From Thomas “Even More Airmiles” Friedman’s column today:
“Former Mexican President Ernesto Zedillo remarked to me: “I don’t think I would have been successful in political reform without the decent economic growth we had [spurred by Nafta] from 1996 to 2000. Those five years, we had average growth of 5 percent.”
Who can tell me what might be considered by harsh judges to be perhaps a leetle bit misleading about this quotation?
Answer below the fold.
NAFTA wasn’t passed in 1996. It came into effect on January 1, 1994 (Zedillo was elected in August of that year). Not only that, but Mexican GDP fell by 6.3% in 1995 as a result of the currency collapse (a currency collapse that had as one of its main causes the massive inflows of loose capital which went into Mexico post-NAFTA). The economy didn’t recover it’s 1994 level of GDP until 1997. The growth in GDP between 1996 and 2000 was therefore at least partly a result of returning to trend after a shock. If you take the average 1994-2000, then you get an average growth rate of 3.4%. By the way, the real compound average growth rate of the Mexican economy, 1996-2000 is 4.3%, not 5% – I think Friedman or Zedillo is using an arithmetic mean of annual growth rates, a method of averaging which is not only clearly wrong, but exacerbates the problem of choice of base year.
None of which speaks to the question of whether NAFTA was a good thing or not, but it’s just another example of what I don’t like about Friedman.
{ 16 comments }
Kieran Healy 01.26.04 at 12:01 pm
just another example of what I don’t like about Friedman
Apart from the moustache.
WillieStyle 01.26.04 at 12:22 pm
Aren’t you being a bit harsh by not allowing a timelag for the positive effects of NAFTA to set in? Or is a two year time lag simply unreasonable?
dsquared 01.26.04 at 12:55 pm
It’s more the fact that selecting 1996 conveniently airbrushes the crisis out of history.
Conrad barwa 01.26.04 at 1:10 pm
None of which speaks to the question of whether NAFTA was a good thing or not, but it’s just another example of what I don’t like about Friedman.
To be honest, this trick is used by many pro-globalisers and pro-liberalisation folks. The WB isn’t above massaging the figures a bit either, as when looking back on how many SAP have been good for the African and Asian countries they have been foisted on when there has been a policy shift from ‘inward’ to ‘outward’ stances; the ‘adjustment’ part of this shift is usually discounted under the rubric of the painful changes that are necessary to correct for the distortions supposedly imposed by statist dirigisme in the earlier period. Rather conveniently, this ‘adjustment’ period is taken to be over, when growth revives and is led by the market. TF is just piggy-backing on a well-worn method here.
All of which is a little besides the point, as what is really interesting about Zedillo’s comment; is the fact that economic reform is being linked in with the potential for political reform; with the argument that the latter is dependent on the former. Like so many things these days – an example that comes to mind is the “we need GM crops to solve world hunger†– it is remarkable how pro-globalising solutions are presented in terms of the positive political/social effects they might have; in this case how greater market freedom will lead to greater political freedom. RIP ‘Asian values’ then.
Steve Carr 01.26.04 at 3:27 pm
I don’t think there’s much evidence that the “loose flows of capital” into Mexico post-NAFTA caused the currency collapse. I thought it was generally accepted that the real source of the problem was capital flight on the part of wealthy Mexicans worried, in the wake of the Zapatistas, etc., about the possibility that the whole country might fall apart (exacerbated, I assume, by speculators piling on).
Ophelia Benson 01.26.04 at 4:54 pm
Besides which, didn’t that large influx of cash from the US also have something to do with the growth figures? Wasn’t that bail-out also, on at least some views, a way to massage the numbers? Yet another case of ‘free trade when that works and government bailout when it doesn’t but we’ll go on calling it free trade anyway and say growth is a result of free trade despite need for emergency bailout’? Or wasn’t it.
dsquared 01.26.04 at 5:31 pm
Besides which, didn’t that large influx of cash from the US also have something to do with the growth figures?
Not really; it financed massive budget deficits.
Ophelia Benson 01.26.04 at 5:48 pm
Ah. That’s why I phrased it as a question – because of basic ignorance. Thanks for clarfication.
I wonder if Mexico will be willing to finance the Bush budget deficits…
david 01.26.04 at 6:31 pm
It’s a bit early to believe Zedillo has been successful at political reform. He did manage to there when the PRI went out of office, I suppose.
Sebastian Holsclaw 01.26.04 at 6:35 pm
“He did manage to there when the PRI went out of office, I suppose.”
Do you really think he just managed to be there? From my, to be honest relatively surface understanding of Mexican politics, he was a lot more than merely present at the right time. True if it had been another time he might have just been murdered, but that isn’t really what you are saying is it?
