consumer sovereignty

June I took a television crew out to Cabeza de Juárez, a sprawling public housing project on the outskirts of Mexico City. Here families live on the edge of survival—the precariousness of their lives makes them a sensitive barometer of changes in the Mexican economy.

We went out to talk to people about the affects of the "tortilla crisis." In early 2007, the price of tortillas throughout Mexico shot up over 50%—from five pesos to around eight-and-a-half per kilo.

In the narrow passageways between vendors' booths, one by one, housewives told the same story. Just months before, they bought two kilograms of tortillas a day to feed their families; now they had been forced to cut their consumption by half. Even with two or three family members working, they couldn't afford to buy the tortillas they needed.

Corn is not just any food in Mexico. This is partly because the grain is so deeply rooted in the culture; since the Mayan creation stories, Mexicans have been the "people of corn." Maize permeates their diet, religion, rituals, and cultures.

But it's also because corn has always been the cheapest, most available food around for both the rural poor who grow it and the urban poor who buy it at the local tortilla shops. At every meal, tortillas are wrapped around eggs or meat, dipped in soup, used as edible spoons to scoop beans, or salted and nibbled with a green chile if there's nothing else.

One señora put it succinctly: "If we can't eat corn, we can't eat."

As we walked out of the market and back onto a crowded street, one of the women stopped me and asked if we were from the United States. She begged us to intervene with the U.S. Embassy so she could visit her son who had migrated to the United States as a teenager. It had been over a decade since she'd seen her boy.

What Went Wrong?


It wasn't supposed to be like this.

In the early 90s, when the North American Free Trade Agreement (NAFTA) was still but a gleam in the eye of Presidents Carlos Salinas de Gortari and George Bush Sr., the atmosphere in Mexican political and business circles was positively euphoric. It was a time of major structural reforms in Mexico, and NAFTA was to be the crowning glory of Mexico's modernization, its ticket into the First World. Proponents predicted that the agreement would be a win-win deal—consumers would get cheaper food, producers would become more efficient, and immigration would decrease as the developing economy of Mexico converged with the world's economic superpower to the North.

Fourteen years later, we see nearly the opposite. As trade between the two countries has grown, so have the huge gaps in how people live. Following NAFTA the Mexican economy went into the tailspin now known as the "tequila crisis" when its currency devalued as a result of capital flight. Years later, growth has still been much lower than expected, averaging around 2% and only 1% per capita.

Even according to NAFTA apologist the World Bank, this growth "has been insufficiently high for per capita income levels in the Mexican economy to converge with those of its NAFTA partners ... From this relative perspective, there has been no real progress over the last 15 years."1

Growth isn't the only problem behind NAFTA's failure to raise standards of living in Mexico. Job creation turned out to be another big disappointment. With over a million young people entering the job market a year, Mexico has produced less than half that number of jobs per year since NAFTA. In net terms, the situation is worse since small and medium-sized businesses that produced for the national market have gone out of business in droves. The rapid cycle of mergers and acquisitions set in motion by NAFTA's investor clauses—in many cases, transnational corporations absorbing Mexican companies—has created some jobs but more often has driven national companies out of business and led to employee cutbacks, especially in services.

Massive agricultural imports have displaced an estimated two million farmers, as subsidized grains from the United States take over their local and regional markets. With few new jobs in manufacturing or other sectors, many of these former farmers now work in fields in California, Carolina, or Iowa.

Since NAFTA, the Mexican economy rests on four pillars: the informal economy, non-renewable resources (oil and gas), remittances from migrants in the United States, and drug trafficking. To call that a shaky foundation would be an understatement.

Consumer sovereignty
From Wikipedia, the free encyclopedia
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Consumer sovereignty is a term which is used in economics to refer to the rule or sovereignty of purchasers in markets as to production of goods. The term can be used as either a norm (as to what consumers should be permitted) or a description (as to what consumers are permitted).

In unrestricted markets, those with income or wealth are able to use their purchasing power to motivate producers as what to produce (and how much). Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers find that they can make the greatest profit by trying to provide the best possible products for the price (or the lowest possible price for a given product). In the language of cliché, "he who pays the piper calls the tune."

To most neoclassical economists, complete consumer sovereignty is an ideal rather than a reality because of the existence -- or even the ubiquity -- of market failure. Some economists of the Chicago school and the Austrian school see consumer sovereignty as a reality in a free market economy without interference from government or other non-market institutions, or anti-market institutions such as monopolies or cartels. That is, alleged market failures are seen as being a result of non-market forces. However, it has also been argued (e.g., by Goutam U. Jois) that even a "pure" market system violates the consumer sovereignty norm.

The Tortilla Crisis—Who Won, Who Lost
How the tortilla crisis came about reveals how vulnerable Mexican society has become under the NAFTA economy. In a recent study, Ana de Ita of the Mexican Center for Rural Change cites three reasons for the crisis: 1) The rise in corn prices on the international market due to the increased demand for corn for U.S.-produced ethanol; 2) Speculation by transnational monopolies that dominate the corn and tortilla market in Mexico; 3) NAFTA's commitment to completely open up the sector in 2008 and its incremental liberalization of the corn market since 1994. This has led to Mexican dependency on imports from the United States.

The sudden rise in tortilla prices graphically illustrates the big lie of "free trade." To understand what happened, you have to throw economics textbooks with their explanations of comparative advantages, prices, and supply-and-demand out the window, and follow the money. What follows is a bare-bones explanation of the sequence of events.

Over the past year, the U.S. government, the European Union, Brazil, and the Group of Eight industrialized nations all announced major plans for agrofuel adoption. Although agrofuels can be made from many ingredients, in the United States corn ethanol is the most common. With U.S. production leading the global pack, the increase in demand for corn as fuel pushed up the international price.

Many groups have criticized the diversion of land and corn from food to fuel production. Corn is a basic foodstuff not only in Mexico but throughout Mesoamerica and many other developing countries. As transnational companies like Cargill and ADM enter into the corn and ethanol business by leasing land and building facilities in other countries, these countries lose their ability to produce corn to feed their people and their agricultural resources—pure water, soil, fertilizers—go to run cars and strengthen the hand of the large traders.

As the housewives in the Iztapalapa market prove, the rise in consumer prices raises the specter of hunger among the poor. In Mexico, inflation is moving up the food chain, since under NAFTA subsidized corn imports from the United