The Bureau of Business Research March-April 1979 United States-Mexican Relations Tex:as BUSINESS The Bureau of Business Research • ev1ew The University of Texas at Austin Vol. 53, No. 2, March-April 1979 Oil and Gas in Mexico 29 William L. Fisher The Government and Politics of Mexico 35 Karl M. Schmitt Mexico's Economic Development and Relations with the United States 39 Calvin P. Blair Unemployment Consequences of Illegal Aliens from Mexico 43 Allan G. King Prospects for Mexico's Socioeconomic Growth 4 7 William P. Glade Key Issues in Mexican-United States Relations 51 Stanley R. Ross Texas Border Communities and the Peso Devaluation 54 Stuart Greenfield Laredo: Trade Center on the Border 57 Joanne P. Austin Corpus Christi: Gateway to Padre Island 61 Thomas R. Plaut Cover design: Eje Wray Bureau of Business Research Charles C. Holt, Director Review Staff Lorna A. Monti, Editor Lois Glenn, Publications Manager Charles F. Dameron, Jr., Managing Editor Mary Jo Powell, Editorial Assistant John A. Burghardt, Data Consultant Mildred Anderson and Jean Hall, Data Compilation Daniel P. Rosas, Printing Coordinator Joan Farnham, Compositor Subscription rate: $9.00 per year. Single copy: $2.00. Pub­lished six times a year. Second-class postage paid at Austin, Texas. Publication number 540-400. ISSN 0040-4209. Copyright © 1979, Board of Regents, University of Texas System. Address manuscripts and communications to Texas Busi­ness Review, Bureau of Business Research, P.O. Box 7459, Austin, Texas 78712. Telephone: 512-471-1616. Texas Business Review is indexed in Marketing Information Guide and Public Affairs Information Service and is avail­able on microfilm from University Microfilms. Oil and Gas in Mexico Mexico, with brief prominence in the early 1920s as a top oil-producing country, appears on its way to a second, longer-lived period as a major oil country. Oil and gas pro­duction, rising substantially and projected to continue to rise, is eclipsed only by the rapid rate of reserve additions in the past few years. At year-end 1978 proved reserves stood at 40.2 billion barrels and probable reserves amount­ed to 44.6 billion barrels of total hydrocarbons, as posted by the government oil monopoly PEMEX; in both catego­ries about 70 percent is oil and 30 percent gas equivalent. In addition, Mexico reports 200 billion barrels of potential reserves, with some sources giving a potential as high as 700 billion. While proved reserves are known with a significant degree of certainty and probable reserves with reason­able, but less, certainty, potential reserves imply a very large degree of uncertainty, for they represent only the possible or speculative occurrences of oil and gas in struc­tures and formations yet to be drilled and tested. Without question, Mexico has a substantial reserve of oil and gas and has prospects of more, but the rate at which the reserves will be produced depends on a variety of factors that are mostly independent of the size of the reserve base. Notable among these factors will be Mexico's policy of economic and industrial development through both energy consump­tion and export; the level of capital investment in explora­tion and particularly in development drilling, as well as future successes in drilling; and the development of profit­able domestic use or export of the associated gas that will be produced with much of the oil. The Early History Oil exploration and development in Mexico goes back to the turn of this century, when drilling among the chapopo­teras ("oil seeps") of the eastern and southern coasts of William L. Fisher is Director of the Bureau ofEconomic Geology and Professor of Geological Sciences, University of Texas at Austin. He was formerly Assistant Secretary for Energy and Minerals, U.S. Department ofInterior. William L. Fisher the Gulf of Mexico was initiated by El Aguila (later affili­ated with Royal Dutch Shell) and the Huasteca Petroleum Company (later acquired by Standard of New Jersey). By 1906 the renowned and prolific Golden Lane (Faja de Oro) had been tapped near Tux pan; in 1908 the Dos Bocas well came in at 200,000 barrels a day; and in 1914 the Cerro Azul no. 4 was brought in at more than 260,000 barrels per day. Those successes, along with significant but less remarkable discoveries in the Ebano Field to the north near Tampico and discoveries in the southern zone around Coat­zacoalcos, attracted international interest and brought nu­merous foreign operators to Mexico. By 1921, Mexico had become the world's second largest oil producer (next to the United States) and the world's largest oil exporter, producing some 500,000 barrels a day or what was then 25 percent of world production. Five years after the peak in 1921, production had fallen to 100 ,000 barrels per day, the level of five years before the peak. Although Mexico continued to be a significant ex­porter of oil, its early world prominence as an oil producer was short lived. In the thirties the Mexican government became con­cerned with what it judged to be the foreign operators' inadequate conservation production practices and lack of interest in expanding exploration efforts and with substan­tial labor problems in the oil fields . In 1938 Mexico nation­alized and expropriated the foreign oil companies and re­claimed concessions. Such an act was nearly unprecedented; at that time only one other country-the Soviet Union-had nationalized its oil resources. Production of oil in Mexico hovered near 100,000 bar­rels a day until 1945, and it was not until 1975 that pro­duction again reached the peak level of 1921. In fact, by the early 1970s Mexico had become a net importer of oil. Proved reserves of oil hit an early peak of about 1.3 billion barrels in the second decade of the century, but with rapid, high production from the Golden Lane wells, proved re­serves plummeted to less than 0.5 billion barrels by 1930. Although reserves were gradually built up over years of modest exploratory effort and success, they were reported to be no more than 3.0 billion barrels forty-five years later in l 97S. In the next three years, as a result of major discov­eries first made in 1972, a dramatic upturn in reserves oc­curred: the earlier seventy-five years of exploration history was eclipsed. By year-end 1978, production had increased to l.S million barrels a day, triple the level of three years earlier, and reserves of crude oil and liquids (both proved and probable) had climbed to the remarkable level of 60 billion barrels, twenty times the posted reserve level three years earlier. Furthermore, potential reserves of three to four times the proved and probable level were indicated.1 The history of Mexican natural gas differs somewhat from the history of Mexican crude oil. Until the middle 19SOs, natural gas production did not exceed 100 billion cubic feet (BCF) per year, and annual reserves were no more than about 2 trillion cubic feet (TCF). By 19S8, gas production began to increase, reaching SOO BCF per year in 196S and about a trillion cubic feet in 1978. Reserves of natural gas increased from a level of S TCF in the middle 19SOs to a peak of about 12 TCF in the late 1960s. Through the early 1970s, natural gas reserves actually declined; but with the extensive addition of reserves of oil that contain high ratios of gas, along with discoveries of gas not associ­ated with oil, gas reserves have risen dramatically in recent years. By December 1978, proved plus probable reserves stood at l 4S TCF, and potential reserves were up to 3SO TCF. Exploration and Development Although Mexico is above target in its projected produc­tion level, heading for 2.2S million barrels a day (mbd) of oil by 1980 rather than 1982, PEMEX is falling short of its original plan to drill 1,324 exploration and 2,l S2 develop­ment wells between 1976 and 1982.2 To meet its goal PEMEX must drill more than 700 holes a year until 1982. In the first two years of this plan, actual drilling ran about 30 percent under the goal. Although the drilling effort was Natural Gos Production in Mexico 1500 1979 year end goal 1978 year end production 1000 o; ., LL u :0 u" c: ~ i:O 2.0 1.5 >­ 0 0 ~ Q) a_ "' ~ 0 CD 1.0 ­ c .2 ~ - 0.5 Crude Oil and Liquids Production in Mexico 1980 target 'i' I I I I I I I I I I I I I I I I I I 1978 year end rote,\ 1978 overage up somewhat in 1978, the total number of both explora­tion and development wells has actually declined from more than 500 in 1970 to only slightly more than 300 wells in 1977. This number was reduced mainly because a greater number of total wells were deep wells in the Reforma; total footage has remained fairly stable in the past eight years. At year-end 1978, Mexico had 174 rigs operating, an in­crease from 160 a year earlier. In addition, several Mexican contract drilling companies hold contracts with PEMEX; when their orders for rigs are filled, slightly more than 200 rigs will be operating onland. Offshore in the Gulf of Campeche, PEMEX operates three drillships; in addition four foreign units hired by PEMEX are operating offshore. A little more than 20 percent of the total holes now being drilled are exploratory; most of the exploratory holes are new field wildcats. The main exploration effort has been directed to the southern zone and to the northeast. In recent years about 40 percent of the exploration holes drilled have been in the south, including offshore, and about 35 percent have been drilled in the northeast. Ex­ploration successes have been high, with the percentage of productive exploration wells running as high as 45 percent in the southern and northeastern zones. Reserves-Proved, Probable, and Potential The rather spectacular rise in Mexican hydrocarbon reservoirs during the past three years has attracted world­ wide attention. The major additions in both oil and gas have been from the Reforma-Campeche area of the south­ ern zone, although oil and gas reserves credited to the Chicontepec Basin and gas reserves assigned to the new fields of the northeast have been significant. When proved reserves stood at 16.8 billion barrels of oil equivalent (boe) at year-end 1977, about 75 percent of oil and condensate was in the southern zone, and most of the remainder occurred in the Poza Rica and Golden Lane areas of the Tampico Embayment; only minor volumes of oil reserves are known in the northeast. Also at that time, about 40 percent of the gas reserves occurred as nonassoci­ ated gas in the northeast; about 45 percent of the reserves was in the southern zone, largely as gas associated with oil; and the balance of the gas reserves was in the Tampico area. At year-end 1978 proved reserves indicated by PEMEX were up nearly 2.5 times those of year-end 1977, standing Mexican Oil and Gas Reserves* (In billion barrels of oil equivalent) Proved plus Date Proved Probable probable Potential December 1976 11.2 June 1977 14.0 2.8 16 .8 December 1977 16.8 30.0 46 .8 120 .0 July 1978 20 .2 37.0 57.2 143.0 Dece mber 1978 40.2 44.6 84 .8 200 .0 •Assuming that total hydrocarbons are 70 percent crude oil and liq­ uids and 30 perce nt natural gas. Source: PEMEX. at 40.2 billion boe. Apparently, a major part of the 20 billion barrels added at year-end 1978 are reserves of oil and gas credited to the Chicontepec Basin and offshore Campeche. If it is assumed that about 13 percent of the reported 106 billion barrels of oil in place and about 80 percent of the 40 TCF of gas in place in Chicontepec are recoverable, the result is about 20 billion barrels. Probable reserves, which PEMEX calculates mainly from structures that have been tested but are not yet on produc­tion, stood at year-end 1978 at 44.6 billion hoe, slightly larger than proved reserves. Again, the southern zone is the principal area of probable reserves. Subsequent develop­ment could either enlarge or reduce the volume. In the Reforma area, however, initial estimates of reserves have increased during development. Combined proved and probable reserves in Mexico now stand at 84.8 billion boe. Of this total amount, oil repre­sents about 60 billion barrels, almost exactly the volume of proved, indicated, and inferred oil reserves in the United States. Mexican gas amounts to about 145 TCF of the total proved and probable hydrocarbon reserves, or a little less than one-third the United States proved and inferred gas reserves. As significant as Mexico's proved and probable reserves appear to be, it is reserves classed as potential that have drawn attention. These reserves are currently posted at 200 billion barrels of total hydrocarbons. It should be empha­sized that Mexican potential reserves imply a significant degree of geological uncertainty that can be reduced only by the drill. Apparently, the principal part of Mexico's potential reserve is based on assumptions about geophysi­cally mapped structures, not on drilling tests. Reports on the number of structures mapped vary between 100 and 300; such variation is at least partly understandable, since geophysical surveying and structural mapping are ongoing activities. PEMEX considers 80 onshore structures and 60 offshore to have top priority.3 These structures presumably are situated along extensions of the presently known pro­ductive trend. Potential reserves of about 120 billion barrels can be calculated for the southern zone by projecting the Oil and Gas Reserves and Resources in Mexico; the United States, and Texas (Oil in billion barrels and gas in TCF) United Resource Mexico States Texas Oil Proved (m eas ured) 28.1 28.5 8.5 Probable (inferred and indicat ed) 31.2 28.0 8.5 Potential (undiscovered) 14 0.0 89.0 11.0 Natural gas Proved (measured) 68.7 205.0 62.0 Probable (inferred and indicated) 77.0 201.0 60.0 Potential (undiscovered) 340.0 522.0 150 .0 Sources: PEMEX, Oil and Gas Journal, American Gas Association, American Petroleum Institute, and U.S. Geological Survey. Data for Mexico and the United States are year-end 1978; data for Texas are year-end 1977. Natural gas liquids are not included in data for Texas and the United States. The Oil and Gas Basins of Mexico Mexico's major oil and gas provinces are in a series of sedi­mentary basins along the eastern and southern coasts and ad­jacent offshore areas of the Gulf of Mexico. Rio Grande Embayment The oil and gas basins of the northeast include the coastal Burgos Basin, long productive of natural gas, and the interior Sabinas Basin, a major coal basin of Mexico in which discov­eries of nonassociated natural gas have recently been made. These basins began producing in the 1930s, were extensively developed by PEMEX from the 1940s to the 1960s, and at present supply about 15 percent of the country's total natural gas production but only minor amounts of crude oil and condensate. Proved gas reserves of the northeast basins are on the or­der of 12 TCF; deeper drilling and more extensive explora­tion will likely increase gas reserves substantially. Oil is not likely to be significant; proved reserves are approximately 100 million barrels, and current daily production is only slightly over 1 thousand barrels. Tampico Embayment and Chicontepec Basin The Tampico Embayment in the central part of Mexico's east coast provided about 90 percent of the country's pro­duction of crude oil before the development of the southern zone in the early 1970s. It still produces about 210,000 bar­rels of oil per day or roughly 15 percent of Mexican year-end 1978 production, and its major fields have accounted for more than 50 percent of Mexico's cumulative oil production to date. Original recoverable reserves of oil in the Tampico Em­bayment (excluding the Chicontepec Basin) were about 7 billion barrels; more than 60 percent of the original volume of reserves has been depleted; the remaining reserve, up to about 3 TCF, is mostly associated gas. The district now pro­duces about 75 BCF of gas annually. On the western part of the Tampico Embayment, the Chicontepec Basin's hydrocarbon deposits had previously been thought to be too small and erratic for commercial development. Reevaluation of both old and new wells and the application of new geological concepts led PEMEX to an estimate of 106 billion barrels of oil and 40 TCF of gas in place. The recoverable amount of the barrels in place will be relatively low, perhaps on the order of 7 to 20 billion barrels. As many as 16,000 wells-roughly the number of wells drilled in Mexico to date-will be required to develop the basin. The relatively shallow reservoirs mean that wells can be drilled and completed rather quickly, although each well is expected to produce only about 50 to 100 barrels a day . When the Mexican proved reserves doubled from midyear 1978 to year-end 1978, a significant volume of reserves from Chicon­tepec apparently was included. The Southern Zone The southern zone occupies most of the coastal plain and offshore areas of southeastern Mexico and extends from south of Veracruz, east through Tabasco and Chiapas, south into the Chiapas Fold Belt Basin, farther east through the Yucatan Peninsula, and offshore through the Gulf of Cam­peche and the Yucatan Shelf. Hydrocarbon production has been established in the coastal plain of the zone since the turn of the century. Three fields within the zone-Burmedez, Sitio Grande, and Cactus­now account for over 60 percent of the country's oil produc­tion. The zone, as currently known, contains a major part of Mexico's current proved reserves and most of its probable and potential reserves. The land portion of the zone has been drilled extensively to shallow depths, and through the 1960s its shallow sands held about one-third of the country's gas reserves. Until the 1960s, geophysical techniques used in Mexico were insufficient to map accurately the rather complicated deep structures in the zone. By 1967, however, more sophis­ticated drilling technology, equipment, and geophysical knowledge made intensive investigation of the deep horizons in the southern zone feasible. The geophysical mapping showed four structures southwest of Villahermosa, Tabasco: Sitio Grande, Sabancuy, Cactus, and Rio Nueva. Sitio Grande is currently producing more than 65 ,000 barrels a day, and Cactus produces over 115,000 barrels a day. In 1973 the Samaria structure, immediately northeast of Cactus, was drilled to more than 14,000 feet. The Samaria block, along with other productive structures-Cunduacan and Platanal­now forms the A. J. Bermudez Field, producing over 500,000 barrels a day, one-third of Mexico's year-end 1978 produc­tion of oil. The Bermudez Field alone has proved reserves of about 3 .5 billion barrels of oil and 8 TCF of associated gas. The Gulf of Campeche is now being surveyed and mapped. PEMEX Director Diaz Serrano has said that of the ten wells that had been drilled offshore seven were producers. Three of the offshore structures are credited with reserves of 3 billion barrels. With data from geophysical surveys and exploratory dril­ ling in the southern zone over the past decade, PEMEX has developed a working hypothesis about the geology of the zone. The permeability of the producing reservoirs is largely the result of their origin as reef and fore-reef deposits. The ultimate size and richness of this reef system will depend on critical geological questions that can only be answered by further exploration and analysis. Until such exploration takes place, any calculation of potential Mexican reserves is very uncertain. success ratio of drilled structures and the volume of reserves so far credited to mapped, but untested, structures. These kinds of statistical projections, however, do not fully ac­count for important geological variables that are quite criti­cal in assessing