increased foreign competition for a recalcitrant
firm by relaxing import rules or allowing the
entry of new domestic firms into the field, has
made it more difficult to obtain export permits or
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bank credit, or has inspired (or threatened to
inspire) PRI-controlled unions to cause trouble.
Proximity to Expanding US Eoonomrj
10. In recent decades, Mexico has benefited
considerably from its ties with the expanding US
economy -- ties that are mainly the result of its
location. Receipts from US tourists have increased
greatly since 1950, reaching $590 million in 1967
and $630 million in 1968, when Mexico City was
host to the Summer Olympic Games. US tourists
now account for 55% of all tourist spending. The
balance of payments also has benefited from the
repatriated earnings in the past of legal Mexican
"braceros" and illegal "wetbacks" and, more
recently, of "green card workers," who live in
Mexico but work in the United States. Moreover,
Mexican workers have not had to cross the border
in recent years to work for US industry; a "border
industry" program was initiated in 1966, under
which American firms have established assembly
and reexport operations in Mexico to take advan-
tage of its cheaper labor. In addition, Mexico's
location has facilitated development of sizable
exports of winter fruits and vegetables to the US
market and has been used to justify a special
"overland" quota for petroleum exports.
Economic Progress Since 1950
Production and Trade
11. Mexican economic policy has paid off hand-
somely. Real output has grown at an average rate
of about 6-1/2% annually since 1950, in contrast
to the overall Latin American figure of less than
5%. And whereas the Latin American rate declined
slightly during 1961-68 from that of 1951-60; the
rate for Mexico rose from 6% to 7%. Although
Mexico's rate of population growth is high and has
risen in recent years -- to an estimated 3-1/2%
compared with 3% in the 1950s -- the rapid, long-
continued economic expansion has brought large
gains in output per capita (see the chart). From
1950 to 1968, while the Mexican population soared
from 26 million to 47 million persons, the per
capita gross domestic product rose from about $405
to $685 (both at 1960 prices).
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US Dollar
Per Capita (1960 Pricer)
Gross
INDEX Domestic 1106
MOKIc(
A00 ~
12. Mexico's agricultural programs have been
fairly successful. Output has grown at the impres-
sive average rate of 4-1/2% annually since 1950,
almost half again as fast as the population. A
net importer of farm products during World War II,
Mexico has now become a net exporter in spite of
its large population increase. During 1941-45,
Mexico imported an average of nearly 2 million
bushels of corn a year; in 1962-66 it exported an
average of 20 million bushels a year. Imports of
wheat averaged 9 million bushels annually during the
earlier period, while exports of wheat averaged
10 million bushels during the latter period.
Exports of winter fruits and vegetables,-mainly
to the US market, grew from about $15 million in
1950 to $113 million in 1968. Impressive gains
were also made in production of cotton, coffee,
and other export crops. Stock raising, with an
average annual growth rate of 5% since 1950, has
become increasingly important.
13. Manufacturing has been the fastest growing
economic sector and is now the largest one, ac-
counting for 34% of gross domestic product. Between
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1950 and 1967, output climbed by 226%, or an
average of 7% a year. The sector is well diversi-
fied and'includes industries producing durable
consumer goods, steel, various chemicals, motor
vehicles, and some producer goods. Although manu-
facturing is largely oriented toward the domestic
market, it now accounts for an important share of
exports. Prices of many Mexican manufactured
goods are high by world market standards, but they
are generally low by Latin American standards.
14. The mining industries have increased their
output by 40% since 1950 -- providing increased
iron and copper supplies for domestic industry;
expanding exports of zinc, lead, mercury, and
silver; and boosting sulphur production to about
11% of the world total. The petroleum industry,
which was nationalized in 1938, has achieved a
240% growth in output since 1950. The industry
has both met rapidly growing domestic needs and
maintained a small net export surplus. Moreover,
it has been operated efficiently enough to earn
profits despite the controls on its prices.
