"Mexican Opportunities in Trade and Transport"
ECONOMIC PARTNERSHIP IMPROVING INTERNATIONAL RELATIONS
By JOHN B. WALKER, Assistant to the President, United Air Lines
Delivered before the Export Managers' Club of New York, February 15, 1944
Vital Speeches of the Day, Vol. X, pp. 408-414.
FOR too many years, too many Americans have had a mixed mental picture of Mexico as consisting of adobe huts, poverty-ridden peons dozing through endless siestas, movie bad men fermenting endless revolutions, and sinister socialistic politicos expropriating foreign property.
Last year, our company, United Air Lines, through a substantial investment demonstrated its confidence that this conception of Mexico is untrue, and that American capital and enterprise, when characterized by a spirit of cooperation, are both safe and welcome south of the border.
Because of some previous experience in that country, it became my mission to spend the better part of 1943 in Mexico in connection with our interest in Lineas Aereas Mineras, S.A., one of the largest Mexican airlines. I travelled the country from end to end, met and worked with Mexican Government officials, businessmen and workers. I have returned to the United States convinced that my company has made one of the soundest investments in its history, and that Mexico offers great opportunities to Americans who are ready, able and willing to cross the border in a spirit of cooperation—not exploitation.
In short, Americans are welcome as working partners, not as absentee owners or overseers. You men, in the export-import business, no doubt have considerable data on Mexico —as a source of supply, as a present or potential market, as a competitor, and perhaps as a prospective partner. Mexico is, or will be, some or all of these, to some or all of you. I am scarcely qualified as an expert on the economy of Mexico, still less qualified to advise you gentlemen on the potentials that exist in that great country for men in your line of business.
Perhaps, however, my observations of the changes which I saw occurring, of the attitude of Mexican Government officials and businessmen towards Americans and American businessmen, may provide you with some food for thought and application to your particular enterprises.
Let me start by saying that contrary to much popular opinion, Mexico is not in particular need of United States capital. The Bank of Mexico's gold reserves increased during the first eleven months of 1943, 163,000,000 U. S. dollars, nd the favorable trade balance of Mexico during that year is estimated at about 40,000,000 U. S. dollars. What Mexico does need, and does want, is American technical "know how" and American tools and machinery—to translate this "know how" into production and markets. The Mexican Government and the Mexican businessmen have given tangible evidence of their willingness to cooperate with U. S. enterprise south of the border. The Government, by offering some two hundred new enterprises last year freedom from all or certain taxes for periods ranging from one to five years; the businessmen by putting up all, or a substantial portion of the capital. Mexicans supplied every dollar for the Armco International Corporation's $10,000,000 steel plant. They are heavily interested in the Celanese Corporation's $5,000,000 cellulose and rayon-yarn plant, are partners with U. S. Plywood, and many other well-known American firms.
Mexico is emerging from a colonial agricultural economy with an upper and lower—no middle-class—to a more modern semi-industrial economy with an ever-increasing substantial middle-class. Until the revolution which began in 1911, a handful of wealthy Mexicans and foreign corporations owned nearly all the arable land, and the vast majority of the people worked in poverty and peonage for the great haciendas and mining companies. Sixty-five per cent of the people still live on farms, but under greatly improved conditions. The Constitution of 1917 divided the huge estates, and over 55,000,000 acres of land were distributed among rural farmers. Since the revolution 13,000 new schools have been built and illiteracy has been reduced by more than 30%.
Hand in hand with improvement in living standards and education, Mexico is making heroic efforts to improve transportation and communication facilities, in which the country has been woefully weak. The railroad network was and still is critically inadequate as to both mileage and equipment The American Railroad Mission has spent $7,000,000 in lease-lend improvements of certain Mexican railways which are vital to the war effort, but the complete rehabilitation program contemplated by the Mexican Government will involve more than $50,000,000 and must be classed as a longrange post-war project. By contrast, highway construction has gone ahead by leaps and bounds. Supplementing Mexican Government expenditures, the United States Import-Export Bank is lending $30,000,000 for new roads. Mexico now has over 3,000 miles of splendid paved highways, and 6,500 miles projected.