oil and gas potential.4 Some reports quote sources as saying "that the amount of oil PEMEX thinks it has is 700 billion barrels."5 Figures of this sort assume not only that mapped, but untested, structures will be highly successful but also that a com­parable density of structures now unmapped will be mapped and will later prove to be productive. For example, the dis­tance from the southernmost discovery in the Reforma trend, north to the Ixchel outpost, is about 500 kilometers. About one-third of that distance has been mapped in some detail. If one assumes that the same density of structures will persist along the entire trend and that the same per­centage of structures found productive continues, figures on the order of 500 to 700 billion barrels can be calculated. Obviously such calculations are overwhelmingly uncertain and, from a technical standpoint, not very meaningful. Also, there is considerable question whether the Ixchel well has even been drilled, much less whether a discovery has been made.6 Future Production Levels The volume of Mexico's currently proved reserves of oil and gas, as well as the reasonable expectation that probable reserves will be moved to the proved category, provides a base that is capable of supporting a much enlarged level of oil and gas production. Mexico's proved and probable re­serves, as posted by PEMEX, are essentially the same as comparably defined proved, indicated, and inferred reserves of United States oil, with a current production level of about 8.5 million barrels a day (mbd). SEDIMENTARY BASINS AND OIL AND GAS FIELDS OF EASTERN MEXICO MONTERREY ._ OIL ,'CJ GAS GUL F OF MEXICO CAMPECHE MEXIC~ VERACRUZ BASIN I___,· l ,-----­' 0 lOO 200 300 KILOMETERS \ i:J ii : L __ PACIFIC OCEAN ' ' At year-end 1978, Mexico's production was about 1.5 mbd of oil and about 2.9 BCF per day or I .I TCF per year of natural gas. Mexico has an immediate oil production goal of 1.9 mbd in 1979 and 2.25mbdin1980,ofwhichabout one-half will be exported. Despite the fact that Mexico's reserve base could support a substantial level of future production, the actual volume and rate of future production will apparently be deter­mined by several factors other than availability of reserves. Foremost is the consistently stated policy of Mexican offi­cials that they do not intend to be simply a supplier of crude oil to the world market. Rather, they are slating oil as a prime commodity of trade and a vehicle for domestic economic and industrial development. Such a policy would seem to imply a rather deliberate, conservative pace for future production and export. Mexico's oil policy implies a rather conservative pace Jor future production and export. A second factor that will influence at least near-term rates of production will be the level of capital investment in exploration, and especially in development drilling, as well as the unit production rate that can be established for indi­vidual wells. The highly productive wells of the southern zone are deep or offshore or both. In the Chicontepec Basin, although reservoirs are shallow, unit production per well is expected to be relatively low, and a large number of wells will be required. Therefore the development of Mexico's most promising areas will be capital intensive. Despite the greater profitability of the Reforma fields, Mexico may well concentrate development activity in the Chicontepec Basin, where the large number of development wells that must be drilled and the extensive infrastructure of pipelines, plants, and related construction required would be more labor intensive and accordingly provide some relief to unemployment problems. The president of Mexico has recently been quoted as saying that Chicontepec will "become the fundamental center of action" in the Mexican petroleum industry.7 The rather ambitious drilling program announced by PEMEX in 1976 is running below schedule so far. Produc­tion from oil wells that have been drilled to date, however, has apparently exceeded goals in that the original target of 2.25 mbd in 1982 apparently will be reached by 1980. A third factor potentially influencing future oil produc­tion levels will be the disposition of the substantial volumes of associated gas production. Gas-to-oil ratios, especially in many of the fields of the Reforma trend, are quite high. For example, each increment of 1 million barrels per day of oil production will also yield about 1 TCF of associ­ated gas per year. An oil production level of 3 to 5 mbd would yield 3 to 5 TCF per year of gas. A just-released report by the Congressional Research Service (CRS) of the U.S. Library of Congress8 concludes that Mexico cannot profitably use all the gas produced in association with oil once oil production reaches 2.25 mbd, a level expected in 1980. As oil moves readily by tanker, there is little con­straint on its worldwide export. Gas, by contrast, must move by land pipeline unless rather costly liquefaction is undertaken. The CRS study thus concludes that future levels of Mexican oil production will be constrained unless gas is exported. The obvious potential export market is the United States. Options other than gas export do exist: the gas could be flared, although that would be a clear waste; more intensive domestic consumption through fuel conver­sion, feed-stock utilization, and the like could be devel­oped; a volume of the produced gas could be stored in depleted reservoirs; or a volume of the gas could be rein­jected. The United States, which now imports some 22 percent of its total energy consumption-a percentage that most likely will increase at least over the near term -logically is and will be looking to Mexican oil and gas. Mexican oil and gas will play a profound role in that country's economy and destiny. It seems almost inevitable that Mexican oil and gas will also play a critical role in the energy future of the United States, in a manner not entirely known, or perhaps even knowable, at the present. Notes l. PEMEX defines proved reserves as those reserves from fields on production ; probable reserves include those reserves within struc­tures tested by exploratory drilling, although not yet developed or on production; potential reserves include quantities estimated with­in geophysically mapped structures, but not yet tested by the drill. Official reserve figures reported by PEMEX are for total hydro­carbons (crude oil, liquids, and natural gas) expressed in barrels of oil (bo) or oil equivalent (boe) in the case of natural gas. Herein, crude oil and liquids are assumed to represent 70 percent and natural gas 30 percent of total hydrocarbons; 5 .68 thousand cubic feet (MCF) of natural gas is taken as the energy equivalent of l barrel of oil. 2. "Mexico," World Oil 187, no . 3 (August 15, 1978), pp. 64, 66, 68, 72-74. 3. "Reforma: A Look at Mexico's Greatest Petroleum Discovery," World Oil 187, no. 4 (September 1978), pp. 57-60, 76. 4. F. Viniegra, "New Oil Discoveries in Southeastern Mexico," trans. J.A. Muckleroy, in F.J. Wagner, "North American Drilling Activity in 1974," American Association of Petroleum Geologists Bulletin 59, no. 8(August1975), pp. 1277-78, 1305-7. 5. W.D. Metz, "Mexico: The Premier Oil Discovery in the Western Hemisphere," Science (December 22, 1978), pp. 1261-65. 6. A.A. Meyerhoff and W.D. Metz, "Letters to the Editor," Science (February 16, 1979). 7. Oil and Gas Journal, February 12, 1979. 8..Congressional .Research Service, Library of Congress, Mexico's 011 and Gas Policy: An Analysis, prepared for Committee on For­ eign Relations, U.S. Senate, and Joint Economic Committee, U.S. Congress (Washington, D.C.: Government Printing Office, 1978). The Government and Politics of Mexico All political systems demonstrate some degree of diver­gence between their theoretical or legal structures and their practical or political operations. The gap in Mexico appears to be rather wide to most U.S. observers. Contrary to official theory, the Mexican political structure is central­ized, not federalized; power is concentrated in the execu­tive, not separated or shared with the legislature and the judiciary; the government is authoritarian, not democratic; political organization is corporatist, not broadly pluralist; and government socioeconomic policies are oriented toward the accumulation of capital, not the redistribution of wealth. The Constitutional and Legal System Mexico's constitutional and legal framework in many ways parallels that of the United States. First, it is federal; that is, it includes a national government and constituent governments of units called states. Both national and state governments have a full range of officials, elected and ap­pointed, whose powers are determined by the constitution and not by the ordinary procedures of the national law­makers. In fact the Mexican Constitution carries the idea of federalism one step further than does the U.S. Constitution in providing for the "free municipio," a state subunit that corresponds territorially to a U.S. county but govern­mentally to a combined city and county administration. Second, the Mexican Constitution establishes restraints on governmental powers at both national and state levels by providing for separation of powers and for checks and balances among the executive, legislative, and judicial branches of government. While Mexican executives are legally more powerful than their counterparts in the United States, they share their constitutional authority with legis­lative bodies and courts. Third, the constitution and imple­menting legislation provide for an electoral, democratic political system with widespread citizen participation Karl M. Schmitt is Professor of Government, University of Texas at Austin. Karl M. Schmitt through political parties and other kinds of organizations. The constitution decrees a regular turnover of elected po­litical offices following prescribed procedures at appointed times. Finally, certain provisions of the constitution and of statutory laws guarantee the citizen's right to private prop­erty, the enforcement of contracts, and the obligation of debt payments. At this point, however, the Mexican legal structure begins to veer off from U.S. norms. A person's right to private property has limits according to the Mexican Constitution, limits imposed by social needs. In several articles these re­strictions are spelled out. For example, subsoil wealth (non­renewable resources) is the property of the state. By law it may be leased to developers under state contract or it may be developed directly by state enterprises. The theory be­hind these provisions rests on the conviction that such natu­ral resources should benefit the whole community (the nation) rather than the few lucky enough to discover riches beneath their land. Other articles provide, among other things, for the breaking up of large estates for the benefit of landless peasants; the guarantee of minimum wages, max­imum working hours, and decent working conditions for urban laborers; and protection for women and children in the work force. Finally, the laws and constitution establish the state, in an official way , as hostile to institutional churches and their ministers. Some U.S. observers have at times referred to this situation as one of separation of church and state. That is incorrect; no separation exists as is understood in the United States. Rather, the state has decreed that churches have no legal standing, cannot own property (not even buildings for religious worship), and cannot operate educational establishments below the uni­versity level. Further, religious ministers are deprived of most political rights, and some of their civil rights, such as free speech, are seriously curtailed. The Political Realities In point of fact the Mexican political community be­haves in ways quite different from the system sketched above. First of all, power is concentrated in the executive branch of the government-in the hands of the president and his appointed officials in the bureaucracy. And the bureaucracy has grown enormously over the past thirty-five years. In contrast to the executive, the legislature and the courts are virtually powerless on major political issues. Second, the political system is centralized, not federal, and all roads to power lead to Mexico City. Third, Mexico is not democratic but authoritarian (yet not totalitarian), a one­party state in which government officials heavily influence elections, limit freedom of press and speech, and strongly intimidate political opponents. Fourth, the system is corporatist in that it limits and controls political participa­tion, particularly that of organized interests. Those groups that operate in the political arena must be legally recog­nized to engage in legitimate political representation of their interests, and the government decides upon the legality or illegality of all groups. Finally, all administra­tions since 1940 have been developmentalist rather than re­distributive in their economic policies. Consequently the social welfare guarantees of the constitution have been only partially met. Executive Predominance In addition to exercising a vast array of legal powers, in­cluding the authority to decree laws, rules, and regulations under various conditions, the president commands the legis­lature on all matters of political importance. Virtually all bills originate in the executive branch and pass through the legislature with little or no consideration or debate. The legislature has virtually no power to enact laws indepen­dently of the executive. Legislative sessions last only four months, and during much of that time neither house can muster a quorum. The budget, the most vital and complex piece of work for any legislative body, is normally passed with little or no debate. This degree of executive domi­nance can be explained in part by the fact that all senators and most deputies (members of the lower house) belong to the Institutional Revolutionary Party (PRI), the official or government party, which is highly organized and tightly disciplined nationally. The courts too are subject to the president on all ques­tions arising from political issues. In ordinary civil and criminal cases the courts operate reasonably independently of the executive, but on political matters the justices and judges can never forget that they are subject to impeach­ment by a docile legislature that the president commands. In addition the civil-law tradition of Mexico (as opposed to the canon-law tradition of the United States) discourages judicial independence and initiative. One observer, Robert Scott, says bluntly that "the court does not interfere in the basic policy questions decided by the executive." The Centralization of Power Despite the emergence of certain clearly identified re­gions and districts during the colonial period, independent Mexico never developed a full-blown federal tradition. Be­ cause most of the citizens of the present thirty-one states and the Federal District have never experienced state iden­tity and loyalty comparable to that of U.S. citizens, they do not argue states rights or expect any significant degree of local political autonomy. Ask U.S. citizens where they are from and they will first name their states and then perhaps their cities; ask Mexicans and they will name their cities but are not likely to name their states unless specifi­cally asked. Yucatecans may be an exception. The federal tradition remained weak throughout the nineteenth century despite several constitutions that established a federal political system. Many of the states were artifical creations, and during his long dictatorship (187 6-1911) Porfirio Dfaz ignored states rights as he ignored other provisions of the Constitution of 1857. The Revolution of 1910 and its aftermath strengthened these centralizing tendencies, and the creation of the offi­cial party in 1929 solidified and institutionalized the pro­cess despite the federal provisions of the new Constitution of 1917. For years now the incumbent president and his close advisors have nominated or approved candidates for governorships, for national legislative seats, and at times for state legislative seats and municipal councils. The last two groups have often been left to the purview of the hand­picked governors, all of whom for decades have been mem­bers of the official party. As a consequence of this system, members of the state legislatures, state courts, and munici­pal councils have come overwhelmingly from PRI ranks and are subject to the control of the governor as the national legislature and the national courts are subject to the presi­dent. Finally, the president and the national legislature can and do remove governors through legal procedures or extralegal political pressure. The Authoritarian, One-Party State The political leadership of Mexico is not responsible to the citizen electorate in any real direct sense, and political activities are restricted and limited both legally and illegal­ly. One party (PRI) dominates all governmental bodies from national to local levels, with the exception of a hand­ful of municipios. In many parts of the country this control is exercised by blatant electoral fraud. In a rare display of candor, Carlos Loret de Mola, governor of Yucatan from 1970 to 1976, detailed his own illegal election in a book published in mid-1978. Moreover, opposition parties and movements are sys­tematically harassed, and on occasion armed force and violence are used against strikers and demonstrators. The most recent and notorious government attacks on oppo­nents occurred in 1968 and again in 1971, both of which resulted in scores and perhaps hundreds of deaths. Just as serious is government infringement on the basic civil liberties of freedom of speech and press. In 1976, in what some observers have called a "putsch "one of Mexico City's leading newspapers, Excelsior, was' purged through government action of its independent-minded critical editor and staff. Indirect restraints also burden vu'tually all newspapers and newsmagazines through government control of newsprint and government subsidies to jour­nalists assigned to report on the activities of government agencies. On the other hand, it must be emphasized that Mexico is not a totalitarian regime in theory, much less in practice. The government makes no theoretical claim to the right to control all aspects of life. Much economic activity is left to private enterprise, and despite the stringency of the anti­church constitutional provisions no attempt is made to eradicate religious belief or to impose an official ideology. In fact much of the anticlerical regulation is a dead letter; a modus vivendi between churches (primarily the Catholic Church) and the state has existed since at least 1940. Contrary to strict corporate doctrine, the party does provide for individual membership , but the practice is not widespread. Within the sectors, however, only recog­nized associations, labor unions, or campesino organizations have any legal right to represent the interests of their con­stituents, and obstreperous groups can have their recogni­tion withdrawn. Some groups, including churches, have no legal or constitutional standing whatsoever and conduct their activities at the mercy of the government. Those groups that do enjoy recognition must interact with the government in defined and regularized ways. Not only are labor unions controlled through a detailed code of laws, but businesses, too, are regulated and supervised in accord Most of the great social reforms in Mexico were carried out in the 1930s. From 1940 on, administrations have emphasized economic