15. Exports have increased from $493 million
to $1.2 billion since 1950, reflecting an average
5-1/2% growth rate, and have become far more di-
versified. Cotton, for example, dropped from 25%
of exports to less than 15%, while sulphur and
tomatoes, whi,:h were only exported in negligible
amounts in 1F,50, now each make up about 5% of
total export;3.. Exports of manufactured goods have
risen from less than 7% of the total in 1950 to
almost 29% i:i 1569. Net earnings from the thriving
tourist trade (including border trade) have jumped
from $147 million to $510 million, and because of
its political and monetary stability and exceptional
growth rate, Mexico has had little difficulty in
attracting foreign capital. These circumstances
have permitted both an average 7-1/2% growth since
1950 for imports (which now consist almost entirely
of production inputs and capital equipment) and a
rise in foreign exchange reserves from about $300
million to $670 million at the end of 1968.
Welfare
16. Most Mexicans have benefited considerably
from the economy's rapid growth. Private consump-
tion per capita has increased at an average rate
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of about 2% annually (that is, by some 50% since
1950), even though fixed capital formation is now
absorbing 22% of gross national product (GNP),
compared with 12% in 1950. Average daily food in-
take per capita has increased from an average of
2,360 calories during 1951-54 to 2,680 in 1965,
and there has been a slow shift toward increased
consumption of meat, fish, and wheat at the ex-
pense of corn and beans. At present, 20% of
Mexican families own a washing machine, 25%,a
refrigerator, 43% a blender, and 67% a radio. An
estimated 70% of Mexico City's households now have
a television set. Automobiles in use jumped from
173,000 in 1950 to well over a million in 1968,
and new car sales are advancing at a 25% annual
rate. Motorcycles, sold on easy credit terms, are
within the reach of almost all factory workers.
17. Much of the rise in government consumption
expenditures from 4% to 6% of GNP reflects growing
attention to social needs. Government health pro-
grams helped to reduce the mortality rate from 17.9
per thousand in 1949 to 9.2 per thousand in 1967
and the infant mortality rate from 106 to 61 per
thousand. Education has received great emphasis.
The officially claimed literacy rate rose from 56%
of the population over ten years of age in 1950 to
78% in 196:1. Although these figures are probably
inflated it is nevertheless a remarkable achieve-
ment considering that 11% of the people speak an
Indian tongue as their first language. Elementary
schools tripled in number from 1950 to 1965, and
the proportion of the school-age population in
school rose from 50% to 70%. The number of persons
covered by social security programs of one sort or
another increased from 973,000 in 1950 to 7.7 mil-
lion in 1967.
Economic Problems Through 1976
The General Outlook
18. Mexico's impressive record by no means indi-
cates that th,! country is free of major economic
problems, any more than are the world's most ad-
vanced and prosperous nations. The most serious
economic problem -- and perhaps the most important
political and social issue for the long term -- is
a familiar one: the failure of many people to share
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fully in the general economic advance. This prob-
lem, which is aggravated by rapid population growth,
manifests itself variously in lack of land for
peasants, in unemployment and underemployment, in
extremes in income distribution, and in the
squalor of the cities to which many peasants have
fled. if economic growth continues at a high rate,
however, the Echeverria government will at least
have a capability to do more about this problem
than previous governments without severely alter-
ing established patterns of consumption and invest-
ment.
19. The outlook for growth through 1976 is
favorable; Mexico probably will continue to be far
less troubled than most Latin American countries
by growth-inhibiting problems. It has a better
chance of avoiding short-sighted, inconsistent,
and frequently changing policies. It seems more
able than most to maintain a high level of domestic
savings. It probably will maintain reasonable
price stability by, continuing the responsible mone-
tary and fisc4l policies of past years. Finally,
it probably will avoid creating an inhospitable
climate for foreign investment, having already made
domestic enterprise predominant in natural resource
exploitation and made it clear that domestic par-
ticipation is desired in foreign manufactur,.ng
ventures.