At present there are approximately 100,000 automobiles registered in the country, 40,000 trucks and 10,000 buses. The high percentage ratio of trucks to automobiles is occasioned by the fact that Mexican highways seldom parallel railroads but open up new territory, serving countless heretofore isolated communities and developing new markets.
Air transport has proved and paid its way in Mexico. Over mountains and jungle terrain where rail or highway, construction costs would be prohibitive, passenger and cargo planes are providing hundreds of cities and towns with fast, safe and economical transportation. Examples of the utility and economy of air transportation in Mexico are legion. Between Mazatlan on the Pacific and Tayoltita, home of the rich San Luis and Candalera mines, with a population of 7,000 surface transportation is by horseback, over precipitous mountain trails, and the journey requires four days. Air time is 25 minutes. Between Nogales and Chihuahua, rail time is 36 hours and the trip involves crossing the U. S. border twice, plus custom and immigration delays. The airline time between the two cities is an hour and fifteen minutes. Between Mexico City and the Pacific port and resort city of Acapulco there is an excellent paved highway, but driving time in a car is 9 hours and trucks require as long as 24. The airline time is one and a half hours.
There are today 22 airlines in Mexico. Twenty of these are Mexican companies. Two or three have American partners. More will have, as the Secretary of Communications and Public Works, General Maximino Avila Camacho, and the Director of Civil Aviation, General Alberto Salinas Carranza, have voiced the willingness of the Mexican Government to encourage participation in Mexican aviation by U. S. companies. Note the word "participation." They 6% not foster total ownership. They want Mexican airlines run by Mexicans. They welcome American technicans, engineers and other experts who can teach Mexicans the latest developments in air transport, and are willing to see Americans make a share of the profits in the development of aviation in Mexico.
Many American businessmen and tourists asked me, during my stay in Mexico—"What about these Mexican airlines? Are the planes safe? Are the pilots competent?" My answer, based on intimate personal experience, was definitely in the affirmative. Mexicans make superb pilots. Mexicans are natural-born mechanics. They can fix anything. The Mexican airlines have an impressive safety record. For example, LAMSA, the line in which my company purchased an interest, has never, in its eight years of operation caused the loss of life of a single passenger.
The Depart men to de Aviacion Civil, corresponding to our Civil Aeronautics Authority, promulgates rigid rules and regulations governing the licensing and operation of aircraft, and has a splendid, long-range-program for the development of civil aviation in the country.
Rural electrification, a potent factor in opening new markets for many products, is virtually unknown in Mexico. Most electrical plants are small local affairs. Of 1,266 plants with a combined capacity of only 680,000 kilowatts, twenty-four, in the larger cities produce 2/3 of the output. Two companies, one American, the other Canadian, control 81% of the country s total generating capacity. Since under Mexican law the ownership of private utilities will pass into Government hands after 50 years, there was not too much incentive for large scale expansion of generative capacity or lines by the private companies. As a result, there is a serious power shortage in Mexico which has acted as a definite check on the growth of industrialization. Aware of this, the Government is enlarging its own plants and building important new ones which will shortly be in operation.
The labor situation in Mexico has a definite bearing on the Nation's economy. Mexico has an abundance of common, and a shortage of skilled labor. The General Motors Corporation's Mexico City office divides the labor supply as follows: 55% common—35% semi-skilled—9% skilled—1% highly-skilled. Their figures support earlier statements to the effect that Mexico welcomes American technicians as executives and instructors.
Under existing Mexican labor law, all employers must enter into a collective bargaining agreement if the employees so request. Minimum wages, working conditions and workmen's compensation are required. In outlying districts employers must provide housing at a monthly rental not over 1/2 % of assessed value. 80% of all labor belongs to the C.T.M. (Confederation de Trabajadores Mexicanos) which corresponds to our C.I.O.