output in place of economic redistribution. Contrary, too, to totalitarian regimes, the Mexican system has a rather high turnover in office-holding. One observer, Peter Smith, has shown that "political patronage has been constantly available and its benefits widely distributed"-a policy that contributes substantially to political stability. Finally, some degree of political criticism is tolerated by the government. Opponents may object to specific policies, criticize government officials, and propound a variety of political philosophies. As a general rule, however, they must soft-pedal attacks on a reigning president and submit, in behavior if not speech, to major policies on which the government has made a final decision. In addition they must accept the outcomes of electoral contests as decided by the government or challenge them at great risk. The Corporate State The Mexican political system is corporatist rather than fully pluralist in that it restricts and limits the type and number of groups that may legitimately play the political game. The government exercises an enforced limited plu­ralism in which only interest groups and organizations that enjoy government recognition have political or legal stand­ing. The official party itself is almost completely organized along corporate lines. Its three main sectors-labor, campe­sino, and people-theoretically include most of the Mexi­can populace. The people's sector consists of about twelve subgroups that basically make up the growing middle class and include women, youth, civil servants, and various professional associations. Business associations, churches, and the military have no formal standing within the party, but virtually anyone except religious ministers can belong to the party through one of its sectors or subsectors. with the laws of chambers of commerce and industry. All but the very smallest must belong to the appropriate cham­ber, and a cabinet minister sits ex officio on the board of directors of the peak organizations. Third, the recognized groups must interact with the state through designated, or at least approved, leaders. Most labor and campesino organi­zations are affiliated with the official party through their national leaders, while business and professional organiza­tions frequently change their leaders after a presidential election to conform with the aspirations of the new admini­stration. Developmentalist or Welfare State? Most of the great social reforms, including a vast land distribution program, were carried out in the 1930s. From 1940 on, administrations have emphasized economic out­put in place of economic redistribution. Nevertheless, most Mexicans are probably better off in absolute terms today than they were forty years ago, although the lowest 30 per­cent of families probably receive a smaller share of national family income than they did in the 1930s. From 1940 to the early 1970s the Mexican economy under government stimulation grew an average of 6 percent annually in terms of gross domestic product. While the population growth rate was 3 percent to 3.5 percent during this period, the average per capita income increased only about 2.5 percent to 3 percent. Since a 2.5 percent annual increase in per capita income was the target of the Alliance for Progress, the actual rate of growth has been quite good but not really spectacular. The chief beneficiaries of this program have been families of the upper and upper-middle classes. The government has offered to entrepreneurs and businessmen both direct and indirect incentives to industri­alize, to diversify production, and to increase agricultural MARCH-APRIL 1979 output. In the 1940s the government provided tariff protec­tion for new industries; later it offered various forms of tax concessions, rebates, and subsidies. Until quite recently the overall tax rate in Mexico was among the lowest in Latin America, and for some years the government imposed such low ceilings on interest rates that they were often below the rate of inflation. Governmental control over the labor movement has restrained wages, and most analysts argue that from 1940 to 1955 there was a real drop in the pur­chasing power of wages. At the same time, welfare measures to assist the poor were kept modest, and no dramatic new programs were undertaken. Agricultural credit and exten­sion programs remained lean, while such urban projects as housing, education, potable water, and electricity were only gradually extended. The vaunted social security system (largely a health-care operation) was restricted solely to urban areas until the 1960s, and even today it benefits pri­marily middle-class people and those at the upper levels of the working class who are well organized in essential indus­tries. The most needy are excluded by a system that de­mands contributions beyond their means. The results of government economic and social policies are graphically demonstrated in the table of income distri­bution by deciles of families. The most dramatic shift in relative shares occurred from the richest 2.5 percent of families to the eighth and ninth deciles and to the lower half of the tenth. The richest families did not suffer any losses; in fact, in absolute terms they were richer than ever. The growing middle and upper-middle classes, however, could purchase more of the modern amenities that the economic system was producing. Thus during a period of rapid growth and supposed national prosperity (1950­1963), the lower 50 percent of the population not only made no relative gains but actually lost ground. Further­more, while that same 50 percent made a slight aggregate gain between 1963 and 1968, most of that gain was made in the highest category, the fifth decile, while the lowest decile again lost ground . In some absolute sense many of these poor families between 1950 and 1968 improved their standards of living slightly, simply because there was a larger pie to distribute. More members of families had some kinds of jobs, especially in urban areas; some got new and better jobs with industrial expansion; and some had access to public programs such as education and health. Several analysts have further argued that the income of the poorest families may not be fully counted in the income distribu­tion figures. They point out that the poor in Mexico (and elsewhere) engage in a substantial degree of home produc­tion for self-consumption; that is, they produce goods and services that never make it to the market for inclusion in the calculation of the gross domestic product. Even using the most generous estimates of the income of the poorer half of the population, however, we can note a highly skewed income distribution, in favor of a minority of the population, that belies the revolutionary, redistributive rhetoric of the government and official party. Implications The Mexican political system is not moving in any sense toward the U.S. model or toward the Soviet model or to­ ward any other model. Mexican political leaders, for good or ill, are directing their own political show with their own plans. Some argue they are muddling through, with few plans and no clear sense of direction. Whatever one thinks of it, the Mexican political system appears sui generis. Despite the difficulties attending the severe currency de­ valuation of 1976, the political system seems to have stabi­ lized. The extraordinarily high foreign debt and the increas­ ingly burdensome deficit in current accounts of recent years appear to be manageable in light of the recent petro­ leum discoveries. A major political and economic question is how the present leadership plans to use the newfound wealth. If past behavior is any clue to future action, one would have to say that the rich will become richer, the powerful more powerful, the poor will remain poor (though perhaps not as desperate), opponents will either be bought off or eliminated one way or another, and some talented (and lucky) newcomers will be admitted to the elite ranks. Income Distribution in Mexico, 1950-1968 (Percentage of income) Decile of families 1950 1957 1963 1968 (Poorest) I 2.7 1.7 2 .0 1.3 II 2.7} 3.4} 3.1 III 3.8 0} 2. 5 2.3 l 16.4 13.9 3.1 IV 4.4 3.8 13.5 15.8 4.5 4.5 v 4.8 4.3 4.5 5.9 VI 5.5 } 5.6} VII 7.0 7.4 6.0} 8.0 7.3 l 3 1.9 37.7 8. 8 VIII 8.6 10.0 43.0 42.8 11.5 10.2 IX 10.8 14.7 17 .5 16. 5 x 5.0 9.2 } 10.1} 14.5 } 2.5 7.5 49.0 12.6 46.7 11.1 } 11.0 41.5 40.1 (Richest) 2 .5 32.3 24.0 29.0 * 16.0 *The richest two categories were combined in the survey for 1968. Sources: Data for 1950, 1957, and 1963 may be found in Roger D. Hansen, The Politics of Mexican Developm t (B 1. Hopkins Press, 1971), p. 7 5. The data for 1968 may be found in Banco de M~xico, La distribucion de ingreso e e;; • . a .hmore: The Johns ingresos y gastos de las familias -1968 {Mexico: Fonda de Cultura Economica, 1974), p. 8. n exico. encuesta sabre las TEXAS BUSINESS REVIEW Mexico's Economic Development and Relations with the United States Mexico is in the early stages of a major oil boom and will soon become one of the top half-dozen countries holding petroleum reserves. PEMEX, the government -oil monopoly, has recently announced that proved reserves of crude oil and natural gas liquids now total 40 billion barrels, 1 an esti­mate that could easily increase in the near future . That level of reserves puts Mexico ahead of Venezuela but still well behind Iran and Kuwait and far behind Saudi Arabia. Exploitation of Mexico's reserves has been rapid . PE­MEX will drill more than one thousand development wells in 1979, and Mexico will easily meet her 1980 pro­duction target of 2.25 million barrels a day of crude oil. About 1.5 million barrels a day will be available for export. At an average price of $15 a barrel, Mexico would earn $8.2 billion a year-double the value of total merchandise exports and nine times the value of petroleum and product exports from Mexico in 1977. 2 Although the export price Calvin P. Blair is Professor of Resources and International Business, University of Texas at Austin. Calvin P. Blair of Mexican crude oil in the first quarter of 1979 was $14.l 0 a barrel,3 it is likely to be higher than $15 a barrel by 1980 because of the planned increases by OPEC and the delayed recovery of exports from Iran. President Lopez Portillo's Address Export earnings from petroleum will greatly reduce any foreign exchange constraint on development, and Mexico's capacity for servicing foreign debt has suddenly grown by several orders of magnitude. "For the first time in our his­tory," said President Jose Lopez Portillo in his state-of-the­nation report to the Mexican Congress, "we shall have the opportunity to enjoy financial self-determination."4 What will Mexico do with its oil wealth? It is easy to answer tentatively in general terms, but hard to be specific at this stage. According to President Lopez Portillo, the revenues from oil will be used to "improve the quality of life in Mexico" ; to promote productivity in the primary sector (agriculture, forestry , and fisheries); to broaden in­ternal markets and stimulate industrial output; to increase exports, use existing productive capacity, and absorb labor. Moreover, the revenues should be used "to strengthen the state" and to increase its property. 5 The president promised "opportune" designation of three kinds of projects: the expansion or improvement of infrastructure (such as roads, electric power, and irrigation works); the creation of productive employment, especially Lopez Portillo: 'For the first time in our history we shall have the opportunity to enjoy financial self-determination.' for Mexicans who have been "marginalized" in the develop­ment process; and the use of research and technology to promote industrial and rural development. An investment and aid program would be used to develop "microregions" of agriculture and agriculturally based industries in order to retain labor in rural areas and forestall migration to the cities. Also promised are special stimuli to small industry and to mining, new resource-development "structures" (whatever that may mean), and the beginnings of a diversifi­cation program for primary energy sources, including full use of atomic power. Surplus oil revenues will be dedicated to "already estab­lished national priorities," Lopez Portillo said, and not to new priorities generated just because money is now avail­able. Several things will not be done with the funds: there will be no response to "temporary pressures" or "populist demands"; no grants of "nonproductive" subsidies or transfer payments; no "imprudent" budget surplus; no relaxation of tax, tariff, budget, or other economic mea­sures needed in their own right; and no paying off of foreign debt or contracting of long-term foreign invest­ments. In short, the president has served notice on all interest groups that oil wealth is not a bonanza to be distributed at once, either directly as dole or indirectly as tax relief. Petroleum revenues will be managed with one eye on devel­opment priorities and the other on the balance of pay­ments. The central concern of Mexican policy has now become the decision regarding how much oil and gas to pro­duce and how to manage its sale in ways that will promote rapid development and avoid both flagrant waste and strong inflationary pressures. That is a tall order. Petroleum wealth has given Mexico a self-conscious sense of both pride and independence. "Few questions," the president observed, "have inflamed public opinion as oil and gas have." He asserted that "we will produce energy and petrochemicals for our own consumption and for ex- Mexico: Rank Among the World's Largest Countries, 1976 Area Population (mid-1976) Gross national product (1976)* Thousands of Billions Rank Country square kilometers Rank Country Millions Rank Country of dollars USSR 22,402 1 China (PRC) 835.8 1 USA 1,698.1 2 Canada 9,976 2 India 620.4 2 USSR 708.2 3 China (PRC) 9,597 3 USSR 256 .7 3 Japan 553.1 4 USA 9,363 4 USA 215.l 4 Germany (Fed. R.) 457.5 5 Brazil 8,512 5 Indonesia 135.2 5 France 346.7 6 Australia 7,687 6 Japan 112.8 6 China (PRC) 343.1 7 8 India Argentina 3,288 2,767 7 8 Brazil Bangladesh 110.0 80.4 7 8 United Kingdom Canada 225 .2 174.1 9 10 Sudan Algeria 2,506 2,382 9 10 Nigeria Pakistan 77.1 71.3 9 10 Italy Brazil 171.2 125.6 11 12 Zaire Saudi Arabia 2,345 2,150 11 12 Mexico Germany (Fed. R.) 62.0 62.0 11 12 Spain Poland 104.l 98.1 13 14 15 16 17 18 19 20 Mexico Indonesia Libya Iran Mongolia Peru Chad Niger 1,973 1,904 1,760 1,648 1,565 1,285 1,284 1,267 13 14 15 16 17 18 19 20 Italy United Kingdom France Viet Nam Philippines Thailand Turkey Egypt 56.2 56.1 52.9 47 .6 43.3 43 .0 41.2 38.1 13 14 15 16 17 18 19 20 India Netherlands Australia Sweden Germany (Dem. R.) Mexico Belgium Iran 95.9 85.3 83.4 71.3 70.9 67.6 66 .7 66.2 *Preliminary estimates. Sources: World Bank: World Bank Atlas (Washington, D.C.: 1977), pp. 27-30, and World Development Report 197B (W h. gt D C. 1978), Annex-World Development Indicators, pp. 76-77. ' as In on, · ·· TEXAS BUSINESS REVIEW port, in the amounts and at the times that suit us, depend­ing upon fluctuations in prices and on other circum­stances." That is good political rhetoric in a country where oil represents not only a national industry but nationalist sentiment. The "other circumstances," however, include an environment full of pressures from an oil-hungry United States and full of uncertainties in world petroleum markets, including the crisis in Iran and the long-run prospects of China's entry as a major supplier. Dealing with a Difficult Neighbor Mexico's bold pronouncements of independence and self-determination in petroleum matters reflect a real improvement in her bargaining power, but Mexican deci­sions will undoubtedly be made with careful consideration of U.S. needs and the continuing pull of U.S. markets. Although the United States now takes 80 percent of her petroleum exports , Mexico is expanding markets to include Canada, Japan, Israel, and France. Mexico needs to diver­sify both export markets and import sources, and petro­leum offers excellent prospects for doing so. The United States should encourage that diversification and not fore­stall it by trying to tie the Mexican economy even more closely to our own. Epilogue: Illegal Migrants Mexico is determined that the energy problem not be separated from the tangle of economic and social issues surrounding U.S.-Mexican relations. Mexicans are particu­larly outraged over the apparent U.S. view that Mexican resources, including labor, are to be turned on and off at the convenience of the U.S. economy. Mexicans are particularly outraged over the apparent U.S. view that Mexican resources (including labor) are to be turned on and off at the convenience of the U.S. economy. The United States, if it is at all sensitive to Mexico's pri­orities, as well as its own, will drop the issue of natural gas deliveries and negotiate the purchase of crude oil and, especially, refined products-areas where the two national interests coincide. Mexico is planning very large investments in refining capacity and will become a reliable source of gasoline and of distillate and residual fuel oils, all of which are very important to the U.S. economy. Residual oil and distillate are alternatives to natural gas in many industrial processes, in the generation of electricity, and in many other possible future uses; and they are major fuels for industrial and household heating in the Northeast and Midwest. In addition, it is easier to transport residual oil and distillate than natural gas, and they do not require tying Mexico to the United States by a large "umbilical cord," which a natural gas pipeline would symbolize. Mexicans of all social classes are acutely aware of the difficulties their country had in winning "oil indepen­dence" and of the angry and obstructionist role that the United States played early in that process. They are chary of arrangements that might give the United States undue ability to apply economic and diplomatic pressure to this resource. Mexico is rapidly shifting its own energy con­sumption patterns and, with the completion of the pipeline to Monterrey, will soon be able to make use of the associ­ated gas from oil production in the southeast, saving the dry gas in the north for future extraction. The PEMEX monopoly makes that choice possible without offending conflicting producer interests (though regional resentment may well arise). Mexican migrants, whether legal or not, provide value given for value received and are good for both economies. Mexico has the right to expect that these workers will re­ceive decent treatment because they are human beings, not just a valuable supplement to the U.S. labor force. By the end of this century, Mexico will be a nation of 130 million people, with a world role markedly different from its present one. The grossly one-sided nature of inter­dependence with the United States will have diminished, to the advantage of both countries. Mexico will finally be treated as an equal. Notes 1. See PEMEX ad in "International Economic Survey," supplement to The New York Times (February 4, 1979), p. 26. 2. Banco de Mexico, lndicadores Econ0micos (April 1978), pp. 70, 72. 3. See Excelsior (Mexico, D.F., January 14, 1979), p. 1. The "re­finer acquisition cost" of imported crude oil in the United States for October of 1978 was $14.63 per barrel. See Chase Manhattan Bank, The Petroleum Situation 2, no. 12 (December 1978), p. 1. 4. The text of the economic portions of President Jose Lopez Por­tillo's "Segundo Informe de Gobierno," read to the Congress of Mexico on September 1, 1978, is reproduced in "Aspectos Econ& micos de! Segundo lnforme Presidencial," El Mercado de Va/ores 38, n~. 