20. Although economic growth probably will be
relatively rapid through 1976, it may not match
the 7% rate of the 1960s even if new social welfare
measures do not slow it. Expansion of the agricul-
tural area, so important in the growth of farm out-
put, will be more difficult and expensive than in
the past. Import substitution efforts in manufac-
turing, which now must concentrate increasingly in
the fields of intermediate products and producers'
equipment, will be harder and may bring less net
benefit than the replacement of consumer goods
imports. Export earnings, although well diversi-
fied for a less developed country, remain vulnerable
in certain respects. About 44% of exports consist
of agricultural products (notably cotton, sugar,
coffee, and tomatoes), sales of which are subject
to restrictive international export arrangements
or protectionist pressures in the principal import-
ing countries. Another 15% of Mexican exports
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consist of metals, ores, and concentrates, prices
of which may decline in the 1970s from their pres-
ent high levels.
21. Although the economic growth rate achiev-
able through 1976 is somewhat uncertain, it
promises to be high. Mexico's economic expansion
during the period thus should be able to accommo-
date some government efforts to improve income
distribution. Although the government, which sees
the need for action, will probably take steps in
this direction, it is unlikely to make decisive --
certainly not revolutionary -- changes. Such
changes could alienate a powerful sector of the
government's support. Moreover, by reducing prof-
its and savings, these changes might disturb the
domestic investment climate and economic growth.
If, however, another seven years are allowed to
pass without facing the problems of the under-
privileged -- if the government waits until con-
ditions worsen, more people are alienated from it,
and an atmosphere of crisis has appeared -- it will
be all the more difficult to undertake social re-
form while preserving the broad support for the
PRI.
The Population Problem
22. A major factor contributing to most of
Mexico's problems is the population growth rate --
one of the world's highest. Moreover, this growth
rate has been accelerating steadily and rapidly.
The average annual rate was 1.7% during 1931-40,
2.8% during 1941-50, and 3.1% during 1951-60. At
present, the rate is 3.5% -- compared with rates
of 2.4% for the less developed nations as a group
and 3.0% for Latin America. The nation's 1968
population of about 47 million is 35% greater than
in 1960 and, at the present rate, will be over 60
million in 1976. Although the rural birth rate
is higher than that of the cities and the death
rate is not greatly different, the rural population
has grown at only 1.5% a year because of large-
scale rural-urban migration. As a result of this
continuing migration, 58% of the population now
lives in urban areas, compared with 43% in 1950.
Mexico City, with a population of 7 million, is
growing at a 5% annual rate, and Guadalajara and
Monterrey, both with populations of over a million,
are growing at 6% to 7% a year. Some smaller
cities, such as Tijuana, have even higher growth
rates.
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23. There is little likelihood that population
growth will slow down in the next decade. Any
decline in the birth rate will probably be offset
by furt;tgr declines in the death rate because of
better public health measures. Private organi-
zations have promoted population control for
several years, and recently the PRI has expressed
an intention to sponsor birth control clinics
through its labor organization. The government,
however, has continued to ignore the problem, and
effective birth control programs seem unlikely
un&rr the next president, who is the father of
eight children and an advocate of "populating the
country." As urbanization continues, the growth
of the rural population should slow down, but it
probably will not cease until the late 1970s.
The Agrarian Problem
24. Although national agricultural performance
has been good and Mexico can boast the hemisphere's
most radical land redistribution (excluding Cuba*),
rural misery is widespread. Most responsible for
the agricultural advance -- and the main benefi-
ciaries of it -- are the 500,000 medium-sized and
large commercial farms, which account for about 7%
of the rural labor force of some 7 million persons,
one-fourth of the cultivated land, and one-half of
agricultural output. The families owning these
farms, which range in size from 12 to several
thousand acres, probably have average per capita
incomes that are only slightly below the average
annual urban income of about $700 per capita. Be-
low this group of relatively prosperous farmers
are the 2-1/2 million farmers working on some
20,000 communal farms and the 1 million private
landowners with plots of less than 12 acres. A
large shay: of the families on these holdings have
very low incomes and are living near the subsis-
tence level. Nevertheless, many of them appear to
be relatively content. Worst off of all are the
2 million landless peasants, who are responsible
for most disturbances in the countryside.
