Either We Import Capital or We Export People
AUGUST 01, 1985 by GUSTAVO VELASCO
Translated from the Spanish and slightly condensed by Bettina Bien Greaves.
Gustavo R. Velasco (1903-1982) was a prominent lawyer, banker, economist and professor in Mexico. Speaking there before the Fourth Industrial Congress in 1957, he warned against a local Chamber of Commerce proposal to inhibit foreign investments in Mexico. He said this could halt the entrance of new capital, lead to less domestic production and force many Mexicans to leave their country in search of a livelihood.
Persisting restrictions against capital movements into Mexico and the steady and continuing stream of people across our southern border reinforce the logic and urgency of Velasco’s warning.
The true victim of the protectionist measure being considered will not be foreign capital. Capital will go to more sensible and less hostile countries than Mexico, to countries where it will be able to employ labor profitably and productively. The true victim of the measure will be the economic progress of Mexico. In the very real and true sense of the word the victims will be the millions of our fellow countrymen whom we shall be forcing, by this antiforeign sentiment, either to emigrate or to live in misery, without the hope that they or their children will be able to attain human dignity.
What distinguishes a poor country such as Mexico or China from a country like the United States or Canada is not racial superiority, natural resources, good intentions or luck. What makes the labor of the American worker or the Canadian farmer more productive is that they work not just with their hands or with antiquated tools: they work with equipment and machinery. In other words, they work with the aid of capital. The best and most efficient way to improve the power of the Mexican workers, to increase production and to raise our standard of living, is through capitalization.
The Need for Saving
If domestic capital, savings, could bring about the miracle of compounding our efforts and multiplying our output, we would have no reason for being concerned about foreign investments. Unfortunately, however, precisely because of our poverty, the portion of the population that saves is extremely small. In view of the lack of savings and of Mexico’s great need for capital, public and private domestic investment are quite inadequate. Yet, the population of Mexico is increasing at such a rate every year, every day, that a much higher rate of investment is necessary just to keep us from going backward—let alone to achieve progress. The only way to speed up economic development, the only hope for the millions of the less fortunate of our fellow countrymen is to take advantage of all available resources. In other words, precisely because the problem is so great, we should not only increase domestic capital as much as possible, but we should also protect foreign capital. The dilemma is clear: Either we import capital or we export people. Either we permit foreign investors to cooperate in the enormous task which confronts us, or we deny our laborers the opportunity to perform useful and beneficial work in their own country.
In Mexico today, we still have not attained the income per capita that France or England had at the beginning of the 19th century. In other words, the truth is that we are more than 150 years behind the times economically. If we depend on our own resources, our people will not, not even in a hundred years, approach the standard of living now enjoyed in the United States and Canada.
The real problem of foreign investments does not consist of the harm they may cause to an established producer. All new competition, domestic or foreign, may do injury to those producers who believe they may relax their efforts. A free economy is essentially dynamic. Nothing in it is sure except that producers must constantly earn the favor of consumers. The daily plebiscite of the market determines who satisfies the needs of the consumers best or cheapest. Their interests must prevail, for the ultimate purpose of the economy is to serve the general welfare. Consequently, when producers try to protect themselves from competition by means of a law, they thwart the plebiscite of the consumers, a plebiscite which is much more democratic and truthful than a political election. Moreover, they presume thereby to set their own individual interests above those of the majority.
In addition to being improper and immoral, this protectionist proposal itself would lead to general impoverishment. No one denies that the industrialist who obtains a special privilege, such as the exclusion of competitive foreign products, will benefit. But this will be at the expense of consumers. They will have to go without some article they would have preferred which will not then be produced. Or they will have to purchase some domestic product at a price that is higher than it would have been if the producer had faced greater competition.
For the community in general, not only is there no advantage at all from such legislation, but there is a net loss equal to the amount of production which is prevented. Like all restrictionist measures, the elimination of domestic or foreign competition imposes an economic cost. The result is not progress but retrogression, not abundance but scarcity.
Foreign capital has not been primarily responsible for political instability in the many countries that could be mentioned. To cast blame is a convenient way to avoid confessing the truth to ourselves. During the first 70 years of our political life, we had hardly any foreign investments here in Mexico. And yet we had continuous riots, insurrections and revolutions. We do not suggest that there is a cause and effect relation, but it was precisely when the country opened its doors and when it developed economically that it finally tired of its convulsions, attained peace and some measure of economic progress.
Erect a Wall
With respect to the preservation of our culture, the grounds on which many argue for restriction, we should note that the real threats come, not from the establishment of new factories, but rather from contacts outside the country. To be consistent, the advocates of the restrictionist measure under consideration should propose that books, magazines and travellers be kept out of Mexico. They should also recommend that radio waves be blocked, as in Russia and her satellite countries, because they bring us the music and the language of other peoples.
Whoever believes that the way to preserve our culture and traditions is to erect a Chinese Wall around the country shows very little faith in their vitality. It is only our poverty which prevents us from building more schools in which that half of our people who now have no schools might learn to read and write. It is only our poverty which prevents us from establishing libraries and museums, conserving the monuments and artistic treasures left us by our indigenous and Spanish ancestors.
If the United States can radiate its culture beyond its borders, this is due above all to its vast economic wealth. He who lacks vitality because he does not have the proper food or because he is weakened by disease can hardly think about’ the purity of his language or the conservation of his country’s temples. We proudly and energetically defend our Mexican heritage. We should even increase and enrich it. But we should not confuse these two problems. We should recognize that the foundation on which the defense of Mexican culture must rest is the economic prosperity of the country.
Patriotism, and the nation’s best interest, do not call for the policy of discrimination and repudiation now being proposed. If the problem is correctly stated and analyzed from the point of view of the general economic and cultural interest of Mexico, the conclusion is precisely the opposite of that recommended in this proposal. Either we permit foreign investors to cooperate in the enormous economic task which confronts us, or we deny our laborers the opportunity to perform useful and beneficial work in their own country. Once again, either we import capital or we export people.