W. Kiernan 01.26.04 at 10:38 pm
This is the same phenomenon that enabled the Bush Administration to claim that the U.S.A. had enjoyed record-setting economic growth (no new jobs though? what, me worry?) in the third quarter of 2003. Of course the growth figures looked good, after ten previous quarters in the gutter.
John S 01.26.04 at 11:43 pm
dsquared:
“It’s more the fact that selecting 1996 conveniently airbrushes the crisis out of history.”
Fair point. So let’s try comparing 1982-92 with 1992-2002 instead, which we can do thanks to the World Bank (http://www.worldbank.org/data/countrydata/aag/mex_aag.pdf). That puts the disaster year of 1995 squarely in the NAFTA period and will clearly show how pathetic Mexican growth has been during NAFTA, right? Wrong.
Average annual growth 1982-92: 1.9%
Average annual growth 1992-02: 3.2%
Similar story for GDP per person:
Average annual growth 1982-92: -0.1%
Average annual growth 1992-02: 1.5%
Which also means you can’t say: “The growth in GDP between 1996 and 2000 was therefore at least partly a result of returning to trend after a shock.” Not true, it’s performing better than the 1982-1992 trend. Thanks, maybe, to NAFTA? I’d bet it is.
And Ophelia:
“Yet another case of ‘free trade when that works and government bailout when it doesn’t but we’ll go on calling it free trade anyway and say growth is a result of free trade despite need for emergency bailout’?”
This may be true of some people’s views, but it’s not fair to Friedman. He’s very keen on government intervention including Clinton’s emergency financial aid to Mexico. You can support free trade and still see that government can support economic prosperity.
Finnpundit 01.27.04 at 5:30 am
Conrad: “…economic reform is being linked in with the potential for political reform; with the argument that the latter is dependent on the former. Like so many things these days – an example that comes to mind is the “we need GM crops to solve world hunger†– it is remarkable how pro-globalising solutions are presented in terms of the positive political/social effects they might have; in this case how greater market freedom will lead to greater political freedom. RIP ‘Asian values’ then.”
Well, yes, you are right. Economic reform is being linked to political reform. But perhaps that’s because there IS A LINK. All over the world, the countries that practise economic reform wind up eventually adopting political reform (Chile being an example that first comes to mind). On the other hand, the countries that take a step back in economic reform (Venezuela) only seem to suffer a parallel step back in political reform.
The only counter-argument you cite, Asian values, is rather faulty when applied to the Pacific Rim countries, whose increased democratization followed economic success. As for China (the country which you probably are alluding to), it remains to be seen how long political reform can be kept at bay, as a middle class finally becomes entrenched.
john s 01.27.04 at 11:17 am
dsquared, as I wrote above, I find your review of Mexico’s economic history as questionable as Friedman’s. But I also have a more philosophical problem; you’ve lost sight of the wood for the trees. What you call Friedman’s globollocks is his attempt to give a good reason why Europe should have a free trade area with north Africa and the middle east. By attacking that, you put yourself on the side of people who want to keep trade from that region to Europe restricted. This is consistent with your attack on Kristof’s article a little earlier but, really, is this a progressive perspective?
dsquared 01.27.04 at 1:34 pm
Fair point. So let’s try comparing 1982-92 with 1992-2002 instead
No. Let’s not pick two time periods, the first of which coincides with the start of the 1980s debt crisis and the second of which straddles NAFTA. Or at least if we do, let’s not pretend that it’s got anything to do with NAFTA.
Let’s instead pick the five years before NAFTA and the five years after (1995 prices).
CAGR 1988-93: 3.8%
CAGR 1994-99: 2.7%
So you can take your attitude and stick it, quite frankly.
oh and by the way,
By attacking that, you put yourself on the side of people who want to …
Is as precise an example of the motivating force behind Globollocks as you could wish for; you’re more worried about what side you’re on than what’s happened. By attacking bollocks, I put myself on the side of people who don’t think that bad arguments support good ones, and people who think that if something is a good idea then the facts will support it. Which is always a progressive cause.
john s 01.27.04 at 2:16 pm
“I put myself on the side of people who don’t think that bad arguments support good ones, and people who think that if something is a good idea then the facts will support it.”
But I think we have amply demonstrated that figures can be made to say anything. There is nothing more factual about your statistics than mine (actually, yours are worse because they cover a shorter time period).
Really, there’s nothing particularly bad about Friedman’s choice of time period. He (reporting Zedillo) chooses a time period that makes Mexico’s NAFTA experience look favourable, you choose one that makes it look terrible. This isn’t globollocks vs science.
When I’m in a situation where the evidence is ambiguous I take the side of the side I like better. In this case, I think Friedman is arguing for something that is progressive: Europe, open your arms to a very poor neighbour.
“So you can take your attitude and stick it, quite frankly.”
What attitude? I’m disagreeing with you, that’s all.
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