* Almost 173 million acres have been distributed
in the Land reform, which began during the Caller
period (1924-34) and reached high points under
Cardenas (1934-40), Lopez Mateos (1958-64), and
the incumbent president, Diaz Ordaz (1964-70).
This Land equals 26% of the present total ag:.'ieul-
turaZ area.
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25. The Diaz Ordaz government has responded
to the agrarian problem by accelerating land re-
distribution, investments in rural infrastructure,
and the provision of credit. These measures have
helped to reduce the number of landless peasants
from about half of the rural labor force in 1960
to less than 30% in 1968. In 1968, there remained
about 100 million acres -- mostly semi-arid graz-
ing land -- to be redistributed, enough for about
40% of the landless peasants. Some of this land
is already occupied by its future owners, and it
is anticipated that all will be officially redis-
tributed by the end of the Diaz Ordaz presidency
in December 1970. Although only 66% of potential
irrigated land has been put under irrigation and
much fertile land in the southern jungles is under-
utilized, high capital costs involved will prevent
rapid utilization of new lands. Infrastructure
projects and credit provision will raise the stan-
dard of living of the small landowners and of
landless peasants that can find work on commercial
farms. With improving technology, however, the
demand for labor on commercial farms is likely to
decline while the rural labor force will continue
to increase. Consequently, there will continue to
be a large and growing number of rural unemployed
with little future on the land and a temptation to
go to the city to swell the ranks of the unemployed
and underemployed or join guerrilla and bandit
groups in Guerrero, Chihuahua, and other states.
Unemployment and Inadequate Facilities
in the Cities
26. While the overt unemployment revealed in
Mexico's limited labor statistics is low -- about
1-1/2% in 1960 -- there is ample evidence that many
workers are not being fully utilized. Whether the
situation is one of unemployment or underemployment
is largely a matter of definition. The dimensions
of the problem cannot be determined because of lack
of statistics, but sociological studies indicate
that a large part of the labor force is engaged in
marginal or subsistence employment -- involuntarily
working part time, casually, or seasonally. It is
estimated that about half of the labor force in
services and one-fifth of that in commercial activ-
ities fall in this category. Moreover,, employment
is not keeping pace with production, because Mexican
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industry and agriculture are turning to increas-
ingly capital-intensive methods in an effort to
competa internationally.
27. Population growth has seriously strained
urban facilities. In 1970, an estimated 1.9 mil-
lion new dwellings will be needed to accommodate
the increased population and to replace substandard
housing, and by 1980, 4.4 million units will be
needed. Because of recent high birth rates, 46% of
the population is below the age of 14, and needs
for schools, day-care centers, and similar insti-
tutions are correspondingly great. The largest
cities face tough problems of transportation, waste
disposal, water supply, and public health. The
Mexican government is well aware of these problems
and has taken some action, although not enough to
ease them much. Several low-cost housing programs
have been initiated. One line of Mexico City's
$320 million subway system is now in use, and the
entire system will be completed in 1970. Another
subway is being planned for Guadalajara. The pace
of other urban infrastructure projects has been in-
creased. It is doubtful, however, if these projects
can do more than keep pace with rising urban popu-
lations, and, at best, make slow inroads on long-
standing problems.
Growing Inequality of Inoome3
28. Although Mexico's income distribution is
more equitable than that of most Latin American
countries, it nevertheless is a major social and
(potentially, at least) political problem. Further-
more, inequality of income appears to have increased
since 1950 because of continuing low productivity
in some sectors and the use of high profits as an
engine of economic progress. The three lowest
deciles of wage earners received only 6% of total
wages and salaries in 1964-65, compared with 13% in
1950 (see Table 1). The highest decile, on the
other hand, increased its share of this income from
31% to 36%. Since 1956 the middle deciles also
have gained at the expense of the lowest wage earners.