36 (September 4, 1978), pp. 713, 715-36. An English­language version is available in Comercio Exterior de Mexico 24, no. 9 (September 1978). pp. 366-85 . 5. He says "the patrimony of the Nation." That seems clearly to mean state-owned property. BBR Publications on Latin America Atlas of Mexico Arbingast, Stanley A., et al. Revised 1975. 164 pp., some maps in color. $20.00. ISBN 87755-187-1. An economic atlas of Mexico. Credit Systems for Small Scale Farmers: Case Histories from Mexico Williams, Simon, and James A. Miller. 1973. 260 pp. $5.00. ISBN 87755-153-7. Studies in Latin American Business No. 14. An examination of those credit operations touching the Mexican campesinos. A Spanish edition is available from Editorial Diana, Mexico. Economic Integration in Latin America: The Progress and Problems of LAFT A Mathis, F. John. 1969. 112 pp. $3.00. ISBN 87755-076-X. Studies in Latin American Business No. 8. The study is con­cerned primarily with the Latin American Free Trade Asso­ciation as the organization expected to determine the suc­cess or failure of the common market in Latin America. A Spanish edition is available from Editorial Diana, Mexico. Industrial Polarization under Economic Inte­gration in Latin America Garbacz, Christopher. 1971. 101 pp. $3 .00. ISBN 87755­138-3. Studies in Latin American Business No. 11. The focus is the tendency for an economic union of countries with widely divergent levels of development to result in further extreme concentration of economic activity at a few industrial poles. Industrialization and Employment in Puerto Rico, 1950-1972 Holbik, Karel, and Philip L. Swan. 1975. 82 pp. $3.00. ISBN 87755-208-8. Studies in Latin American Business No. 16. Although de­velopment programs dating from the 1940s have made pos­sible the emergence of Puerto Rico as an industrialized economy, the economic changes have resulted in certain problems, problems that are a major focus in the book. International Tourism and Latin American Development Krause, Walter, and G. Donald Jud. 1973. 74 pp. $3.00. ISBN 87755-176-<:i. Studies in Latin American Business No. 15. The central ques­tions in the work are (1) What is the potential for tourism in Latin America? and (2) What must Latin America do to realize the potential? Mexican Migration and the U.S. Labor Market: A Mounting Issue for the Seventies Briggs, Vernon M., Jr. 1975. 37 pp. $1.50. ISBN 87755­214-2. Studies in Human Resource Development No. 3. An analysis of the effects of U.S. labor, immigration, and border poli­cies on employment and labor problems of the seventies. The Mexican Migration Numbers Game: An Analysis of the Lesko Estimate of Undocu­mented Migration from Mexico to the United States Roberts, Kenneth, Michael E. Conroy, Allan G. King, and Jorge Rizo-Patron. 1978. 33 pp. $4.00. ISBN 87755­228-2. Research Report 1978-1. A detailed account of methods used to enumerate illegal aliens in this country and a critical assessment of this approach. The Mexico-United States Border: Public Poli­cy and Chicano Economic Welfare Briggs, Vernon M., Jr. 1974. 28 pp. $1.50. ISBN 87755­200-2. Studies in Human Resource Development No. 2. A dis­cussion of the effects of U.S. immigration policies. Monetary Accommodation of Regional Inte­gration in Latin America Ziegler, Lawrence F. 1971. 83 pp. $2.50. ISBN 87755­154-5. Studies in Latin American Business No. 12. The author's focus is the monetary side of the Latin American move­ment toward market integration. Social Class and Consumption Behavior in Sao Paulo, Brazil Cunningham, Isabella C.M., et al. 1976. 177 pp. $4.00. ISBN 87755-258-4. Studies in Marketing No. 23. The authors examined the shopping and consumption behavior of individuals in vari­ous social classes in Siio Paulo. Trade and Industrialization in the Central American Common Market: The First Decade Holbik, Karel, and Philip L. Swan. 1972. 67 pp. $3.00. ISBN 87755-167-7. Studies in Latin American Business No. 13. The authors trace the development of the Central American Common Market and evaluate its results. The United States and Latin America: The Alliance for Progress Program Krause, Walter. 1963. 35 pp. $2.00. ISBN 87755-070-0. Studies in Latin American Business No. 2. A discussion of the political and economic involvement of the United States with Latin America through the Alliance for Progress. Wage Differences between United States and Guatemalan Industrial Firms in Guatemala Maddox, Robert Casey. 1971. 57 pp. $2.00. ISBN 87755­143-X. Studies in Latin American Business No. 10. The wage levels and factors accounting for differences are analyzed. Unemployment Consequences of Illegal Aliens from Mexico Curtailment of illegal immigration has attracted general support and public attention as the unemployment rate in the United States remains around 6 percent, with much higher rates for minorities and teenagers. Information ob­tained from the well-documented labor market for teen­agers, which is similar in many respects to the market for illegal aliens, can be extrapolated to enable us to learn much about the effects of illegal migration. While illegal immigration is believed to be several times the annual legal quota,1 there is little evidence to justify attributing the high unemployment rates of the 1970s to the presence of illegal aliens. U.S. attitudes toward illegal immigration are historically related to the business cycle in that abuses of the immigra­tion law are tolerated during prosperity and prosecuted during difficult times.2 While restriction has an obvious attraction for those who believe that the strict enforcement of a nation's laws is desirable in its own right, there is an undeniable economic bent to the arguments favoring a more restrictive border policy. 3 Strict enforcement, how­ever, is costly both economically and in terms of the harass­ment of ethnic Americans that is likely to accompany in­tense searches, and its value has not been determined. General Effects of Illegal Aliens Foreign workers, particularly those who enter the coun­try illegally, provide many economic benefits to the coun­try. The larger labor supply that results from illegal immi­gration is likely to lower the labor costs of firms and, indi­rectly, the price of consumer goods, particularly in indus- Allan G. King is Associate Professor of Economics, University of Texas at Austin. Allan G. King tries that depend heavily on low-skilled labor. Thus infla­tion in food costs may be reduced through the employment of illegal aliens, since farm work is generally considered to be low skilled. Reductions in costs and in the rate of inflation must be compared to adverse consequences for particular labor market groups. Illegal immigration may reduce earnings and increase unemployment of U.S. workers through increases in the supply of labor. The introduction of illegal aliens into low-skilled U.S. labor markets affects unemployment in at least two ways. First, there are the consequences attributable to an increase in the level of the labor supply. With wages downwardly inflexible because of minimum wage Jaws and other institu­tional arrangements, a labor supply swollen with illegal migrants should primarily result in greater unemployment rather than lower wages. Second, since there is a great deal of return migration among illegal aliens,4 large annual flows into and out of the U.S. labor force are likely to increase unemployment because high rates of turnover strain the labor market's capacity to match workers and jobs. Analogy to the Labor Market for Teenagers Because the migrant's fear of apprehension makes it difficult to measure directly the effects of illegal aliens on unemployment rates, inferences must be drawn from the well-documented unemployment data available in another labor market that has had a rapid increase in domestic labor supply. Furthermore, such a labor market must have the characteristics that typify labor markets affected by illegal aliens: high rates of turnover, low levels of skill, and a high fraction of employment at or near the federal minimum wage. The market that meets these specifications is that for teenaged labor. MARCH-APRIL 1979 Between 1955 and 1976 the teenaged labor force (from ages 16 to 1 9) in the United States has increased rapidly at an average rate in excess of 3.8 percent per year, rising from four million to over eight million in twenty-one years. The major cause of this trend was the postwar baby boom; large cohorts began entering the labor force in 1962. Minimum wage coverage of the teenaged labor force has been studied by Gramlich. 5 Relying on data from the Cur­rent Population Survey, he finds that 22 percent of teen­aged workers in 1973 were employed at wage rates below the minimum and that a slightly greater number were employed at the minimum. These numbers are close to those Corne­lius reports for his sample of illegal aliens. Similarly, North and Houstoun's survey6 of apprehended aliens produced an average wage of $2.36 per hour in 1975, a year in which the concentrated regionally , approximately the same effect on the national unemployment rate would be expected, but significant changes in the dispersion of unemployment among regions would result. Regional increases in the unemployment rate of low-skilled labor could be expected to be greater than 20 percent. There is evidence that these greater increases have occurred. The most affected states-California, Arizona, New Mexico, Texas, and Oklahoma-have low unemploy­ment rates, but these rates moved closer to the national average between 1968 and 1977, when illegal immigration is believed to have accelerated. A simple average of the first three years of the data gives an unemployment rate of 3.77 percent for the United States and 3 .14 percent in the five affected states. The rate in the affected states was thus 83 There is little evidence to justify attributing the high unemployment rates of the 1970s to the presence of illegal aliens in the United States. federal minimum was $2.10. A survey by Zarugh of illegal aliens in the San Francisco Bay area exhibited a range in wage rates from $1.88 to $3.75 per hour; the federal minimum in that year was $1.60 per hour. 7 Thus it appears that the incidence of employment near or below the mini­mum wage is similar for U.S. teenagers and illegal aliens. The skill levels of illegal aliens and U.S . teenagers are also quite close. Only 14 percent of the illegal aliens in North and Houstoun's sample held skilled blue-collar jobs. Although these jobs are not identical to those in which most teenagers are found, the nature of the jobs is similar­low paying and low skilled with little chance for advance­ment. Numerical Estimates of the Unemployment Effect Estimates of unemployment effects were obtained by ana­lyzing data from the labor market for teenagers during the postwar period (1948-1973). The result, common to a wide range of analyses comparing teenaged to middle-aged males, is that the unemployment rate of teenaged males is fairly sensitive to the size of the teenage population. In particular, a 1 percent increase in the population of teenaged males has been associated with an increase of 0.8 percent in the unem­ployment rate of this group. At an original unemployment rate of 12 percent, this increase to a 13 percent rate of unemployment would be an 8 percent increase in that rate. Estimates of this magnitude imply that the 3 million ille­gal aliens present in 1973 by one estimate8 would have caused a 20 percent increase in the unemployment rate of low-skilled labor, provided that the impact of these illegal aliens was diffused nationally. Were the same number to be percent of the U.S. rate. For the years 1975to1977, U.S. unemployment averaged 7 .73 percent and unemployment in these five states averaged 7.17 percent. The regional rate increased to 93 percent of the U.S. rate. The relative unem­ ployment rates in affected areas have clearly deteriorated. The question is whether the change of approximately ten percentage points can plausibly be attributed to the immi­ gration of illegal workers from Mexico. Relying on the response estimate of an 0.8 percent in­crease in the unemployment rate per 1 percent increase in teenaged labor and applying that rate to published data on characteristics of both the regional and the national labor force, I estimate that three million illegal aliens, concen­trated in the Southwest, would have caused a change in the ratio of this region's unemployment rate, relative to that of the United States, of twelve percentage points between the two periods. This estimate is in the neighbor­hood of the actual change of approximately ten percentage points. Thus, there is evidence that the relative increase in re­gional unemployment rates is consistent with both my estimate of an unemployment responsiveness of 0.8 percent per 1 percent increase in teenaged labor and the estimate of 3 million illegal aliens. The impact of illegal aliens on total unemployment in the United States is likely to be minimal, raising the aggre­gate rate by less than one percentage point. If we once again employ a response estimate of 0.8 percent to a stock of unskilled workers of 15 million, roughly 40 percent of t~e labo: force, then 7 .5 million illegal aliens, an extremely high estimate, would cause a 40 percent increase in unem­ployment among the unskilled. If the initial level of unem­ployment among the unskilled is taken to be lo percent, then the total U.S. unemployment rate, which covers skilled as well as unskilled workers, would rise by merely eight-tenths of a percentage point. Implications of the Estimates The case against illlegal immigration, in terms of unem­ployment effects, appears strongest with respect to unem­ployment among low-skilled workers and in the most di­rectly affected states and weakest in its impact on the national unemployment rate. The presence of illegal immi­grants is likely to affect legal immigrants to the United States, who compete in the same labor markets as illegal immigrants and other low-skilled domestic workers. While it is comforting in some sense to find that adverse unem­ployment effects are unlikely to become generalized to the entire U.S. population, it is disquieting to realize that the unemployment rates of some segments of the U.S. labor force may increase markedly as a result of illegal immi­gration, while the majority of the populace receives the benefits and remains insulated, by and large, from the costs. Notes 1. The number of persons currently admitted to the United States under existing quotas and by nonquota legal entries is around 400,000 a year. Estimates of illegal immigration are now placed at one million a year; see Edwin P. Reubens, "Illegal Immigration and the Mexican Economy," Challenge (November/December 1978), pp. 13-19. 2. See, for example, Vernon M Briggs, Jr., "Illegal Aliens: The Need for a More Restrictive Border Policy," Social Science Quar· terly (December 1975), pp. 478-84 . 3. David S. North and Allen La Bel, Manpower and Immigration Policies in the U.S., National Commission for Manpower Policies Special Report no. 20 (Washington, D.C.: Government Printing Office, February 1978). 4. Wayne A. Cornelius, Mexican Migration to the United States: Causes, Consequences, and U.S. Responses (Cambridge: Center for International Studies, Massachusetts Institute of Technology, July 1978). 5. Edward M. Gramlich, "The Impact of Minimum Wages on Other Wages, Employment and Family Incomes," Brookings Papers on Economic Activity, no. 2 (1976), pp. 409-61. 6. David S. North and Marion S. Houstoun, The Characteristics and Role of fllegal Aliens in the U.S. Labor Market: An Exploratory Study, report prepared for the U.S. Department of Labor (Washing­ton, D.C.: Linton & Co., 1975). 7. Laura H. Zarugh, "Gente de mi tierra: Mexican Village Migrants in a California Community" (Ph.D. dissertation, University of Cali­fornia, Berkeley, 1974). 8. Clarise Lancaster and F.J. Scheuren, "Counting the Uncountable Illegals: Some Initial Statistical Speculations Employing Capture­Recapture Techniques" (paper delivered at the 1977 Annual Meet­ing of the American Statistical Association). ATLAS OF CENTRAL AMERICA Available in May Atlas of Mexico $20.00 plus tax Bureau of Business Research Box 7459, University Station Austin, Texas 78712 MARCH-APRIL 1979 Texas racl Book by Charles P. Zlatkovich, Rita J. Wright, and Robert S. Moore, gives basic information on the economy of Texas, with particular attention to population trends, sources of income, major industries, and trading patterns. Small maps highlight special features of the 1978 pocket-size production. Statistics are current as of July. Paper $4.00. ISBN 87755-227-4 Texas family Law (fifth edition), by Jack W. Ledbetter, was originally designed to supplement business law texts and is presently used as a text in courses in family planning, adult education, and general business law. The only up-to-date work in the area, Texas Family Law is written in layman's language. Mr. Ledbetter is general counsel for Lamar Savings in Austin. Paper $5.00. ISBN 87755-226-6 Texas residents add 5% sales tax. Bureau of Business Research The University of Texas at Austin Box 7459 Austin, Texas 78712 Prospects for Mexico's Socioeconomic Growth From around 1940 to the early 1970s, Mexico had an almost unrivaled record of rapid and reasonably stable economic growth. Building upon the extensive institutional reorganization of the period from 1917 to 1940, the country's recent material development-including social and political changes and a remarkable flowering of the creative arts-attracted worldwide attention for its distinc­tive features. Clearly state-led and state-propelled, this pro­cess of sweeping transformation must surely be reckoned one of the most successful cases of development-oriented intervention the modern world has witnessed. For many complex reasons, the long-successful policy of agricultural modernization, industrialization, and relative monetary stability began to fall apart under the administra­tion of President Luis Echeverria. Symptomatic of the dis­order were accelerated inflation, acute balance-of-payments problems, capital flight and a rapid reduction in private investment, and political unrest in various guises. Subse­quently, the inauguration of President Jose Lopez Portillo coincided with a growing awareness of the magnitude of Mexican oil and gas resources. The worst of the crisis has clearly been weathered, so that 1977 and 1978 have been times of reassessment, of recovery and policy adjustment, and of extensive reflection on the future. Positive Factors in the Future An unmistakable, if tempered, optimism seems diffused through the business community of Mexico. Partly, one suspects, this feeling stems from a sense of crisis overcome, or at least weathered, thanks to various policies instituted William P. Glade is Professor ofEconomics and Director ofthe Insti­tute of Latin American Studies, the University of Texas at Austin. This article is partly based on a discussion in the October 27, 1978, symposium of Mexico Today held in Atlanta. Other participants included Victor Urquidi, President of El Colegio de Mexico Luis Unikel. Professor at El Colegio; and Antonio Ruiz Galindo, Jr., a prominent Mexican businessman. William P. Glade by the incumbent administration. The government has been able to restrain federal spending and cut the fiscal deficit while decelerating the growth of the money supply. Price controls on certain items were reduced and on the remain­ing items made more flexible, thus