Inflation of sorts has Mexico in its grasp. The cost of living index of the Department of the National Economy, which uses 1934 as its best base of 100, went up from 155 in 1939 to 269 fn November 1943. The cost of food index of the Bank of Mexico, using also a 1934 base, went up in the first eleven months of 1943 from 228 to 329. The disparity between wages and increased living costs brought on numerous demands by labor leaders and organized demonstrations of protest by workers. This resulted in emergency laws, enacted last September which (a) increased wages from 5% to 50%; (b) established price ceilings on many commodities; (c) forbid, under penalty of fines, deductible from wages, any collective suspension of work not obeying a legally notified and declared strike.
The Governments, industries and organized land tenants will have to spend nearly $50,000,000 more to meet the increased wages this year. Even with the new increases, wages in Mexico are very low by U. S. standards. For example, carpenters receive $1.40 a day; bricklayers, $1.53; sheet metal workers, $1.47; Electricians, $1.88; Painters, $1.78; Common Laborers, 79 cents.
Mexican labor is playing an important role in the war.
As of August 1943, 58,000 Mexicans had come to the United States to assist in railroad construction, crop harvesting, etc. Furthermore (and this will surprise many Americans) as of the same date, 11,215 Mexican citizens were serving in the armed forces of the United States.
Now to get into some things in which you gentlemen may be directly interested. Mexico is rich in raw materials, and is becoming increasingly important in the manufacturing field. The country produces more than 40% of the world output of silver. Important tonnages of lead, zinc, iron, copper, mercury, tin, antimony, manganese and other vital war minerals are produced and, of course, gold. Aside from iron ore, most of these metals are exported to the United States. Mexico's iron ore deposits are very rich. In the state of Durango they average 62% pure iron. I have seen entire lulls of red iron ore in flying over this territory.
There are also great undeveloped coal reserves. In the state of Coabuila alone it is estimated that coal deposits exceed two billion tons. An estimated six million wild rubber trees thrive in the state of Chiapas, Oaxaca and Tobasca, but each yields only 2-4 pounds of rubber a year, and the trees are widely scattered making tapping and shipment of the rubber a costly venture, profitable only under present wartimescarcity. However, projects are under way to inaugurate intensive culture of rubber trees.
The oil fields of Mexico as well as the refineries were acquired by the Government in 1938 through expropriation, and final settlement last year with the companies involved. Geologists estimate the oil areas of Mexico at 150 million acres, of which only 15,000 are being utilized. There are nine refineries now in operation.
The Mexican Government lists 11,958 manufacturing establishments in the country, but by U. S. standards of what constitutes a factory, this figure should be reduced to about 3,000. Monterey, known as the Pittsburg of Mexico, because of its huge steel plants, is the principal manufacturing city. Others of great importance are Mexico City, Guadalajara, Torreon, Puebla and Orizaba.
Profits are high in Mexican business. In relation to capital invested, before reserves and income taxes, for example, rayon manufacture reports a profit of 19%, packing and canning 25%, iron and steel 21%, beverages 20%, leather goods 24%, textiles 18%. The average of all principal industry is 18%.
Interest rates are correspondingly high. Bank loans and bonds command a minimum of 7-8%. A new enterprise must show a potential profit of 25% to 100% a year to attract Mexican risk capital.
To discourage speculation, the Bank of Mexico, corresponding to our Federal Reserve, requires commercial banks to constitute at least 60% of their portfolios with loans directly supporting productive enterprise. It demands 40% reserves, and further requires that all member banks deposit with the Bank of Mexico all deposits in excess of the amount each had on deposit on October 31, 1942.
To combat inflation, the Mexican Government has issued 10-year defense bonds paying 6% interest.