The real income of an important sector of the popu-
lation is falling absolutely as well as relatively.
In 1950, 12% of the labor force received less than
75 pesos per month. By 1964-65, 19% of the labor
force received less than this amount after price
changes are taken into consideration.
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1 SE "RF,'I.,
Distribution of Wage and Salary income
Percent
of Total Income
Docile of
1964-65
Wage Earners
1950
1956
Average
Lowest
3
1
2
2nd
5
3
2
3rd
5
4
2
4th
5
5
7
5th
7
6
0
6th
8
7
8
7th
9
9
8
8th
11
12
12
9th
16
16
17
Highest
31
37
36
Total a/
a. 9ooauou of rounding, vomponento may not, -add
to the totals ohot,n.
29. Mexican income distribution is skewed fur-
ther if other occupational classes and sources of
income are considered, even though the poorest
workers benefit most from social security payments,
often hold two full-time lobs, and generally have
more workers per family. The lowest classes in-
clude disproportionate numbers of people that have
little or no income -- the unemployed, subsistence
farmers, and dependents. Persons in the upper wage-
earning dociles, on the other hand, receive most
of the dividend, interest, and rent income.
30. As would be expected, Mexico's greatest
concentrations of low-income families are found in
agriculture and the service trades, in the smaller
cities and towns, and in the inhospitable central
and southern regions. About 90% of the people
employed in agriculture and 92% of those in service
occupations have incomes of less than 750 pesos a
month (about $80 on a purchasing power basis). The
share is 761 for the total labor force and 67% in
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manufacturing and transportation (net, Table 2) .
Average family income in almost four Limon greater
in cities of more than 500,000 people than in
Villages of loss than 2,500. An the following
tabulation for 1963 shown, average family incomes
in the 1.'oderal District (Mexico City) and in the
North Pacific region near California were almost
three times those in the South and Central regions
and twice thoa? in the North and Gulf of Mexico
regions.
Average Monthly Family
Income (Penes)
Republic of Mexico
693
Federal District
1,282
Nc-!th
Pacific Region
1,189
Gulf
of Mexico Region
689
North
Region
675
Central Region
464
South Region
447
It in significant that among the states with the
lowest average incomes are Yucatan, a perennially
separatist area whore the PRI in currently in
serious political trouble, and Guerrero, whore
guerrilla and bandit activity in a major problem.
31. Increasing inequality of incomes obviously
entails long-run dangers for Mexican political
stability, because the PRI's long rule has been
based on its ability to satisfy all important
groups -- business, labor, and the peasantry. If
the PRI adopts a strongly leftist course to reduce
income disparities, some business support might be
lost to the relatively conservative National Action
Party and capital investment might be dampened.
on the other hand, if the PRI doer, not take more
effective action than in the pant, some under-
privileged groups might follow one of the several
Marxist parties, and the industrial peace that has
been no important to Mexican progress could be lost.
Under such circumstances, a split of the PRI into
antagonistic factions might well occur. Whatever
course the PRI follows -- and the odds favor a
moderate course -- it would be advantageous to at-
tack the problems promptly, before they got worse.
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Distribution of Labor Force by 1nco:-.+e Level
1964-65 Average
Percent of Total
Manufacturing
Monthly Income Total Agri- and /xt_rac_ive
(Pesos Y) Labor Force culture Trade Transportation Industry Services
Less than 300 34 49 21-1/2 18 14-1/2 56-1/2
300 - 749 41 41 48 49 47 35-1/2 :r
Lam.
750 - 999 34 10 15-1/2 1'_ 4
1,000 - 1,500 9-1,'2 3-1/2 11 13 13-1/2 2-1/2
1,501 - 2,000 1 3-1/2 2 5-1/2 1
2,001 - 3,000 2 1 3-1/2 2 1 L?eq1.