restricting consumption but benefiting producers. Wage increases have been moder­ated in an effort to hold down further rises in costs and, it is hoped, to spread employment. A far-reaching administra­tive reform was inaugurated early in the Lopez administra­tion to set the public sector's own house in order, while the government's "Alliance for Production" held out an olive branch to the business community, which had felt increas­ingly threatened by the populist stance of the Echeverda administration. The Echeverrfa government had taken the unpopular but necessary (indeed , long overdue) step of devaluation in 1976. The initial inflationary impact of this measure was gradually absorbed into the new cost structure; and peso devaluation, at least to some extent, allowed Mexican man­ufacturers to secure a more advantageous position in export markets. Devaluation revivified the border industry pro­gram and was a factor in enabling Mexican industry to sell a number of automotive components (for example, rear axles) even to Detroit. True, the current reiteration by the government of its intention to pursue a less stringently protectionist tariff policy may sound threatening to some producers (as did previous declarations on this point), but, if actually carried out this time, such a policy seems to promise that Mexican industry will be prodded into the greater productive efficiency of which much of it is, by now, surely capable. On the Mexican stock exchange, the improved condition of the economy has been reflected in the rising volume of transactions, with a further factor in this growth being the transformation of a number of closely held companies into publicly held corporations-itself a measure of the institutional maturation of the Mexican economic system. Simultaneously, new deposit instruments were devised to enlarge the banking resources available, and a more flexible policy on interest rates and an increase in free reserves enabled financial intermediaries to increase the availability of credit to the private sector. The cautious willingness of the government to rethink agricultural policy and to tolerate modifications in officially hallowed agrarian institutions must also be counted a net gain for private investment. On the one hand the integrated rural development program, backed by the World Bank and the Inter-American Development Bank, may alleviate some problem of the poorer segments of the agricultural sector; on the other hand, and much more controversially, new arrangements have been devised to link the agricultural collectives known as ejidos more closely with agribusiness firms. Influencing the whole business climate, however, is the prospect, or hope, that the huge potential reserves of oil and gas will become probable reserves and that these, in turn, will materialize as proven reserves. While growth of the state-owned petroleum industry will first profit the public sector, a number of important benefits are expected to accrue to the private sector over the long run. For one thing, new export earnings should alleviate the balance-of­ payments situation and provide the wherewithal for deal­ ing with the now huge external debt while assuring a supply of foreign exchange to cover the current import needs. Further, a handsome flow of oil-related earnings into state coffers would, it is thought, diminish or at least postpone the pressure for raising the relatively low tax burden that Mexican business enjoys. Meanwhile, government spending should, both directly (the state is the best customer for many firms) and indirectly (through the multiplier effect), serve to strengthen the internal market. Of course, since state-owned industries are also important suppliers for many of the nation's businesses, the private sector may well harbor the hope that the petroleum windfall will enable government to move more slowly in raising domestic prices on the items the state sells to commercial users. Problems for the Future The picture is not one of unalloyed brightness, however. Many controversies are arising from discussions of how Mexico might be more successful than Venezuela in "sow­ing the petroleum" to consolidate the basis for a more en­during prosperity. One such debate concerns the extent to which the state should employ its expected investable sur­plus in deepening the nation's industrial structure by push­ing development of capital goods industries, particularly under state auspices. A second controversy centers on the extent to which oil revenues could, and should, be used to build up a technologically more self-reliant society in Mexi­co. A third question is the degree to which petroleum and natural gas should be exported as such rather than as com­ponents of industrial products. This question is underscored by the questionable decision of the U.S. government on the permissible price of energy imports from Mexico, a decision that simply confirmed for many Mexicans the undesirabil­ity of relying on economic relations with the United States. Still another question concerns the extent to which the new wealth should be directed into growth-cum-redistribution programs like the integrated rural development scheme to rehabilitate the hitherto by-passed segments of society and favor lagging regions. Many thoughtful critics in the intel­lectual community and not a few technically proficient government employees fear that oil resources may simply be squandered on private ostentation-after the fashion of the Middle East-if careful plans are not drawn up and ad­hered to. Giving force to these anxieties are the undeniably difficult problems that continue to afflict the nation, in spite of all that has been accomplished by the revolution that began over fifty years ago. The rural sector constitutes a problem, in spite of its remarkable aggregate performance up to about a decade or so ago. The reasons for the loss of the previous dynamism are still not altogether clear, but it is patent that even the long period of agricultural expansion left vast numbers of rural people still mired in poverty of a most deplorable de­gree, with underemployment abounding. Perhaps most of the farm population has experienced little or no gain in productivity for years. Notwithstanding Mexico's impressive industrialization record and the progress registered in agriculture, the poten­ tial standard-of-living gains from these advances have been partially nullified by the very high rate of population growth, a rate that had reached nearly 3.5 percent annually by 1970. Although there is some evidence that the growth rate began to fall around 1973, the demographic structure is such that sizable increases in population will continue to press against the means of subsistence for some decades to come. Thus, the estimated 67 million inhabitants of today's Mexico are virtually certain to number more than 100 mil­ lion by the turn of the century. For rural folk, this fact implies further overcrowding, land degradation, and increas­ ing misery, along with stepped-up migration to the cities and the United States. For the urban economy, population growth will surely expand the shantytowns and intensify the problems of providing remunerative employment, especially given the limited employment-generating poten­ tial of present Mexican industry. According to President V{ctor Urquidi of the prestigious Colegio de Mexico, "the metropolitan area of Mexico City, comprising over 13 million people, probably contains 4 million persons in marginal occupations and living in substandard condi­ tions." It staggers the imagination to envision what condi­ tions may be like some twenty years hence when the Mexi­ co City metropolitan area may reach 21 to 24 million people (based on the low hypothesis of the National Popu­ lation Council). Mexico City constitutes an extreme case, but, as Professor Luis Unikel has noted, in 1970 the num­ ber of cities with 100,000 or more inhabitants was almost six times the figure for 1940. By the end of the century, be­tween 68 and 74 million people may be expected to live in urban centers of 15 ,000 or more inhabitants. At the present approximately 800,000 new jobs must be created every year simply to keep up with additions to the labor force from population growth-never mind to reduce the present level of unemployment and underemployment. The foregoing situation, with its implications for rural and urban labor markets, in conjunction with the concen­tration of industrial ownership and financial and commer­cial wealth, helps to explain why there is such pervasive concern in some circles that the oil prosperity should not intensify the highly unequal distribution of income that characterizes Mexico today. While the Mexican private sec­tor, nurtured by decades of government assistance, has begun to need less intervention and more reliance on the market, it is not at all evident that economic growth guided more by the market contains any significant solutions for a serious problem of inequality, which many perceive as inequity and some as iniquity. Mexico, as many have observed, has had export booms before. The prospective petroleum boom, however, is un­precedented in that it will confer on the state the power to allocate a vast quantity of new resources and to reshape the national pattern of development in a direction more compatible with basic human needs. Whether it will succeed in doing so is, for the less optimistic these days, really the central question. A U.S. Perspective Amid the social detritus of new deals, fair deals, new frontiers, and great societies (not to mention failed crusades in arms), U.S. observers of Mexico have become much more sensitive than they once were to the intractability of social problems, the complexity of economic problems, and the bounded nature of human capabilities in general. Our own experience has taught us to be far more realistically modest in our expectations of what can be achieved even under the most favorable circumstances. Spatial inequalities, sectorial imbalances, and widespread poverty are as sure to afflict Mexico in the twenty-first century as they are characteristics of the present, whatever the magnitude of the new petroleum resources. Consider, for example, how many decades of national industrial growth and innovative welfare policies were experienced in the United States before the impoverished South began to be described, more hopefully, as a sun belt. Even today, it must be admitted, not every rural county in Georgia, Missis­sippi, or Texas resembles the bucolic prosperity of, say, Iowa. Certainly, rural misery is still a depressingly wide­spread feature in a wide band of states north of the Rio Grande, in spite of the emergence of the New South, and one finds urban slums and destitution on a vast scale in the United States in spite of urban renewal programs that go back as far as the 1930s and a veritable army of highly trained specialists supposedly skilled in societal problem solving. Is it realistic to expect oil to wash away social and economic shortcomings in Mexico when it could not accomplish that end in Texas? For all the advances we have made in techniques of economic diagnosis and the management of aggregate de­mand, who would claim that the United States has been all that successful in eliminating either inflation or unemploy­ment or even in dealing with the balance of payments and the international value of the currency? Despite our vaunt­ed technological progress and economic strength, there are still cries on every side for increased tariff protection, import quotas, and the like. If these and other policy difficulties bedevil the United States, then surely there is little room for condescension in assessing policy deficien­cies in Mexico, either actual or prospective. On the contrary, a sober reflection on U.S. experience would seem to clarify the positive historical accomplish­ments of Mexico as well as the likelihood that these accom­plishments will be continued in the future-alongside the persisting problems. Mexico's rapidly growing population, for example, has also been an increasingly well educated and healthy population. A half-century or so ago, when the momentum for social change began to build, it was almost miraculous that Mexico could make the headway it did, in view of the national paucity of skills, information, and institutions to produce skills and information. Improvisa­tion in policy and development strategy was as conspicuous as it was pioneering, for the revolutionary national recon­struction began, after all, long before modern development theory had come into being and history provided no real precedents as models for what Mexico was trying to do. Today, in contrast, there has been a great deal of learning from policy experience, the information and skills base is much richer than it was, and the intellectual and institu­tional foundations of material progress are very much in evidence in many parts of the Mexican Republic. In place after place in Mexico, the cultural setting has been transformed by diffusion of the accoutrements of urban civilization-for better and for worse, doubtless, but in any case for sure. Even the migration of countless enter­prising, risk-taking, industrious, and highly motivated rural workers to and across the northern frontier reveals how widespread is the information network of contemporary Mexico and how vanquished is the old tradition of rural fatalism. As for the industrial sector, Mexican manufac­turers will probably make striking progress in becoming more competitive as a result of favorable energy supplies and increasingly skilled labor and management, given a gradual reduction in protective policies in both Mexico and the United States. Only recently a major U.S. fertilizer company announced that it would be closing down its anhydrous ammonia facility on the Texas Gulf Coast in order to supply its plant henceforth from more economical Mexican sources. It is not just women's slacks, ceramic bibelots, and tequila that the United States is likely to be importing from the Mexican industrial sector. The additional resources that petroleum may bring to Mexico will feed into an organizational structure increas­ingly capable of turning those resources to account, and this capability has important implications for the economy of the southwestern United States. That this growth will not transform Mexico into the land of milk and honey should neither blind us to the very real attainments that will be realized nor divert attention from the need to frame U.S. policy so as not to exacerbate Mexican difficulties. So intertwined are these two major economies of North Amer­ica that both problems and prosperity tend to be shared. the onlyone: If you buy or sell in Texas: 1978-1979 Directory of Texas Manufacturers Over 14,000 plants listed: name, address, telephone, executive officer, and product descripti.ons. Volume 1: Volume 2: plants listed by firm name products listed by S.l.C. number and by city and by city within each S.l.C. group . includes complete addresses and an index. $50.00/set Bureau of Business Research The University of Texas at Austin Box 7459 Austin, Texas 78712 Key Issues in Mexican-United States Relations The Border That Unites and Divides Us In 1978, with the relations between Mexico and the United States at a critically important juncture, John Jova, president of Meridian House International and a former am­bassador, organized the Mexico Today program to discuss issues concerning the two countries. Mexico Today was jointly sponsored by Meridian House International, the Smithsonian Resident Associate Program, and the Center for Inter-American Relations, with funding from the Na­tional Endowment for the Humanities and the National Endowment for the Arts. The program, which included exhibitions, seminars, films, the performing arts, and courses on contemporary Mexico, took place in nine cities across the United States. The sixth and final panel discussion was held in New York City and focused on "Key Issues in Mexican-United States Relations: The Border That Divides Us and Unites Us." The three panelists, all members of the faculty of El Colegio de Mexico, were Mario Ojeda Gomez, political scientist and foreign affairs analyst; Jorge Bustamante, sociologist; and Samuel del Villar, economist. The moderator was Victor Gotbaum, executive director of District Council 37 of the American Federation of State, County, and Municipal Employees. I served as the scholarly respondent from the United States. Ojeda's Presentation Professor Ojeda, assuming responsibility for an overview, noted that interest in relations between the United States and Mexico had recently increased enormously. The mass media have expanded their coverage of the subject, and universities are organizing seminars. Within the scale of priorities of the United States government, the subject of relations between the two countries has advanced greatly. Stanley R. Ross is Professor of History, University of Texas at Austin, and Coordinator, Mexico-United States Border Research Program. Stanley R. Ross Professor Ojeda attributed this sudden interest to issues that have recently upset the formerly routine pattern of relations between the two countries. Among these he iden­tified drugs, undocumented migrants, stability in Mexico, and, even more recently, the new Mexican oil potential. Since his colleagues would concentrate on migration and energy, Professor Ojeda spoke on the drug problem before taking a more general approach to the main topics. Several years ago, when Mexico had become the principal source of heroin and marijuana, the Nixon administration regarded the failure of the Mexican government to act against the drug traffic as unfriendly and proceeded to administer what the president himself described as "shock treatment" with Operation Intercept. The careful checking of every traveler at the border discouraged tourism, hurt transactions on both sides, and finally forced the Mexican government to agree to take drastic measures against drug production and smuggling. Despite this effort drugs continued to enter the United States in large quantities and will continue to do so as long as there is a demand for them. Professor Ojeda added that while most of the U.S. assistance in the antidrug campaign has been in the form of modern equipment, the cost of hiring hundreds of new narcotics agents and of mobilizing elements of the Mexican Army has been fi­nanced by the Mexican government. Furthermore, when­ever smugglers know that their shipments are in danger, they dump the drugs in Mexico; so the more successful the antidrug campaign is, the more extended the use of drugs becomes in Mexico itself. While drugs, migrants, energy, and political stability are emphasized in the U.S. perception of United States­Mexican relations, these elements are not important from a Mexican perspective. Mexicans tend to emphasize other elements of the relation that are less important to people in the United States. Professor Ojeda emphasized the need to distinguish be­tween structure and process in bilateral relations. From the Mexican perspective it is the structure that constitutes the principal concern of relations with the United States, rather than the process involving issues and problems. It is the structure that prevents Mexico from negotiating on an equal basis and forces the Mexicans to accept many uni­lateral decisions made in Washington. The structure includes four principal elements: terri­torial contiguity, asymmetry of power, economic and tech­nological dependence, and cultural influence. Mexico's full autonomy is