36.1.4: The Mexican Economic Miracle

The Mexican Economic Miracle refers to the country’s inward-focused development strategy, which produced sustained economic growth of 3-4 percent with modest 3 percent inflation annually from the 1940s until the 1970s.

Creating the Conditions for Growth

The reduction of political turmoil that accompanied national elections during and immediately after the Mexican Revolution was an important factor in laying the groundwork for economic growth. This was achieved by the establishment of a single, dominant political party that subsumed clashes between various interest groups within the framework of a unified party machine. During the presidency of Lazaro Cardenas, significant policies were enacted in the social and political spheres that had major impacts on the economic policies of the country. For instance, Cardenas nationalized oil concerns in 1938. He also nationalized Mexico’s railways and initiated far-reaching land reform.

Some of these policies were carried on, albeit more moderately, by Manuel Avila Camacho, who succeeded him to the presidency. Camacho initiated a program of industrialization in early 1941 with the Law of Manufacturing Industries, famous for beginning the process of import-substitution within Mexico. Then in 1946, President Miguel Aleman Valdes passed the Law for Development of New and Necessary Industries, continuing the trend of inward-focused development strategies.

Growth was sustained by Mexico’s increasing commitment to primary education for its general population. The primary school enrollment rate increased threefold from the late 1920s through to the 1940s, making economic output more productive by the 1940s. Mexico also made investments in higher education during this period, which encouraged a generation of scientists and engineers to enable new levels of industrial innovation. For instance, in 1936 the Instituto Politecnico Nacional was founded in the northern part of Mexico City. Also in northern Mexico, the Monterrey Institute of Technology and High Education was founded in 1942.

World War II

Mexico benefited substantially from World War II by supplying labor and materials to the Allies. The Bracero Program was a series of laws and diplomatic agreements initiated on August 4, 1942, that guaranteed basic human rights and a minimum wage of 30 cents an hour to temporary contract laborers who came to the United States from Mexico. Braceros, meaning manual laborer, literally “one who works using his arms”, were intended to fill the labor shortage in agriculture due to conscription. The program outlasted the war and offered employment contracts to 5 million braceros in 24 U.S. states, making it the largest foreign worker program in U.S. history. Mexico also received cash payments for its contributions of materials useful to the war effort, which infused its treasury with reserves. With these robust resources building up after the war concluded, Mexico was able to embark on large infrastructure projects.

Braceros: Some of the first Braceros arriving in Los Angeles by train in 1942.

Camacho used part of the accumulated savings from the war to pay off foreign debts, which improved Mexico’s credit substantially and increased investors’ confidence in the government. The government was also in a better position to more widely distribute material benefits from the Revolution given the robust revenues from the war effort. Camacho used funds to subsidize food imports that affected urban workers. Mexican workers also received high salaries during the war, but due to the lack of consumer goods, spending did not increase substantially. The national development bank, Nacional Financiera, was founded under Camacho’s administration and funded the expansion of the industrial sector.

Import-Substitution and Infrastructure Projects

In the years following World War II, President Miguel Aleman Valdes (1946-52) instituted a full-scale import-substitution program that stimulated output by boosting internal demand. The economic stability of the country, high credit rating, increasingly educated work force, and savings from the war provided excellent conditions under which to begin a program of import substitution industrialization. The government raised import controls on consumer goods but relaxed them on capital goods such as machinery. Capital goods were then purchased using international reserves accumulated during the war and used to produce consumer goods domestically. The share of imports subject to licensing requirements rose from 28 percent in 1956 to more than 60 percent on average during the 1960s and approximately 70 percent during the 1970s. Industry accounted for 22 percent of total output in 1950, 24 percent in 1960, and 29 percent in 1970. One industry that was particularly successful was textile production. Mexico became a desirable location for foreign transnational companies like Coca-Cola, Pepsi-Cola, and Sears to establish manufacturing branches during this period. Meanwhile, the share of total output arising from agriculture and other primary activities declined during the same period.

The Mexican government promoted industrial expansion through public investment in agricultural, energy, and transportation infrastructure. Cities grew rapidly after 1940, reflecting the shift of employment towards industrial and service centers rather than agriculture. To sustain these population changes, the government invested in major dam projects to produce hydroelectric power, supply drinking water to cities and irrigation water to agriculture, and control flooding. By 1950, Mexico’s road network had also expanded to 21,000 kilometers, some 13,600 of which were paved.

Mexico’s strong economic performance continued into the 1960s when GDP growth averaged around seven percent overall and approximately three percent per capita. Consumer price inflation also only averaged about three percent annually. Manufacturing remained the country’s dominant growth sector, expanding seven percent annually and attracting considerable foreign investment. By 1970, Mexico diversified its export base and became largely self-sufficient in food crops, steel, and most consumer goods. Although imports remained high, most were capital goods used to expand domestic production.

Attributions

• The Mexican Economic Miracle
  • “Mexican Miracle.” https://en.wikipedia.org/wiki/Mexican_miracle. Wikipedia CC BY-SA 3.0.
  • “Import substitution industrialization.” https://en.wikipedia.org/wiki/Import_substitution_industrialization. Wikipedia CC BY-SA 3.0.
  • “Bracero program.” https://en.wikipedia.org/wiki/Bracero_program. Wikipedia CC BY-SA 3.0.
  • “BraceroProgram.jpg.” https://commons.wikimedia.org/wiki/File:BraceroProgram.jpg. Wikimedia Commons Public domain.