Wither We Import Capital or We Export People; G. Velasco

Gustavo R. Velasco Either We Import Capital or We Export People Gustavo R. Velasco (1903-1982) was a prominent lawyer, banker, economist and professor in Mexico. Speaking there before the Fourth Industrial Con gress in 1957, he warned against a local Chamber of Commerce proposal to inhibit foreign investments in Mexico. He said this could halt the entrance of new capital, lead to less domestic production and force many Mexicans to leave their country in search of a livelihood. Persisting restrictions against capital movements into Mexico and the steady and continuing stream ofpeople across our southern border reinforce the logic and urgency of Velasco's warning. THE true victim of the protectionist measure being considered will not be foreign capital. Capital will go to more sensible and less hostile coun. tries than Mexico, to countries where it will be able to employ labor prof itably and productively. The true victim ofthe measure will be the eco nomic progress ofMexico. In the very Translated from the Spanish and slightly condensed by Bettina Bien Greaves.

real and true sense of the word the victims will be the millions of our fellow countrymen whom we shall be forcing, by this antiforeign senti ment, either to emigrate or to live in misery, without the hope that they or their children will be able to at tain human dignity. What distinguishes a poor country such as Mexico or China from a country like the United States or 465 466 THE FREEMAN August Canada is not racial superiority, nat ural resources, good intentions or luck. What makes the labor of the American worker or the Canadian farmer more productive is that they work not just with their hands or with antiquated tools: they work with equipment and machinery. In other words, they work with the aid of capital. The best and most effi cient way to improve the power ofthe Mexican workers, to increase pro duction and to raise our standard of living, is through capitalization. The Need for Saving If domestic capital, savings, could bring about the miracle of com pounding our efforts and multiply ing our output, we would have no reason for being concerned about for eign investments. Unfortunately, however; precisely because of our poverty, the portion of the popula tion that saves is extremely small.

In view of the lack of savings and of Mexico's great need for capital, pub lic and private domestic investment are quite inadequate. Yet, the pop ulation of Mexico is increasing at such a rate every year, every day, that a much higher rate of invest ment is necessary just to keep us from going backward-let alone to achieve progress. The only way to speed up economic development, the only hope for the millions of the less fortunate of our fellow countrymen is to take advantage of all available resources. In other words, precisely because the problem is so great, we should not only increase domestic capital as much as possible, but we should also protect foreign capital. The dilemma is clear: Either we im port capital or we export people. Either we permit foreign investors to cooperate in the enormous task which confronts us, or we deny our laborers the opportunity to perform useful and beneficial work in their own country.

In Mexico today, we still have not attained the income per capita that France or England had at the begin ning of the 19th century. In other words, the truth is that we are more than 150 years behind the times eco nomically. If we depend on our own resources, our people will not, not even in a hundred years, approach the standard of living now enjoyed in the United States and Canada. The real problem of foreign in vestments does not consist of the harm they may cause to an estab lished producer. All new competi tion, domestic or foreign, may do in jury to those producers who believe they may relax their efforts. A free economy is essentially dynamic. Nothing in it is sure except that pro ducers must constantly earn the fa vor of consumers. The daily plebi scite of the market determines who satisfies the needs of the consumers best or cheapest. Their interests must prevail, for the ultimate pur1985 EITHER WE IMPORT CAPITAL OR WE EXPORT PEOPLE 467 pose of the economy is to serve the general welfare. Consequently, when producers try to protect themselves from competition by means of a law, they thwart the plebiscite of the con sumers, a plebiscite which is much more democratic and truthful than a political election. Moreover, they presume thereby to set their own in dividual interests above those of the majority.

In addition to being improper and. immoral, this protectionist proposal itself would lead to general impov·· erishment. No one denies that the industrialist who obtains a special privilege, such as the exclusion of competitive foreign products, will benefit. But this will be at the ex·· .pense of consumers. They will have to go without some article they would have preferred which will not then be produced. Or they will have to purchase some domestic product at a price that is higher than it would have been if the producer had faced greater competition. For the community in general, not only is there no advantage at all from such legislation, but there is a net loss equal to the amount of pro duction which is prevented. Like all restrictionist measures, the elimi nation of domestic or foreign com petition imposes an economic cost. The result is not progress but re trogression, not abundance but scarcity.

Foreign capital has not been primarily responsible for political in stability in the many countries that could be mentioned. To cast blame is a convenient way to avoid confessing the truth to ourselves. During the first 70 years of our political life, we had hardly any foreign investments here in Mexico. And yet we had con tinuous riots, insurrections and rev olutions. We do not suggest that there is a cause and effect relation, but it was precisely when the coun try opened its doors and when it de veloped economically that it finally tired of its convulsions, attained peace and some measure of economic progress. Erect a Wall With respect to the preservation of our culture, the grounds on which many argue for restriction, we should note that the real threats come, not from the establishment of new factories, but rather from con tacts outside the country. To be con sistent, the advocates of the restric tionist measure under consideration should propose that Qooks, maga zines and travellers be' kept out of Mexico. They should also recom mend that radio waves be blocked, as in Russia and her satellite coun tries, because they bring us the mu sic and the language ofother peoples.

Whoever believes that the way to preserve our culture and traditions is to erect a Chinese Wall around the country shows very little faith in 468 THE FREEMAN their vitality. It is only our poverty which .prevents us from building more schools in which that half of our people who now have no schools might learn to read and write. It is only our poverty which·prevents us from establishing libraries and mu seums, conserving the monuments and artistic treasures left us by our indigenous and Spanish ancestors. If the United States can radiate its culture beyond its borders, this is due above all to its vast economic wealth. He who lacks vitality be cause he does not have the proper food or because he is weakened by disease can hardly think about the purity of his language or the conser vation of his country's temples. We proudly and energetically defend our Mexican heritage. We should even increase and enrich it. But we should Reprints . ..

not confuse these two problems. We should recognize that the foundation on which the defense of Mexican cul ture must rest is the economic pros perity of the country. Patriotism, and the nation's best interest, do not call for the policy of discrimination and repudiation now being proposed. If the problem is cor rectly stated and analyzed from the poi!1tof view of the general economic and cultural interest of Mexico, the conclusion is precisely the opposite of that recommended in this pro posal. Either we permit foreign investors to cooperate in the enor mous economic task which confronts us, or we deny our laborers the op portunity to perform useful and ben eficial work in their own country. Once again, either we import capital or we export people. i) A Page on Freedom Each of these brief messages is a handy way to share with friends, teachers, editors, Clergymen, employees and others a thought-starter on liberty. It also serves to introduce the reader to our work at FEE.

See page 451 for this month's Page on Freedom. (Copies of previous messages are also available; specify title when ordering.) Small quan tities, no charge; 100 or more, 5 cents each. Or, feel free to reprint the message in your own format if you'd prefer. We hope you'll enjoy this feature! Order from: FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 Charles H. Logan Competitionin the PrisonBusiness A specter is haunting American cor rections-the specter of free enter prise. To be clear at the beginning: no entrepreneurs are challenging the state's monopoly of penal au-· thority. However, there are those who believe that the actual day-to-day business of imprisonment should not be .left entirely in the hands of gov·· ernment employees. It is one thing to believe that only the state has BL right to imprison someone. It is an other matter entirely to believe that only the state can run a prison in a fair, humane, effective, and econom·· ical fashion. The first belief is a mat ter of political philosophy; the sec·· ond is an empirical proposition.