CHAPTER I

TRADING WITH MEXICO

Three fundamentals determine and will determine American participation in Mexican trade. Excursions, however wet, will not change those fundamentals. Enthusiasm, however sincere, will not affect them. Above all, promises should not be taken into consideration in our cool judgment of them. American business men have never been noted for sentimentalism in their own country; they should not be sentimental in other countries. Let us take up the situation and look at it with the sane judgment we would apply to the question of selling, say, a new type of water meter in New York City.

The three fundamentals of the Mexican trade question are not unique. They are, first, the Market; second, the Credit, and third, the Government and Laws under which trade must be carried on. Truly not original, and the astonishing thing about American business men who consider Mexico is that they apparently lose sight of them, and most of all lose sight of the emphasis which must be given to each.

First, the Mexican market. Three phases again: the people, the industries and the need. There are 15,000,000 people in Mexico. Of these, 6,000,000 are Indians, and Indians that are comparable, literally, to our own reservation Indians in the United States, in the things they buy and the things they make. There are 8,000,000 mixed-bloods, a cross of Indian and Spanish, but of these 8,000,000 fully 6,000,000 are almost as Indian as their full-blood cousins. In other words, 12,000,000 out of 15,000,000 take and need nothing from the outside world excepting food, at those times, like the present, when they do not produce enough for their own needs. More than that, the money or goods which would pay for imported food for the 12,000,000 are created by the remaining 3,000,000--in other words, the actual market in Mexico is not 15,000,000 people but 3,000,000. The rest wear no shoes--only native tanned sandals. They wear no civilized clothes, only white cotton woven at home. They wear only home-made hats, the raw material the fiber of palm trees which grow wild. They have no need for culture, for houses, for travel. Remember, then, a buying population of 3,000,000.

The industries are limited almost exclusively to the extraction of the riches of the soil by mining and through deep oil wells. In all Mexico, with its vast sweep of territory, virtually nothing is produced for export excepting those riches which come from Mother Earth, and those overwhelmingly under the enterprising management of the foreign companies and individuals who alone have ever sought to develop them. Only one industry in Mexico puts human hands and human brains to the wheel of progress and creates wealth--that is the industry of growing sisal hemp in Yucatan. Sisal hemp is indispensable for the making of binder twine for the world’s wheat crop, and is the basis of what was once a great national and international industry. Yet to-day even that commodity has been cut in production almost to the point of destruction, by the machinations of Mexican government and graft, and Yucatan is not to-day the great purchasing center that it once was. Moreover, Yucatan is far from the Mexican mainland, a principality, a country of its own, and its riches have never been a true part of the resources of Mexico, for it buys and sells direct with the outside world.

Gold is the common medium of circulation in Mexico to-day. There is not a peso of Mexican paper currency in use. All is gold, or foreign bills, with low-grade silver and copper as subsidiary coins. The use of gold is reassuring to the business man. It looks like prosperity and it does assure a firm rate of exchange. But the gold in Mexico does not mean these things. Its great significance is the absence of credit. Gold circulates because no man trusts the government, and every piece of gold that passes through your hands in Mexico tells you that Mexico is far from being on a stable financial basis, either as a government or as a business community. Gold is of value, really, only because it makes credit possible. When you must ship boxes of gold into distant states at an appalling rate of insurance against bandits and highwaymen, it is not prosperity, but rather the lack of it. When gold is in circulation, and there are no bills, the available money of the country is limited, literally, to the total of the gold and to not one cent more. When there is paper in circulation it means that the gold supply has been increased many fold because the credit of the government has been added to the gold to supplement the supply of money to be used in trade.

In Mexico there is not only no paper money, but there is practically no commercial paper. The drafts of great foreign companies travel about the land for weeks and months before they are cashed and when they finally reach the bank on which they are drawn, the backs are covered with endorsements, and on some an extra sheet of paper has been pasted to carry more signatures. And that is not good business, and should not be reassuring to the prospective trader.