Above 3,000 2 1/2 2-1/2 1/2 2 1/2
:,eai b/ I:,0 I IC I: _ _. _ ...
purai;,:a:".y r )J4r: r ; .. ~a-:.a.
b. 3dil 00 ; . d nd mZ n a '%:c ad 3%:
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S1'(;1t1.1'1.'
Conolunion"
32. Mexico's achievement of a 6% average an-
nual growth rate nines the mid-1930sj -- perhaps the
world's highest for the period -- is the result of
political stability, effective economic strategy
and government control, and proximity to the
expanding U.'3 economy. Economic policy han am-
phaeized relatively rapid agricultural growth,
careful development of industry, the maintenance
of conservative fiscal and monetary policies, and
strong emphasis on domestic savings rather than
foreign capital in obtaining an adequate rate of
investment. Those factors have given Mexico the
noundent and bent balanced economy in Latin
America.
33. The economy does, however, face a serious
long-run problem -- the failure of many people to
share fully in the general economic advance. in
the rural sector, misery in widenpread in spite of
the heminphere'a most radical land reform (exclud-
ing Cuba) and an adequate rate of agricultural pro-
duction. More than 3 million farmers on small
holdings or communal farms have incomes of less
than $100 a year, and the 2 million landless poaa-
antn are even worse off. Many of these peananta
drift to the city to swell the ranks of the urban
unemployed and underemployed and put additional
pressure on already strained urban facilities. A
large part of the urban labor force can find only
caaur. work and in frequently unemployed. All of
this in reflected in a growing inequality of in-
comes. Between 1950 and 1964-65, the wacj and
salary share of the lowest 30* of the workers fell
from 13% to 6%, while that of the upper 101 rove
from 314 to 36%. Moreover, the incomes of a large
number of people declined absolutely an well an
relatively.
34. Mexico's welfare problem in aggravated by a
high and accelerating population growth rate. Thin
rate, which was 1.7% during 1931-40, in now 3.5% --
vier of tilt! World's nL91lu t. ""t this Late, uy ?91o
the population will have grown from 47 million to
more than 60 million and the labor force from 15-1/2
million to about 21 million. If migration to the
cities continues through 1976 at the rate of the
past ton yearn, some 4 million workers would be
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0 s1?CIZ
added to the urban labor force, perhaps causing a
significant increase in the number of undaremployod.
At the soma time, the rural labor force will have
increased by about 1.4 million -- most of w}lom will
join the ranks of the landless peatu its, th.s much
more than offsetting the reduction in their numbers
expected during the remaining year of the Diaz
aclminiatrdtion.
35. Continued rapid economic growth through
1976 should allow the government to take modest
measures toward more equitable income distribution
without seriously alienating the more prosperous
classes. Although vulnerable areas iremain in the
economy -- especially with regard to the balance
of payments -- output should continua to grow at
about 6% annually and price stability probably will
be maintained. If the government makes radical
changes in the present distribution of income,
important business support might wall be lost and
capital investment dampened. On the other hand,
delay of another five or ton years or merely nomi-
nal reform efforts could cost the government peasant
and labor support and might lead to a split in the
ruling party.
36. The government and the party seem likely
to take a middle course that may, at best, only
keep Mexico's economic and social problems from
intensifying. The ultimate solution will be to
expand the market for Mexican manufactured goods
both in the country and abroad so that an increasing
share of the labor force can be employed in produc-
tive, remunerative jobs in that sector. In the
moantima, now labor and tax laws, some of which will
be put into effect in 1970, will help to transfer
some income from the upper and middle classes to
the poor. The opening of new lands through irriga-
tion will continue slowly, and substantial additional
resources probably will be allocated to agriculture
in an effort to raise rural incomes. The party's
belated and tentative support of birth control may
become firmer, but population growth is unlikely to
slacken significantly in the 1970s.
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