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J. Bradford DeLong
This year--2001--the 275 million people and the 140 million workers of the United States will produce about $10 trillion in GDP; the 30 million people and the 16 million workers of Canada will produce about $800 billion in GDP; the 100 million people and 39 million workers of Mexico will produce about $530 billion in GDP. These 405 million people, 195 million workers, and $11.33 trillion of annual GDP make up the North American economy.
This continental economy is a staggeringly unequal economy. Less than 4% of the Canadian labor force works in primary sectors--agriculture, fisheries, and forestry. Less than 3% of the U.S. labor force works in primary sectors. But fully one out of five of Mexico's workers is in the primary sector. GDP per capita in the United States is some $36,000 per year. GDP per capita in Canada at recent exchange rates is $22,000 per year, and at purchasing power parity is $27,000 per year. GDP per capita in Mexico is $6,000 per year at current exchange rates, and $9,000 per year at purchasing power parity. And within Mexico the contrasts between the richest portions of the industrial north and the poorest portions of the near-subsistence south are as great as the contrasts between Mexico and the United States.
These economic differences should not be overstressed. Female life expectancy in Mexico at 77 years compares favorably to the 80 years of the U.S. and the 82 years of Canada. Infant mortality in Mexico at 16 per thousand is not that much higher than the 8 per thousand of the U.S. or the 6 per thousand of Canada. But only 20% of prime-aged Mexicans have a high-school education or better, compared to 87% for the United States or 80% for Canada.
The past decade has seen the beginnings of a grand social experiment in North America: the welding-together of all three economies on this continent into a single economic unit through, first, the Canadian-U.S. Free Trade Agreement and, second, the North American Free Trade Agreement [NAFTA]. From an economist's point of view this social experiment seems likely to have a very positive outcome: the large differences in factor prices between Mexico and the rest are a source of potentially mammoth gains from trade, the integration of the continental economies promises to extend the market and advance the division of labor, and North American economic integration also promises to reduce transportation costs. In addition, there is the point that close economic integration is the best--or at least the most straightforward way--to accelerate the transfer of technology from rich nations to poor nations. And there is the hope that increased commerce and prosperity will accelerate democratization and the government's obedience to the rule of law.
The major things to worry about and guard against as continental economic integration proceeds are (i) the effect of shifts in factor prices on the poor--especially the poor of Mexico--for even if total output rises social welfare can fall if there is an adverse shift in distribution, and (ii) the possibility that positive externality-generating economic activities may wind up being concentrated in one slice of the continent, and that the spillovers they generate not extend to the whole. But these potential dangers seem straightforward to guard against.
Thus it was surprising to me--and to many others--that the NAFTA became one of the major political flashpoints of the 1990s. From the left critics like Lori Wallach claim that "NAFTA has been a terrible failure for the people of North America," and during the 2000 presidential campaign Ralph Nader blamed NAFTA for high unemployment in Flint, Michigan. From the right Pat Choate and Ross Perot claimed beforehand that millions of American jobs were at stake and that the defeat of NAFTA was essential, and during the 2000 presidential campaign Pat Buchanan claimed NAFTA was responsible for the ongoing "deindustrialization" of America. Where do these arguments come from?
Of course, the level of the public policy debate was not raised by some of NAFTA's advocates. Where did President Clinton get the idea in the fall of 1993 that NAFTA would create one million net jobs for America's workers? Didn't he remember what he had argued only two months before? (This question answered.) Then, during the debate over deficit reduction, he had eloquently (and correctly) argued that the level of employment was principally determined by what the Federal Reserve did? That in normal times other potential influences on employment--whether the federal budget balance or the trade balance--were either small in magnitude or were consciously neutralized by Federal Reserve monetary management?
And in spite of its political salience, a Roper poll in 1997 found that more than half of U.S. residents had either never heard of NAFTA, or had no opinion as to its relative costs and benefits. This can be read as positive, showing a refreshing unwillingness on the part of citizens to opine confidently about issues they know they do not fully understand (would that politicians behaved the same!). This can be read as negative, showing that the process of economic education in America is by and large unsuccessful.
It is now more than eight years since the beginning of the NAFTA policy debate in the United States. The grand social experiment in North American economic integration progresses. And we editors of the Journal of Economic Perspectives have commissioned this survey of the current state and likely direction of the North American economy--Nora Lustig to look at Mexico, John Helliwell to look at Canada, and the team of Mary Burfisher, Sherman Robinson, and Karen Thierfelder to examine the impact of the NAFTA itself.
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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
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