In Mexico to-day no one trusts the government, and as a result no one trusts his neighbor. The business men of Mexico who are demanding long-term credits abroad will not trust their oldest customers, and cannot themselves get credit in their own country. Recently, when the Mexican government wanted credit on a large supply of railway equipment, it was told that if one young American, engaged in running private trains at heavy cost over the Mexican railway systems, would guarantee the bills, the Mexican government could have what it needed. Otherwise, cash with order. The Mexican government is trying to get railway equipment, and is making promising announcements. But it is getting very little, and for what it is getting it pays almost entirely in cash, or, strangely enough in this age, barters commodities or prepaid freight tickets for it! These are facts, and extremely significant facts. The railway equipment men want to know how the government is going to pay--and that is what all Americans who contemplate trade with Mexico should want to know.

But the need of Mexico, the power we have to help her rehabilitate herself! Ah, that is a strong bid, even with what we have called the unsentimental American business man. He wants to give her a lift now, when she needs it, and then he will not be forgotten when the big splitting up of profits comes. Perhaps this is true. Let us look at it. For some years now we have been following the very laudable and beautiful system of going more than half way with Mexico. We are still urged to follow this excellent method. The only trouble is that the “more than half way” is getting longer and longer, and Mexico is asking more and more and giving less and less. The kindly souls who have sought to get into Mexico with their surplus stocks are not gaining anything, except curses and distrust. So far, save for the promises which have always been forthcoming, there is nothing coming out of Mexico to help the trade we are hearing about.

Most of the talk about Mexican trade for American manufacturers was born, moreover, of our own need to get rid of accumulated goods. Beginning late in 1919, there was considerable inflow of these cheap goods into Mexico on good terms. Those who were fortunate enough to unload talked of it, and the gossip went about that Mexico was a fine place to sell off extra stocks. But after a year, the unloading system began to glut the Mexican market, and to-day, when the same manufacturers want to sell again, they find that Mexico will take--only goods at sacrifice prices. They went half way and more, did our manufacturers, and Mexico did not “come back.” Instead she sat tight where we came to her, and insisted on our coming a little further with concessions to her needs and wants. The result is that to-day there is nothing like the demand for American goods that there was when we first did the unloading which we thought would whet the Mexican appetite. Mexico is like the customer of a “fire sale” store--she will buy only the most obvious bargains. It is cash trade for a section of a town where there used to be credit, and where there is no credit to-day. But the customer is again demanding credit--and cash-trade bargains at the same time.

This question of credit is of necessity complicated. But perhaps the answer as far as the American business man is concerned is contained in the fact that while the Mexican merchant demands credit he himself does not give credit--no country was ever on so thorough a cash basis as Mexico is to-day. The merchant who is asking for credit is carrying on his business from hand to mouth; he has no accounts on his books to guarantee the goods for which he is promising to pay. He asks credit on his character standing and on the possibilities of his market--he offers literally nothing else. Personally, many Mexicans and many foreigners in Mexico are reliable and honest men, but no sane business man would take in the United States risks similar to those demanded by his prospective customers in Mexico. And the possibilities of the market--those are as yet thin air and enthusiastic hope, which gain strength only from our national need to get a foreign outlet to keep our plants going. Let the American manufacturer weigh these two considerations with the additional realization that there is no reserve credit in the background.

Reserve credit, such as bills payable, sound real estate values and prospects of peace and good business years ahead, are comparable to the unseen sources of energy in the human body, on which that body lives and thrives during lean periods. Mexico’s lean period has now lasted for eleven long years, and in that period the country has been living literally on its reserves alone. Again and again one hears the expression, “Mexico is living on her fat,” and the continued marvel is that she has lived so long and survived such lengthened calamities through so many ghastly years of destruction. As this is written, there has been some appearance of regeneration, a noisily announced period of “reconstruction.” But as yet this is only an appearance. Actually while the wheels of business and life are running more smoothly for the moment, this is obviously a surface condition--deep down under the surface of Mexican life the wasted tissue remains. Mexico is not yet filling the interstices of her flesh with that reserve strength which is business credit and business promise.