limited by the country's location within the most important U.S. security zone. Not all the conse­quences of such a geopolitical location are negative, for its position gives Mexico bargaining power with the United States and a relatively free ride on the United States' secu­rity. Professor Ojeda, however, feels that these advantages are inadequate compensation for the limitation on full sovereignty that proximity to a superpower entails. Asymmetry of power means that Mexico has no alterna­tive but resignation through acceptance of many of Wash­ington's unilateral decisions. United States dominance also is translated into economic and technological dependence for Mexico. Finally, Mexico is more deeply affected than other countries by the American way of life because of its proximity to the United States. Professor Ojeda concluded that specific issues should be considered against those struc­tural factors that shape the relation between the two coun­tries. Del Villar's Presentation Economist Samuel del Villar emphasized the conflict of interests in the emerging Mexican-United States energy market. It is appropriate to speak of such a market because of two ingredients: Mexico has an oil surplus, and the United States has an oil shortage and must buy abroad to cover it. In addition, Mexican crude oil is of high quality and enjoys a competitive advantage because of its proxi­mity to the United States. Energy-saving programs have proven to be quite ineffec­tive in the United States, and American consumers appear reluctant to make sacrifices for energy conservation. The consequence is an ever-increasing reliance on foreign energy sources, and Mexico is the nearest, most reliable, and most stable supplier of U.S. energy needs. A basic con­flict of national interests, however, now blocks the develop­ment of a significant Mexican-United States energy market. On the world market the cost of energy is highly regu­lated. In the United States the domestic market is regulated by the political process in an attempt to subsidize consump­tion, and this process is an important barrier to integrating the Mexican-United States energy market. Professor del Vi­llar declared that the United States is interested in ensuring a cheap source of hydrocarbons at the expense of Mexican hydrocarbon reserves. Professor del Villar charged that the United States energy policy takes advantage of such circum­stances as Mexico's recent economic crisis by conditioning financial support to long-term agreements that tend to freeze prices. Mexico's national interest is exactly the opposite of this policy. While Mexico has appeared ready to cooperate in helping to meet United States energy proble~s, acceler~ted exploitation of reserves at a low price is not m the Mexican national interest. In fact, Mexico's international energy policy is guided by three basic elements: hydrocarbon ex­ports should not subsidize the deficit in the current balance of payments; hydrocarbon reserves, despite their magni­tude, can be rapidly depleted, thereby threatening Mexico's development; and such reserves are a national patrimony that should ensure the welfare of Mexicans in the long run. Professor del Villar declared that Mexico is not prepared to deplete its reserves in order to subsidize U.S. consumption at the expense of the welfare of Mexicans. The 1976-1977 economic crisis severely weakened Mexi­co's bargaining position, and an accelerated exploitation and exportation program had to be put into effect. The PEMEX Investment Program, designed to speed up exploita­tion by the government oil corporation, is supposed to reach a daily production level of 2.25 million barrels by 1980, when the Mexican government will determine future levels of production and exportation. Despite the pressures of the economic crisis, the conflict between Mexican and U.S. energy policies became apparent in the sale of natural gas. Professor del Villar criticized the administrative deci­sion to block an agreement between PEMEX and six Ameri­can companies and charged that it was assumed that Mexi­co's financial troubles, along with its commitment to build a pipeline from its natural gas fields to the U.S. border, would force the formation and integration of a market responsive to United States national interests. This effort to pressure the Mexican government had a damaging effect on relations between the two countries, and the Mexican government decided not to sell gas to the United States. The untoward political consequences for the Mexican gov­ernment were magnified by the fact that the decision to ex­port substantial quantities of oil had been very difficult politically. The unilateral cancellation of the gas agreement and the policy behind the cancellation strengthened the political antagonism toward the U.S. market and will make future agreements exceedingly difficult unless the U.S. gov­ernment is prepared to change its attitude. In conclusion, Professor del Villar noted that other cir­cumstances make it hard to conceive of reasonable bases for the development of the Mexican-United States energy market. He stressed the highly protective nature of U.S. policies toward the flow of capital, labor, and goods and services. Such policies cannot create the basis for an over­all stable and constructive economic relation between the two countries. In fact, if the United States persists in pres­suring Mexico about energy, the inevitable result will be a growing anatagonism between the two countries with dele­terious consequences for bilateral relations. Bustamante's Presentation The third panelist, Dr. Jorge Bustamante, spoke about the migration issue. He views the present migration phe­nomenon as a process of interacting factors on both sides of the border. In Mexico, one finds underdevelopment, unem- TEXAS BUSINESS REVIEW ployment, unequal distribution of income, failure of the land reform program, and deleterious population trends. Interacting with these internal factors is the inexhaustible demand in the United States for cheap labor. Professor Bustamante is concerned with what he calls the shaping of undocumented migration as a public issue in the United States. He speaks of popular reports of an up­surge of migrants and the magnification of their presumed impact while the academic community generally recognizes that there is a lack of reliable data. Professor Bustamante stressed the powerless, exploited position of the migrant and the fact that the majority of these migrants pay U.S. taxes and do not use public services. These findings, he complains, are not reflected in popular perceptions in either country. Professor Bustamante stressed that migrants are powerless and exploited, yet most of them pay U.S. taxes and do not use public services. In Mexico the situation is almost a nonissue. Despite the fact that a fifth of the labor force has been involved in this migration, there is a very low level of public awareness of the phenomenon, which is generally defined as a safety valve maintained by certain interests and officials in the government. Migration is seen by most people who are aware of it as a result of structural problems that cannot be dealt with easily or overnight. Perception of the issue in the United States changes cyclically. When there is a high unemployment rate, the issue of Mexican migration assumes greater visibility. Pro­fessor Bustamante noted that after the Korean War, Mexi­can migration was used as a scapegoat to distract attention from negative internal factors to an element external to the system. Both countries have tended to define the immigra­tion issue in response to domestic political problems rather than to empirical data. Furthermore, these responses have resulted in a lack of understanding between the govern­ments of the two countries, each insisting on its own poli­tical definition as the basis for discussion. Reasonableness among the general public must become the basis for reason­able negotiation between the two countries according to a factual diagnosis of what the phenomenon of Mexican migration is and implies for each country. In looking for a solution, Professor Bustamante sug­gested that an effort be made to focus on Mexican immigra­tion to the United States within the context of the labor market. He urged that leaders of organized labor and even employers from both sides sit down with the government officials who are discussing the issue. To achieve any solu­tions, it will be necessary to overcome what both publics think they know. While rejecting a bracero-type program, categorized as "structuralized exploitation of Mexican workers," he called for an arrangement that would elimi­nate the structural element of the migrants' powerlessness and would provide sanctions against exploitive employers. Commentary While all three panelists offered reasonable presentations and sought to conclude on a constructive note, there was considerable evidence of the conditioning influence of the past in the strong, and even emotional, emphasis on depen­dency. Surely dependency exists and is apparent whether one looks at trade, investment, or technology transfer; how­ever, interdependency also exists. Relations between Mexi­co and the United States are being affected by several im­portant changes: Mexico's dramatically improved energy holdings, the cultural movement northward with its con­comitant " Mexicanization" of the population of several of the U.S. border states, and the progressive sophistication of Mexican industry. The panelists did not discuss the continuing pressure of Mexico's population. Only Professor Bustamante referred obliquely to the problem, optimistically reporting research at El Colegio de Mexico suggesting that the rate of increase has slowed during the past three years. Even if this report were correct, the result would only be a reduction of the projected population in the year 2000 from 130 to 115 mil­lion. With 46 percent of the Mexican population under the age of fifteen, the problem will get worse with time. Specific points made by the individual panelists require some comment. It was not only U.S. pressure that per­suaded the Mexican government to take a more active role against the drug trade; the awareness of its own increasing problems of drug abuse also helped to convince the Mexi­can government that action was needed. The question of pricing on Mexican natural gas is an ideal case study of how policy decisions get caught in domestic political pressures and concerns. It is important for the Mexicans to understand better the milieu in which U.S. decision making takes place. Irresponsible media exist everywhere. On more than one occasion, Mexican emotions have been raised and percep­tions have been formed without reference to the factual situation. There is a gulf between perception and factual information as Professor Bustamante has noted; however, the scholarly research of the past decade, even when good, tends to involve small samples that are then generalized beyond reasonableness. The suggestion that Mexican organized labor sit down at the conference table is dubious since Mexican organized labor is hardly an independent voice and is unlikely to be able to speak effectively for unorganized migrant rural workers. The able moderator, Victor Gotbaum, demurred on the participation of U.S. labor in the negotiations on the grounds that the unions are too emotionally involved in this important issue. MARCH-APRIL 1979 Texas Border Communities and the Peso Devaluation Stuart Greenfield Following the devaluations of the Mexican peso on August 31, 1976, and October 26, 1976, many observers forecast economic stagnation for Texas border cities, which rely on sales to Mexican nationals for much of their retail business. The 37 .5 percent reduction in the dollar value of the peso was expected to have a serious impact on border areas. Before its devaluations in 1976, however, the Mexican peso had been overvalued in terms of the U.S . dollar. Sales activity in Texas border areas was significantly higher during the overvaluation period (1973-1976) than it was during the period of relative stability in the real value of the peso (1968-1973). Stuart Greenfield is Research Economist, Texas State Comptroller's Office. The opinions expressed in this article are solely those of the author; the contents in no way reflect the position or policy ofthe Office of the Comptroller ofPublic Accounts. When the Mexican government devalued the peso to cor­rect the serious imbalance in real purchasing power, the rates of growth in sales activity in the border areas declined sharply from what they had been during the overvaluation period. The effect of this change, however, was not eco­nomic stagnation as many had predicted, but a return to the sales growth levels that had existed before the overvalu­ation period. Overvaluation of the peso discouraged border tourism because of the implied undervaluation of the dollar. During the period of overvaluation, a decline in tourism partially offset the trend toward increased rates of growth in sales. After the devaluation, tourism as measured by mixed drink receipts increased in two of six Texas border areas. Gross sales and mixed drink receipts are two indicators that provide a basis for analyzing the effect of the devalua­tion on sales and tourism in Texas border areas. The six counties and associated cities included in this analysis are Cameron (Brownsville), El Paso (El Paso), Hidalgo (Mc­Allen), Maverick (Eagle Pass), Val Verde (Del Rio), and Webb (Laredo). Dollar-Peso Purchasing Power Between 1968 and 1977, the purchasing power of the peso in the United States went through three stages : a pe­riod of stability from 1968 to approximately the second quarter of 1973; a period of overvaluation between the third quarter of 1973 and the second quarter of 1976; and the devaluation period from the third quarter of 197 6 to about the third quarter of 1977. The changing relation of the dollar and the peso during these three stages must be considered in any analysis of economic activity along the border. There are two determinants of the relation between one currency and another: the exchange rate and the relative rates of inflation in the two countries. Consider, for ex­ample, hypothetical countries A and B with currencies alpha and beta that exchange on a one-to-one ratio. Coun­try A experiences inflation but country B does not. Al­though citizens in country B still get one alpha for each beta, they do not get the same purchasing power in country A because of A's inflation. Alphas are overvalued; to cor­rect the situation citizens in country B should be given more than one alpha for each beta. A similar situation existed between Mexico and the United States before the Mexican devaluations. Consumer prices in Mexico rose faster than consumer prices in the United States. Consequently, the real purchasing power of the dollar in pesos declined. The devaluations corrected this situation, restoring the purchasing power of the dollar in terms of pesos. Economic Activity Along the Texas-Mexico Border Two economic indicators were used to analyze the effect of the devaluations on Texas border areas. Gross sales were used as an indicator of overall economic activity, while mixed drink receipts served as a proxy to measure tourism. Table 1 Quarterly Growth Rate of Sales in Selected Border Areas, 1968-1977 (Percentage) Overvaluatio n Deva luation Base period peri od period (1 9 6 8 II­ (1 9 7 3 III - ( 1976 III- Area 19 73 Ii) 197 6 11) 1977 III ) Brownsville 2.4 3.9 2.4 Del Rio 2.0 2.0 2.0 Eagle Pass 3.7 3.7 3.7 El Paso 2.2 2.3 2.2 Laredo 2.2 4.3 2.2 McAllen 2.3 3.7 2.3 So urce: Comptroller of public accounts. Local and state government revenues that might be affected by the devaluations can be measured directly. Gross Sales The retail trade sector is the dominant industry in these Texas border communities, and observers expected that re­tail sales would plummet after the devaluations. A statis­tical model was employed to determine whether differen­tial growth in sales occurred over the three periods. This technique isolates the growth rates in sales during the over­valuation and devaluation periods. Gross retail sales and mixed drink receipts are two useful measures of economic activity along the Texas-Mexico border. One would expect differences between the sales growth rates during each period . During the period of overvalua­tion, Mexican nationals should find that their pesos buy relatively more in the United States than in Mexico, and thus sales in Texas border communities should be stimu­lated. The devaluation should result in a decline in the effective external purchasing power of the peso and lead to a decrease in purchases by Mexican nationals in Texas bor­der cities. Results of this analysis of the border counties are pre­sented in table 1. During the base period, sales in border cities grew by at least 2 .0 percent a quarter. In the over­valuation period, Brownsville, El Paso, Laredo, and McAllen had significant increases in their sales growth rates over the rates in the base period. The sales growth rates in Del Rio and Eagle Pass remained the same. Table 2 Quarterly Growth Rates of Mixed Drink Receipts in Selected Border Areas, 1971-1977 (Percentage) Overvaluat ion Devaluation Base period period period ( 1971 I­ ( 1973 III- (1976 III- Area 197311) 197611) 1977 III) Brownsville 10.8 2.9 10.8 Del Rio 19.3 11.2 5 .0 Eagle Pass 25.0 3.1 -5.0 El Paso 8.7 5.0 8.7 Laredo 11.0 11.0 11.0 McAll en 1 5.6 10 .4 6 .0 Source: Comptroller of public accounts. MARCH-APRIL 1979 When the devaluation occurred, sales growth returned to approximately the same rates as those of the base period. The four areas that had higher rates during overvaluation found that their sales growth rates had dropped. Mixed Drink Receipts Tourism is of considerable importance to the Texas bor­der communities. Tourism should increase during the de­valuation period because goods will be relatively cheaper in Mexican border cities. One factor that would measure this impact would be the mixed drink gross receipts tax. As the number of tourists increases, mixed drink receipts should also increase. Table 2 presents the quarterly growth rate in mixed drink receipts over the period 1971 to 1977 in the selected Texas border cities. During the base period each of the bor­der cities had a growth rate in mixed drink sales exceeding the rate in the rest of the state. Except for Laredo, how­ever, each of the border cities had a significant decrease in the growth rate of mixed drink sales during the overvalua­tion period. The quarterly percentage decrease ranged from 3.7 percent (El Paso) to 21.9 percent (Eagle Pass) during this period. During the devaluation period, Del Rio, Eagle Pass, and McAllen had considerably lower growth rates in mixed drink receipts than those areas had had during the base peri- Monetary Valuation and Consumer Prices in Mexico and the United States, 1968-1977 (Index: 1970=100) --Exchange rate 175 ---Ratio of Mexican to U.S. consumer prices --Purchasing power of the dollar in pesos ' I I I I 150 125 ( .~--rj ______ _, 100 ~---------'7,~-~-~~~=~=~\~r'·--~~~~~~~~ 75t___~~~~~~~~~-::-:::c:--:-::--~~-:-::-::-:-c::c::-~~-...,.,:.-=:c-:::-~ 1968 (1) 1970 (111) 1973 (I) 1975 (111) 1978 (1) Year (quarter) Source: International Monetary Fund, lnternaf1onof finonc1ol Statistics, various years. 