As you gentlemen are aware, Mexico's exports have always exceeded her imports. This is particularly true in these times when imports from the United States, her chief source of supply, are so restricted. Just prior to the war, Mexico's principal imports were: Automotive equipment, $15,000,000; steel, $6,000,000; machinery, $3,000,000; rayon yarn, $2,600,000; wool, $1,900,000. Her principal exports were: gold, $23,000,000; silver, $23,000,000; lead, $22,000,000; zinc, $18,000,000; copper, $15,000,000; crude oil, $10,000,000; coffee, $4,000,000; henequen, $3,800,000; chicle, tropical fruits, lumber, horses, mules, cattle and hides, shark liver oil, vanilla, naval stores, pottery and other miscellaneous products add millions more. It is estimated that during 1943 Mexican exports exceeded 220 million dollars, while imports were 180 million dollars.
In the last quarter of 1943 an appreciable drop in exports was recorded together with a substantial increase in imports. The gold reserves of the Bank of Mexico, according to the U. S. Federal Reserve Board statistics, increased 163 million dollars during the first eleven months of 1943, of which about 40 million represent the favorable trade balance of Mexico during that year, the rest corresponding to importations or repatriations of capital.
Mexican officials expect imports to increase during 1944 as a result of the relaxation of wartime export regulations by the American government.
The Minister of Finance, Eduardo Suarez, estimates that Government revenues for 1944 will amount to one billion one hundred million pesos, the highest figure ever recorded in the treasury's history. Only three years ago revenues amounted to less than 448 million pesos. The Government has stated that taxes will not be increased; only such sources as are not being reasonably taxed will be readjusted. It has also been stated that the government intends, during 1944, to redeem its pending debt of 225 millions with the Bank of Mexico. This program will withdraw money from circulation and thus liberate prices from the pressure of so many millions. Two hundred million pesos are budgeted for public works.
As previously stated, improvement in education, development of transportation and communication facilities, and expansion of the industrialization program are raising the standard of living in Mexico. Today the so-called "middle-class" comprises about 15% of the population. Each year a substantial percentage of the poorer class—farmers, domestics, unskilled laborers, graduate into the middle-class. As Mexico's industrialization progresses, the better paid factory workers will be able to buy more of the products of agriculture, farmers will be able to buy more of the products of industry, and their combined productive capacity will enable Mexico to broaden its markets and increase its purchases from the United States and other nations. Mexico is destined, in the opinion of many, to become an important source of supply for many of the nations of Central America and the Caribbean.
Mexican-American relations so often set the pattern for U. S.-South American relations as a whole. The United States Government has done a superb job in developing clear understanding and cooperation with our sister republic to the south. The second largest U. S. Embassy staff in the world is in Mexico City. Under its guidance the Mexican American Commission for Economic Cooperation has fostered a long range program of cooperative U. S.-Mexican development of trade and industry. However, in the final analysis it is American business that will really shape American foreign policy, and make the "good neighbor" policy either a discredited and discarded catch phrase, or the basis fori mutual respect, understanding and profit.
After the last war, American business demanded and got high tariffs—and with them, economic isolationism. Today no one wants economic isolationism, but if economic imperialism replaces economic isolationism good neighbor relations with Mexico and all of Latin-America will be wrecked. In other words, if American business attempts the exploitation of Mexican resources by taking without putting—by hogging ownership, management and profits and by supporting low wages, its "no deal" with Mexico in my opinion.
If, instead, Americans invest their capital and technical know-how in true partnership with our friends to the south, we will make the "good neighbor" policy a sound instrument, not only for better international relations, but for increased trade and profit.
As I have pointed out, this economic partnership is already a practical working arrangement with scores of U. S. concerns in Mexico-—with Mexican capital and Mexican personnel playing a substantial, often a major role. This type of partnership offers a tremendous outlet for U. S. capital industry and executive and technical personnel. It will widen our foreign markets not only in Mexico but throughout Latin America. We will see the day when many labels will carry the phrase "built in Latin America for Latin-Americans, by Latin-Americans."
If U. S. business wants a part of this business it can have it—on a partnership basis—otherwise we are likely to see the development of a program calling for Latin American business for Latin-Americans.
I believe that economic isolationism is dead in America. Let us kill any incipient growth of economic imperialism and go after business in Mexico and Latin America on a hand-in-hand basis with our friends across the border.