Mexico provides a most ironic example because its supposed success after NAFTA has been so fictionalized by the American establishment. The general propaganda line--Mexico's modernization--is still the story told by US political leaders and the media. The case of Mexico matters especially because it is intimately integrated with the United States, and also because it is dramatic refutation of the upward-and-onward mythology promoted by globalization's advocates and apologists.

They would say this ongoing movement of production is the natural course of events: Nations start their development with the humblest industries--shirts, shoes and toys--then move up the ladder to higher-value production--cars, steel and semiconductors--that brings higher incomes and eventually middle-class prosperity. Japan led the way, South Korea and Taiwan followed. Dozens of others are trying to emulate Japan's export-led model. Now China is embarked on the same path. That familiar dogma will be severely tested in the next few years by China's enormous scale--1.2 billion people, relatively well educated and extremely cheap to employ. The sucking sound is not just jobs. China also takes scarce foreign capital from other developing countries, as investors seek the most promising returns. China, one should add, is not doing anything to gain its advantage that other nations didn't do before it or that the global system considers illegitimate.

But the killer question asked by critics, myself included, is whether China can fulfill its vast ambitions without smashing the dreams of other striving nations, not to mention manufacturing in the high-wage countries. Too many producers, too few consumers in a global system where too many workers cannot afford to buy the things they make--that's the central contradiction. The destructive qualities and repeated crises are sure to continue, critics would argue, so long as the system advances by this roving exploitation of labor and prevents developing countries from pursuing more balanced, albeit more gradual, strategies.

The first essential thing to understand about Mexico's dilemma is that its post-NAFTA miracle was utterly mythical for most Mexicans--confined to a few sectors and the wealthy. The success depended almost entirely on the investment in export production by foreign multinationals, most of them American but some from Europe and Japan. Since 1993 investment in new maquiladora factories has grown from $895 million to $2.8 billion a year, and manufacturing exports have expanded by 16 percent, due almost exclusively to the maquiladoras. This growth was supported almost entirely by US consumers. While Mexico tripled its trade surplus with the United States, it imported even more from other countries and thus runs a large and growing trade deficit overall.

Mexico's spectacular growth as an export platform was divorced from the larger reality of the country's economy, where things mostly got worse. Total foreign investment in Mexico actually fell, despite increased flows of financial speculation. Official unemployment declined, but this was grossly misleading because the government counts the rapid growth of part-time and even nonpaying jobs in the informal economy--street vendors, unpaid work in small family enterprises, for example. During the NAFTA years, the real incomes of Mexican wage earners lost 20 percent of their purchasing power as the labor market deteriorated, pushing many more workers down the job ladder. The national minimum wage, an important bargaining floor set by the government, was allowed to fall by nearly 50 percent in value during the decade.

Mexico City economist Carlos Salas reported, in an Economic Policy Institute survey, this startling fact about Mexico's supposed progress: "a virtual halt in the process of urbanization." In developing economies, people typically migrate from the impoverished countryside to the city, drawn by the growing availability of wage incomes. In Mexico, this long-running pattern stopped during the 1990s--a telltale sign that modernization actually stalled. "The entire process of development has been halted and, in some cases, it even may have been reversed," Salas wrote. In fact, notwithstanding NAFTA's propaganda, most Mexicans did not get any closer to an American standard of living, but fell farther away. In 1975 Mexican production workers earned 23 percent of US wages. They now earn 11 percent. Mexicans took the other option--heading north--in swelling numbers, and that migration is sure to grow as jobs in the maquiladoras disappear.

The corporate types, as they withdraw outposts from Juarez or Monterrey, are no longer claiming miracles for Mexico. Instead, they voice the usual complaints made about struggling poor countries: inadequate education, terrible infrastructure, lousy public services, too much red tape. That's true, of course, but it sounds like a nasty afterthought. The marriage Mexico's leaders made with US multinationals more or less guaranteed these outcomes, since NAFTA's narrow terms compelled the government to keep taxes down, cut public spending, suppress wages and do nothing to disturb the profitability of the new factories. That deal appears to be ending for Mexico. The companies are making a new one with China.

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