56 od. The growth rate of mixed drink sales decreased by 9.6 percent a quarter in McAllen, 14.3 percent in Del Rio, and 30.0 percent in Eagle Pass. In the other border areas, the growth rate of mixed drink receipts either remained con­stant (Laredo) or returned to equal the rate of the base pe­riod (Brownsville and El Paso). The growth rates in mixed drink sales during the over­valuation period did decrease as expected, probably because of the decrease in tourists brought about by the relative overvaluation of the Mexican peso. With the devaluation of the peso, tourism was stimulated in Brownsville and El Paso. Tourism appears to have remained the same in Laredo and decreased in Del Rio, Eagle Pass, and McAllen, where tourists have done much of their eating and drinking on the Mexican side of the border. Government Revenues A major concern of Texas border governments was the impact of devaluation on local revenues. The city sales tax is an important revenue source for these communities. For the 1977 fiscal year, city sales tax revenues ranged from 19.9 to 45 .6 percent of total general revenue (see table 3). Thus any decrease in sales would have a noticeable impact on funds for local services. State sales tax revenues would also be adversely affected by a decrease in border sales, even though border sales in the six selected counties amounted to only 6 percent of total state sales in 1976. While sales tax revenues might not increase at the high rates prevalent from 1973 to 1976, local governments found that city sales tax revenues continued to grow after devaluation. However, a diminished rate of growth in city sales tax revenues could limit some public service. Conclusion While the impact of the devaluation was felt among Texas border communities, it seems evident that devalua­tion only corrected an imbalance that had been artificially maintained . In its effort to maintain a nominal exchange rate. of 12.5 pesos to the dollar, the Mexican government had stimulated sales activity in Texas to the detriment of its own border communities. The devaluation corrected this imbalance. Table 3 City Sales Tax in Selected Texas Border Cities, Fiscal Year 1977 City Sales tax sales tax General revenues as percentage of City (in dollars) (in dollars) general revenues Brownsville Del Rio Eagle Pass El Paso 2 ,000,000 470,000 486,700 9,250,000 7 ,518,826 1,916,500 2 ,447,007* 42,425,000 26 .6 24.5 19.9 21.8 Laredo 2 ,993,956 6,558,816 45.6 McAllen 2 ,332,000 6,238,848 37.4 *Total revenues. Source : City budgets. Laredo Trade Center on the Border Laredo, founded in 1755 by Don Tomas Sanchez of Spain, is one of the oldest cities in Texas. It served as head­quarters for Santa Ana in 1836 and was the point of assem­bly for the assault against the Alamo. Despite the Texan victory at San Jacinto, Laredo remained under Mexican rule until 1840, when it became the capital of the indepen­dent Republic of the Rio Grande. This republic joined the Union with the rest of Texas in 1845. The largest inland port of entry in the United States, Laredo retains much of the flavor of neighboring Mexico. Local residents feel that there is less racial prejudice in La­redo than in other border communities; years of intermar­riage and easy passage between countries and cultures tend to minimize racial segregation and feelings of superiority by any one group. But because life on the U.S. side is more lucrative and productive than it is in Mexico, tensions along the border continue to exist. Population Growth The population of the Laredo SMSA grew 13 .5 percent from 1970 to 1976, a faster growth rate than the 11 .5 per­cent increase in Texas as a whole. The entire change may be attributed to natural increase, or the excess of births over deaths: a strong Roman Catholic influence in the predomi­nantly Latin area gives rise to larger numbers of young peo­ple and more frequent births. One percent of the popula­tion emigrated from the Laredo metropolitan area , which is composed entirely of Webb County. The Structure of Employment and Personal Income With a very small manufacturing base, the economy of the Laredo area is primarily dependent upon wholesale and retail trade, with secondary emphasis on services, govern- Joanne P. Austin is Analyst, Real Estate Research Corporation in Houston. Joanne P. Austin ment, and the transportation, communication, and public utilities sector. Civilian nonagricultural payroll estimates prepared by the Texas Employment Commission show that in 1977 35 percent of all workers in Webb County earned their livings from trade. The services and government sec­tors combined provide 37 percent of area personal income. Average annual unemployment for 1977 was quite high-14.2 percent. This figure, which is more than twice the national average of 7.0 percent and a great deal higher than the 5 .3 percent annual unemployment rate in Texas, reflects the large number of low-skilled laborers seeking employment along the border. In 1977 the unemployment averages for the other two metropolitan areas along the Mexican border were 12 .1 percent for Brownsville­Harlingen-San Benito and 12.3 percent for McAllen-Pharr­Edinburg. The Laredo metropolitan area receives 23 .38 percent of personal income from wholesale and retail trade. Most of this income is generated by the heavy traffic of Mexican nationals who cross the border to purchase American goods, Nonagricultural Civilian Payroll Percentages Laredo SMSA, Texas, and United States 1977 Annual Average Laredo Category SMSA Texas United States Mining 2.7 3.1 1.0 Construction 3.6 6.8 4.7 Manufac turing 7.7 18.3 23.8 Transportation, communication) and public utilities 11.0 6.2 5.6 Trade 34.8 24.6 22.3 Finance, insurance, and real estate 3.6 5.5 5.5 Services 14.l 17.7 18.7 Government 22.4 17.8 18.5 Sources: Data for Laredo SMSA and Texas obtained from Economic Research and Analysis Department, Texas Employment Com­mission; U.S. data obtained from Employment and Earnings (Washington, D.C.: U.S. Department of Labor, Bureau of Labor Statistics, April 1977-March 1978). MARCH-APRIL 1979 but it is supplemented by the sizable sales of Mexican-made products in this country and the new large regional shop­ping center, Mall del Norte. Since trade is so important to the local economy, the devaluation of the peso in 1976 badly hurt merchants in the Laredo SMSA. The exchange shift from the standard twelve pesos per dollar to more than twenty pesos per dol­lar put a definite crimp in the spending patterns of Mexican nationals, causing some Laredo stores to go out of business and others to cut inventories drastically. Most merchants feel that the area has recovered, however; Mexican citizens are again coming stateside to buy, and the oil and gas work­ers who have moved into Webb County are buying as well. Total government earnings provide 14.89 percent of per­sonal income in the Laredo metropolitan area. Almost 7 5 percent of that total is generated by the state and local gov­ernment sector, which provides over 11 percent of all area personal income. The Laredo Independent School District, with more than 2,100 employees, is the largest nonmanu­facturing employer in the metropolitan area. Other sources of state and local earnings are Laredo Junior College and Laredo State University, part of the Texas A&I University System. Laredo State is the only university in Texas offer­ing a master's degree in international trade. The federal civilian component of area personal income (3 .59 percent) is higher than the receipts from that sector in Texas (3 .20 percent) or the nation (3 .28 percent). There are offices in Laredo for fourteen federal departments or agencies, the largest being the Department of Commerce, which is in charge of the U.S. Customs Service . Percentage of Personal Income by Major Sources Laredo SMSA, Texas, and United States, 1976 Laredo United Source SMSA Texas States Agriculture 1.42 I.S S 1.82 Mining 3.S8 3.SO 1. 11 Construction 2.97 6 .2 2 4 .37 Manufacturing 4 .84 1 S.32 19.74 Transportation, communication, and public utilities 10 .10 6.0 8 S.69 Wh olesale and retail trade 2 3 .38 lS .42 13 .10 Finance, insurance, and real estate 2.9 S 3.9S 4 .0 1 Services 12 .SS 11.9 2 12 .S2 Other industries 0.3S 0.26 0 .2 7 Total private labor and pro prietor income 61.79 64.2 2 6 2 .6S Federal civilian 3.S9 3.20 3.28 Federal military 0.19 2. 17 1.34 State and local 11.1 1 8 .0S 8.92 Total government earnings 14.89 13 .42 l 3. S3 Total labor and proprietor income (place of work) 72.8 1 77 .64 76.18 Less: personal contributions for social insurance 3 .86 3.89 4 .00 Residence adjustment -0 .2 S 0 .12 -0 .02 Net labor and proprietor income (place of residence) 70 .29 73.88 72 .l s Dividends, interest, and rent 10.03 14 .86 13.80 Transfer payments 19.68 11.2 6 14.0S Total personal income (place of residence) 100.00 100.00 100.00 Source: Developed from data compiled by the Regional Economics Information System, Bureau of Economic Analysis, U.S. Depart­ ment of Commerce, 1977. The port of entry at Laredo is the busiest in the Texas ten-port customs district, which extends from Brownsville to Del Rio and up through the state to San Antonio. Cus­toms officials estimate that more than one million pedes­trians cross the two bridges at Laredo per month; this esti­mate does not include automobile and truck traffic. The second bridge has been open less than two years, and plans for a third are already under discussion. About 90 to 95 percent of all commerce through Laredo is Mexican, al­though special bonds that are available along the border allow other nations to sell their goods in warehouses with· out paying duty. A bout 90 to 95 percent of all commerce through Laredo is Mexican. The federal military sector now provides only 0.19 per­cent of area personal income. Until 1973, Laredo Air Force Base was a sizable contributor to the economy of Webb County. The airstrip facilities have now been converted into use for municipal air traffic, and the undeveloped lands are being readied for industrial and commercial use. The third significant source of personal income in the Laredo metropolitan area is services, providing 12.55 per­cent of area earnings. Most of this income is generated by tourism ; visitors from all over Texas and the rest of the United States travel to Mexico by way of Laredo. In the city of Laredo, there are more than 1,200 hotel rooms and 1,400 motel accommodations. According to the Laredo Chamber of Commerce, tourists spent $50 million in 1973 and $68 million in 1977. The Villa de San Agustin histori­cal zone, preserved by the city, is also a tourist attraction. Transportation, communication, and public utilities pro­vide 10.10 percent of personal income in the Laredo metro· politan area, significantly greater than the 6.08 percent con­tribution of that sector in Texas. Four railroads, four bus lines, two airways, and twelve motor carriers serve the La· redo SMSA. Some of these companies are based in Mexico, with daily service to Mexico City. Interstate 35, a heavily traveled highway that connects Laredo to San Antonio and the Dallas-Fort Worth area, ends almost at the bridge to Nuevo Laredo. Mining is a significant contributor to the economy of Webb County, providing 3.58 percent of area personal in­come. Natural gas and some oil are being extracted in the county ; at present there are thirty to thirty-five drilling rigs in operation. Geologists believe that there is a substantial amount of natural gas in the area and that large amounts of oil and gas are in northern Mexico. There is some mining of antimony, and uranium is a major economic factor in the southeast corner of Webb County near Bruni. The Laredo metropolitan area receives slightly less per­sonal income from agriculture than do the state and the nation; most agricultural earnings are generated by beef cattle and grain sorghum. The construction and the finan­cial, insurance, and real estate sectors are not significant contributors to the area economy, providing only 2.97 per· cent and 2.95 percent of personal income. The manufacturing sector contributes only 4.84 percent of personal income in the Laredo SMSA. Major manufac­tures in the Laredo area include food and meat processing, apparel, electronics, and commercial printing. Transfer payments are a much larger contributor to per­sonal income in the Laredo area (19.68 percent) than in Texas (11.26 percent) or the United States (14.05 percent). Most of this figure is made up of welfare and maintenance payments. The other industries sector while amounting to only 0.35 percent of personal income, is larger in the La­redo area than in the state or nation. The sector includes consulates and other foreign offices that are maintained in the United States. Chief Manufacturing Industries Although manufacturing is not currently a large con­tributor to area personal income, industrial employers are being actively sought. There are no large manufacturing plants with more than 250 people on the American side of the border, although there are two very large operations in Nuevo Laredo. The system of maquiladoras ("twin plants") allows manufacturers to conduct more labor-intensive as­sembly operations in Mexico. These plants can only assem- Manufacturing Plants with More Than 100 Employees Laredo SMSA and Nuevo Laredo, Mexico, 1978 City Primary Establishment Company products date Laredo SMSA Dentex Shoe Co. Women's shoes 1970 Laredo Man ufac­ Children's dresses 1949 turing Co . Laredo Packing Co. Meat slaughtering 1940 Levi Strauss & Co. Denim jeans 1972 Meridian Industries Electronics 1973 Mo dern Machine Steel frames and forms, 1945 Shop, Inc. machine shop jobbing N L Industries, Inc. Antimony processing 1930 Howard B. Wolf, Inc. Women 's dresses 1970 Nuevo Laredo Barry de Mexico, S.A. Men 's and ladies' slippers 1971 (twin plant of Barry of Laredo) Industrias Ensam bladoras Electronics 1973 (twin pl ant of Meridian Ind ustries, Inc.) Mex-Mox, S.A. (twin Wo men's shoes 1970 plant of Dentex Shoe Co.) Transitron Mexicana, Circuits, diodes, and 1966 S.A . (twin plant of transistors Transitron Electronic Corp.) Source: 1977-1 978 Directory of Texas Manufacturers (Austin: Bu­reau of Business Research, 1978). ble parts; no manufacturing or altering of parts is allowed. Duties are assessed only on the difference between the value of the manufactured item when it is returned and the value of the parts sent over for assembly. Of the eight firms with more than one hundred em­ployees in the Laredo area, four are apparel manufacturers. One of these has a large twin plant in Nuevo Laredo; an­other large apparel factory in Nuevo Laredo is a twin plant to a small firm on the American side. Shoes and ladies' and children's ready-to-wear clothing are the primary apparel products. Levi Strauss also has a large plant in Laredo that manufactures jeans. The largest single industry, food and meat processing, has thirteen firms in the Laredo area. The Laredo Packing Co., with more than one hundred workers, is the largest meat slaughtering facility in the area. Electronics has be­come an important clean industry in the SMSA; the largest firms are Meridian Industries in Laredo, which has a twin plant in Mexico, and Transitron Mexicana in Nuevo Laredo, which is a twin plant of a smaller American operation. Two other firms with at least one hundred employees are Modern Machine Shop, engaged in machine-shop job­bing and the fabrication of steel frames and forms, and N L Industries, Inc., which manufactures antimony trioxide. Like most Texas communities away from the Gulf Coast, the Laredo manufacturing sector is dominated by clean industries that require skilled, dexterous employees. Population and Income Profile The Laredo SMSA, with a median age of 22.4 years, is the youngest metropolitan area in the state. Far more young people under 18 years of age are in the Laredo area (41.8 percent) than are in Texas (31.4 percent); individuals under the age of 25 constitute 54.3 percent of the popula­tion. Slightly less than 20 percent of the area residents are age SO or more. High levels of unemployment and lower wages for low­skilled occupations cause the effective buying power of households in the Laredo area to be much lower than it is in the state as a whole. While 46.2 percent of the house­holds in Webb County make less than $8,000 per year, only 27 .3 percent of Texas households fall into that income range. In the Laredo area 17.3 percent of the households earn between $15,000 and $25,000 per year; statewide, on the other hand, 28.7 percent of the households make a yearly income in that range. As a result, the median yearly income in the Laredo area ($8,748) is considerably lower than it is in Texas ($14,783). Characteristics of the Area The Laredo metropolitan area can be characterized as follows : • A growth rate more rapid than that in Texas as a whole and based entirely upon natural increase. • Unemployment rates twice the national average. MARCH-APRIL 1979 • An economy heavily dependent upon wholesale and retail trade, government, and services. • A small but growing manufacturing industry centered on food processing and apparel. • A very young population with low levels of buying power. Significant Factors Officials of the Laredo Chamber of Commerce repudiate the notion that the area is uneconomic and stagnant; they Age Profile Laredo SMSA, Texas, and United States (Percentage of population) Laredo Age group SMSA Texas United States 0-17 41.8 31.4 29 .S 18-24 12.S 13.7 13. l 25-34 12 .2 l 5.6 l 5.3 35-49 13.7 16.0 16.3 SO and over 19.8 23.3 25.8 Source: Sales and Marketing Management, Survey of Buying Power Data Service, 1978. insist that Laredo is, instead, a boom town. High rates of in­flation and low incomes are hard to ignore; however, the inmigration of gas and oil companies is bringing new employment opportunities, new outlets for retail sales, and a general feeling that perhaps Laredo's luck is changing. Furthermore, city officials, who are beginning to dismantle the patron system that has dominated city politics, are op­timistic about the future. With such a positive attitude on the part of its citizens, the Laredo metropolitan area could really progress economically. Household Effective Buying Income* Profile Laredo SMSA, Texas, and United States (Percentage of households) Income Laredo (in dollars) SMSA Texas United States 0-7,999 46.2 27.3 25.4 8,000-9,999 9.6 6 .9 6.6 10,000-14,999 18.0 17 .6 18.0 l 5,000-24,999 17.3 28.7 30.8 2 S ,000 and over 8.9 19.S 19.2 *Household effective buying income is the total income of all house­hold members after taxes. Source: Sales and Marketing Management, Survey ofBuying Power Data Service, 1978. TEXAS TRADE AND PROFESSIONAL ASSOCIATIONS 1978 Lists • More than 600 associations • Names, addresses, and phone numbers of chief officers • Number of members • Titles of trade publications and frequency of issue ISBN 87755-225-8 Bureau of Business Research $3.50 plus 5 percent sales tax Order from P.O. Box 7459, Univ. Station Austin, TX 78712 The Corpus Christi SMSA, with about 300,000 inhabi­tants, is only medium sized by Texas standards but offers much of the social and economic diversity found in larger metropolitan areas. The relative geographic isolation of the city-it is 14 5 miles southeast of San Antonio and 210 miles southwest of Houston-has been both a disadvantage and an advantage. Corpus Christi's distance from major mar­kets has been a limitation in attracting businesses and jobs to the area, but because of its relative isolation the city has been able to develop its own identity as a major cultural and economic center of South Texas. Before 1920, Corpus Christi was a relatively small agri­cultural and fishing center-its population at that time was about 34,000. During the next four decades, however, Cor­pus Christi underwent a period of extremely rapid popula­tion and economic growth. From 1920 to 1960, the popu­lation increased almost eight times to about 267 ,000. This rapid growth was due to several factors, including the open­ing of the Port of Corpus Christi in 1926; the discovery of oil and gas in the area in the 1930s and the subsequent de­velopment of the city as a refining, petrochemical, and manufacturing complex; and the establishment of the naval air station in the city during the 1940s. Since 1960, the Corpus Christi metropolitan area has re­turned to a stage of relatively slow economic and popula­tion growth. The city is now growing more slowly than the state as a whole. Whether this slow growth will continue or rapid economic growth will return to the area is not clear at this time. Population Growth The Corpus Christi SMSA, which is made up of Nueces and San Patricio counties, grew relatively slowly between 1970 and 1976 from 284,800 to 298,400-a population increase of only 4.8 percent. The population of Texas in­creased 11 .5 percent during this period. Of the two coun­ties in the SMSA, Nueces grew 4.2 percent and San Patricio grew 7.4 percent from 1970 to 1976. According to the Thomas R. Plaut is Research Associate, Bureau of Business Re­search. Corpus Christi Gateway to Padre Island Thomas R. Plaut latest estimates by the U.S. Bureau of the Census, the popu­lation of Nueces County (which includes the city of Corpus Christi) was 24 7 ,600 in 1976, while that of San Patricio County was 50,800. During the period from 1970 to 1976, the natural increase (births minus deaths) in the Corpus Christi SMSA was 26,800 persons ; but, since the total population increase from 1970 to 1976 was only 13,600, there was actually a net outmigration of 13,200 people from the metropolitan area. Structure of Employment and Income The payroll employment profile indicates that the struc­ture of the SMSA economy is somewhat weighted toward the mining, construction, and government sectors. Despite the very visible concentration of refining and petrochemical establishments in the area, manufacturing is less important in the Corpus Christi economy than it is in the state or the nation. Agriculture is a more important component of per­sonal income in the SMSA economy than it is in the state or the nation. Since 1970, the unemployment rate in the Corpus Christi SMSA has usually been higher than the Texas rate and lower than that for the nation. According to the Texas Employment Commission, the average annual unemploy­ment rate in 1977 was 6 .9 percent in Corpus Christi, 5 .4 percent in Texas, and 7 .0 percent in the United States. In fact, the existence of a large , relatively unskilled labor force characterized by a high amount of unemployment and underemployment is often mentioned as a problem by ob­servers of the Corpus Christi economy. In general, wages and incomes tend to be relatively low in the Corpus Christi area. According to estimates by the Bureau of Economic Analysis, the average per capita per­sonal income in 1976 was $5 ,668 in the Corpus Christi SMSA, $6,166 in the state, and $6,403 in the country. Agriculture, although it accounts for only 2.93 percent of personal income, is relatively more important in the SMSA economy than in that of the state or of the nation. Flat and very productive land predominates in the area, and more than 90 percent of the land area in the two coun­ties is in farms. Whereas cotton once was "king," the pro- MARCH-APRIL 1979 duction of sorghum grain now dominates agricultural out­put in the area. According to the 1974 Census of Agricul­ture, sorghum accounts for about 80 percent of the market value of agricultural products sold in the SMSA. Most of the sorghum produced in the area is shipped to other parts of Texas and the nation for cattle feed, while some is ex­ported through the Port of Corpus Christi. The relative importance of mining in the Corpus Christi SMSA can be explained by the renewed exploitation of existing deposits of oil and gas. Much of the present oil and gas production in Corpus Christi is now occurring offshore. In recent years, Corpus Christi has been enjoying a boom in construction. In fact, construction is one-and-a-half times more important as a source of personal income in Corpus Christi than it is in Texas. Much of the construction activity in the SMSA is undoubtedly due to the expansion of the re­fining and petrochemical capacity in the area. Since 1973 Coastal States Petrochemical Company, Southwestern Re­fining, Champlin Petroleum, Saber Refining, and Quintana­Howell Joint Venture (a project of Quintana Refining Com­pany and Howell Corporation) have greatly increased the size of their plants; and Uni Oil, Raymal Refining, and Tip­perary Refining have all built new refineries in the SMSA. Construction is continuing on the Corpus Christi Petro­chemicals plant (a $600 million joint venture of Champlin Petroleum, ICI Americas, and Soltex Polymer Corporation), which is expected to be completed in 1980. About 3,000 workers are now employed in building this facility. The location and expansion of several large fabricators of offshore drilling equipment have created additional con­struction jobs in the area. Baker Marine and Brown and Root are both doing very good business and have expanded their operations; and ETPM-USA and Chicago Bridge and Iron have recently announced plans to locate in the Aransas Pass-Ingleside area. Corpus Christi is an especially desirable location for such operations because of its deepwater access to the Gulf of Mexico. Corpus Christi is also the site of expanded textile manu­ facturing. Levi Strauss has recently built a new plant, and Nonagricultural Civilian Payroll Employment Percentages Corpus Christi SMSA, Texas, and United States 1977 Annual Averages Corpus Christi Category SMSA Texas United States communication, and public utilities 6.0 6.3 5.6 Trade 24.8 24.6 22.3 Finance, insurance, and real estate 5.0 5.6 5.5 Services 16.7 17.2 18.7 Government 22.3 17.7 18.5 Sources: Data for Corpus Christi SMSA and Texas obtained from Economic Research and Analysis Department, Texas Employ­ment Commission; U.S. data obtained from Employment and Earnings (Washington, D.C.: U.S. Department of Labor, Bureau of Labor Statistics, April 1977-March 1978). Mr. Fine plans to build facilities to produce women's dresses and sportswear. Residential construction has also been strong in Corpus Christi-especially during 1977 and 1978. It is not com· pletely clear, however, what the source of this new housing demand has been; some may be a response to the needs of the relatively high-income manufacturing and construction workers who are locating in the area, while some may re­flect a high rate of household formation among Corpus Christi's somewhat young population. The largest employer in the SMSA is the Corpus Christi Army Depot, which has about 3,400 civilian and 100 military employees. The depot is located at the Corpus Christi Naval Air Station, and its function is to repair and rebuild helicopters; it is the only facility of its kind in the country. The naval air station itself employs about 1,300 civilian workers and 2,700 military personnel and trains navy pilots. For the past two years, the navy has been threatening to close the air station, but it has recently decided to keep the operation open. Employment at both the army depot and the naval air station has been gradually declining over the last few years. The Port of Corpus Christi is an important component of the SMSA economy. The magnitude of this importance, however, is not completely clear. According to a 1973 study by Robert H. Ryan and Charles W. Adams of the Bureau of Business Research, about 38 percent of the em· ployment in the Corpus Christi SMSA is directly or indi· rectly linked to the port. A more recent study by John M. Richards, dean of the College of Business Administration at Percentage of Personal Income by Major Sources Corpus Christi SMSA, Texas, and United States, 1976 Corpus Christi United Source SMSA Texas States Mining 3.9 3.2 1.0 Construction 8.8 7 .0 4.7 Manufacturing 12.5 18.4 23.8 Transportation, Agriculture 2.93 1.55 1.82 Mining 4.35 3.50 1.11 Construction 9.40 6.22 4.37 Manufacturing 11.73 15.32 19.74 Transportation, communication, and public utilities 5.28 6.08 5.69 Wholesale and retail trade 14.52 15 .42 13.10 Finance, insurance, and real estate 3.01 3.95 4.01 Services 11.35 11.92 12.52 Other industries 0.47 0.26 0.27 Total private labor and proprietor income 63.04 64.22 62.65 Federal civilian 6.01 3.20 3.28 Federal military 2.33 2.17 1.34 State and local 8.37 8.05 8.92 Total government earnings 16.75 13.42 13.53 Total labor and proprietor income (place of work) 79.80 77.64 76.18 Less: personal contributions for social insurance Residence adjustment 3.93 -1.41 3.89 0.12 4.00 -0.02 Net labor and proprietor income (place of residence) Dividends, interest, and rent Transfer payments Total personal income 74.47 13.36 12 .17 73.88 14.86 11.26 72 .16 13.80 14.05 (place of residence) 100.00 100.00 1oo.oo Source: Dev~loped from data compiled by the Regional Economics lnformat10n System, Bureau of Economic Analysis U.S. Depart­ ment of Commerce, 1978. ' Corpus Christi State University, has placed this figure at closer to 25 percent. The initial purpose of the port, which was opened in 1926, was primarily to export cotton and other agricultural products. Today, however, the port is mainly engaged in importing crude oil from abroad and shipping refined products to the east coast, although there is still a signifi­cant amount of agricultural exporting. Up to 1972 the tonnage of prgducts handled by the port had been gradu­ally declining, but since then the total tonnage shipped in and out of the port has more than doubled from 26 million tons in 1972 to 61 million tons in 1977. This rapid growth in the port in recent years is almost entirely due to the increasing dependence of the United States on imported oil. At present, the Port of Corpus Christi, the second largest in Texas after Houston, is the deepest port on the Gulf of Mexico. Its ship channel is dredged to a depth of 45 feet almost up to the harbor bridge, and plans are now being made to dredge the 9.5 miles of the main harbor to a depth of 45 feet over the next two or three years. The construc­tion of a 72-foot deepwater port off Harbor Island has also been proposed. The initial purpose of the proposed port (called Deeport) is to receive crude oil from large deep­draft ships, but long-range plans call for the construction of a dry-bulk handling facility as well. The deepwater port proposal has faced major opposition (mainly from environ­mentalists and residents of Port Aransas). The final decision on the project is to be made by the Army Corps of Engi­neers sometime during 1979. Tourism and fishing are also important in the Corpus Christi economy, but their effects are difficult to measure. Manufacturing Plants with More Than 250 Employees Corpus Christi SMSA, 1978 City Primary Establishment Company product date Bishop Celanese Chemical Co . Chemicals 1945 Corpus Christi Asarco, Inc. Sulfuric acid , zinc, and cadmium 1942 Caller-Times Publishing Co. Cham plin Petroleum Co. Newspaper Petrochemicals 1883 1937 Coastal States Petrochemi­ cal Co. Petrochemicals 1962 CPC Internatio nal Inc. Corn products 194 9 Sam Kane Beef Processors, Inc. Meat processors 1962 Southwest ern Refining Co. Sun Co ., Inc. Petrochemicals Petrochemicals 1936 19 52 Weatherby Engineering Co . Mod ular process systems 1974 Gregory Reynolds Metals Co. Reynolds Metals Co. Alu min um ingots Aluminum oxide 19 52 19 53 Ingleside Baker Marine Corp. Drilling rigs 1972 E. I. Du Pont de Nemo urs & Co., Inc. Freon products 1973 Robst own Ro bstown Manufa ct uring Co. Men 's slacks 1968 Source: 1978-1979 Directory of Texas Manufacturers (Austin: Bu­reau of Business Research, 1978). Corpus Christi is the major entrance to the Padre Island National Seashore, and , during the summer months espe­cially, the hotel and restaurant business is very active in the area. Corpus Christi has traditionally, however, had a prob­lem in holding tourists over a long time and attracting them during the winter. Business leaders hope that the construc­tion of a new convention center downtown will attract more visitor business to the city. Shrimping is very impor­tant in the Port Aransas-Aransas Pass area, and in fact it is the fear that a deepwater port will have a detrimental effect The Port of Corpus Christi is the deepest port on the Gulf of Mexico and second largest in Texas. on commercial fishing that has sparked much of the opposi­tion to the proposal. Chief Manufacturing Industries Many of the manufacturing plants with more than 250 employees in Corpus Christi are in the refining and petro­chemical business. Total employment in refining and re­lated industries stands at about 1,900 in the SMSA. Chemi­cal production, however, with 3,500 employees, is the largest industrial employer in the Corpus Christi area. Celanese Chemical Company employs about 950 workers at its plant south of Bishop, and Asarco Inc. employs about 660. Baker Marine, with 950 workers at its Ingleside operation, is the largest employer engaged in the construc­tion of offshore drilling rigs. Food processing employs about 2,200 workers in the SMSA. CPC International and Sam Kane Beef Processors are the largest employers in this group. Apparel manufacturing is also somewhat important in the SMSA. Robstown Manufacturing Company, for exam­ple, employs over 500 workers. Levi Strauss has also recent­ly located in Corpus Christi. Finally, Reynolds Metals, which produces aluminum ingots and aluminum oxide, is an important employer in San Patricio County. Its two plants in Gregory employ about 1,000 to 1,100 workers. Population and Income Profile The median age of the population is 25 .9 in the Corpus Christi SMSA and 28.2 in the state. In the Corpus Christi area a larger percentage of the population is younger than eighteen and a smaller percentage is older than fifty than is true in the state. MARCH-APRIL 1979 Median household effective buying income is lower in the Corpus Christi SMSA ($13 ,657) than it is in the state ($14,480) or the nation ($15,016). About 55.l percent of the households in the Corpus Christi area and only 51 .8 percent of those in the state have an income of less than $15 ,000 a year. In addition, only 16.8 percent of Corpus Christi households have an annual income over $25 ,000, while 19 .5 percent of the households in the state are in this category . Characteristics of the Area The Corpus Christi SMSA may be described as having the following characteristics: • A relatively slow growth rate with net outmigration of the population. • An economy somewhat weighted toward the agricul­tural, mining, construction, and federal government sectors. • An unemployment rate that is usually above the Texas average and below that for the nation. • A manufacturing sector heavily dependent on the port and dominated by refining, petrochemicals, and the production of offshore drilling equipment. • A slightly younger population than that found in Texas or the nation with a relatively high percentage of the population under eighteen. • Lower-than-average household incomes. Significant Factors One cannot consider the future of the Corpus Christi SMSA without recognizing the possible effects of the pro­posed deepwater port project. Proponents of Deeport argue that it will stimulate a new phase of rapid economic growth led by expansions in refining capacity, petrochemical de­velopment, and the growth of related industries. Federal and state air quality standards, however, may significantly limit future industrial development of this type. Without the construction of Deeport the future of the Corpus Christi economy is more difficult to predict. The continuation of relatively slow economic and population growth is probably the most likely future for the SMSA. The major limiting factor in Corpus Christi's industrial de- Age Profile Corpus Christi SMSA, Texas, and United States (Percentage of population) Corpus Christi Age group SMSA Texas United States 0-17 35.4 31.4 29 .S 18-24 13.2 13.7 13.1 25-34 15 .0 15.6 15 .3 35-49 16.4 16.0 16.3 50 and over 20.0 23.3 25 .8 So urce: Sales and Marketing Management, Survey ofBuying Power Data Service, 1978. velopment, its isolation from major population centers, will change little in the future. In the next few years, continued growth in the petro­ chemical and drilling-equipment industries seems to be likely. Some growth may also be expected in food process­ing and textile manufacturing. Construction will continue to be strong, although there probably will be a slowdown in the homebuilding business because of high interest rates. The agricultural, mining, and government sectors are all likely to remain fairly steady or decline slightly. Two possible areas for economic growth are tourism and fishing, but it is impossible to predict what the effects of these two sectors on the local economy will be. The increasing exploitation of Mexican oil and gas may be a boon to the refineries in the area. As one looks into the future, the possibility of an eco­nomic downturn in the national economy must be consid· ered. If the past is any guide, Corpus Christi should suffer less than the nation if such a slowdown occurs. Two other factors may have an important effect on fu­ture economic growth and development in Corpus Christi. First, the increasing exploitation of Mexican oil and gas may be a boon to the area because it is one of the first major refining centers north of the border. Second, the re· cent approval of the Choke Canyon Dam on the Frio River (sixty miles northeast of Corpus Christi) seems to guarantee that the SMSA will have an adequate supply of water in the future. The greatest asset of the Corpus Christi SMSA is the quality of life in the area. It is possible that firms and indi· viduals are becoming increasingly sensitive to environmental factors in choosing places to locate and live; and, if this is the case, the natural features of Corpus Christi may allow its continued growth and development. Household Effective Buying Income* Profile Corpus Christi SMSA, Texas, and United States (Percentage of households) Income Corpus Christi (in d oil a rs) SMSA Texas United States 0-7,999 28.5 27 .3 25.4 8,000-9,999 7.3 6.9 6.6 10,000-14,999 19.3 17.6 18.0 15,000-24,999 28.1 28.7 30.8 2 5 ,000 and over 16.8 19.5 19 .2 *Household effective buying income is the total income of all house­hold members after taxes. Source: Sat:s and Marketing Management, Survey of Buying Power Data Service, 1978. Barometers of Texas Business (All figures are for Texas unless otherwise indicated.) All graphs except the one for nonagricultural employment are adjusted for seasonal variation. Data were compiled from the following sources: U.S. Department of Labor, Texas Employment Commission, Texas Railroad Commission, and Federal Reserve Bank. 200 150 Consumer Prices (Index 1967=100) f Dallas -United States 1970 1972 1974 1976 1978 Oil Production and Refining (Index 1967=100) 160 140 120 '\ 100 Crude oil production v-,, ., " Percentage Unemployed . ."' ' . . I \ ,,. -i -..; \ 8.0 .. ' ~ ,,·.'\ \ I ~ -'... •\ '' '·'•..\_ United States i ' ' ' ' A~~~ ; ~~ 6.0 4.0 20 · 1970 1972 1974 1976 11978 Industrial Activity (Index 1967=100) 225 200 175 150 125 lOO 1970 1972 1974 1976 1978 BUREAU OF BUSINESS RESEARCH SECOND-CLASS POSTAGE PAID AT AUSTIN, TEXAS THE UNIVERSITY OF TEXAS AT AUSTIN AUSTIN, TEXAS 78712 5,500 --..-----------------------~ Total (5,239) Trade (1,303) Manufacturing (968) Government (922) Service (888) Construction (361) Transportation (334) Mining (173)