But why not help in the rebuilding, and thus take a risk which will probably bring great gain in the years of progress to come?

The answer to this question must be based on a thorough understanding of the third of our three great issues--Mexican Government and Law as applied to business. The Mexican revolutions which began in 1910 had for their announced object, “Mexico for the Mexicans.” The idea was to bring the foreigner under control of Mexican law and government. This was eminently just--if it were true, as assumed, that under the Diaz régime the foreigners had been above the Mexican law. The facts were largely otherwise, however, despite some glaring abuses. In the working out of the idea of “Mexico for the Mexicans,” the revised as well as the entirely new legislation and procedure went far beyond the normal reaction against the alleged irregularities of the Diaz time.

In the new “Constitution of 1917,” which is literally the most radical written constitution of any country in the world to-day, the chief, if not the only object was to make difficult the operation of foreigners in any line of business in the country. The laws against their holding land are drastic and final in their import; no foreigner may own property within sixty miles of the border or within thirty miles of the sea; foreigners may not control a Mexican corporation formed for the purpose of holding such land unless they waive their citizenship rights with respect to such companies; great estates are prohibited, so that true agricultural industry is made virtually impossible; foreign plans for irrigation projects--the one hope of the Mexican farmer--are nipped and killed; most serious of all, such lands are virtually confiscated through nationalization projects which have already been applied to many great properties, some of them of foreigners, and have been kept from affecting others only by active diplomatic protest.

But, the casual observer of things Mexican asks, how is it that business still continues? How is it that the oil companies to whom, we are told, these nationalization laws especially apply, how is it that the oil companies are still doing business, are still drilling wells and taking out oil? Does this not mean that these laws are merely provisions against a revival of the abuses of the old days? These are the questions that occur, as the Mexicans planned them to occur, to the outside observer.

The Mexicans assure us that this is truly the case, but the effect of the laws is very different. Their effect is to place all business, Mexican and American, foreign oil wells and native merchants alike, in the status of receiving the _privilege_ of doing business, in place of the _right_ of doing business. In effect they make every foreigner in Mexico, from the missionaries who conduct services contrary to the law of the land which prohibits foreigners from officiating as priests before their own altars to the oil men who dig wells under permits wheedled out of a grasping government department, law-breakers or receivers of special and “pernicious” privilege. To-day no business man can defend his rights before the courts of Mexico, for all rights, even the common rights of corporate business, are in some way or another contradictory to the laws of the land. They receive privilege, and privilege in great and generous measure--if they are friendly to the ruling group or their satellites. They receive privilege by the grace of government, not rights by the power of government. Government theoretically exists for the protection of the weak, but government in Mexico exists actually for the exploitation of the strong by officials and for the suppression of the weak if the strong want and can pay for such suppression.

Strangely enough, the strong in Mexico are not altogether contented with this condition. Somehow business, with its awakening consciousness to its helplessness, is finding the situation irksome. The greatest single industry in Mexico to-day is oil, and oil pays about $50,000,000 a year in various taxes to the Mexican government--and for what? Almost all of it for the privilege of doing business, and the result is that oil is at the mercy, to-day, of government caprice and the caprice of Mexican officials. The laws of the present era of Mexico are enacted literally for the purpose of having a “club” of control over all forms of business activity, laws to be enforced when it is convenient, or to be “forgotten” when that is desirable. The oil companies spend time and vast effort to keep their protests to the Washington and Mexican governments in good order--so that the price of their privileges may be kept low. The legitimate portion of their taxes is only about forty per cent of the total sum they pay, but it is probably literally true that they would pay all they now pay and more if they could dispense with the rule of privilege and trade it for decent human rights to do decent business in a decently governed country.

In this, these companies are fighting the fight of the individual business man as well as the fight of their own stockholders. It may all be selfish, and doubtless is, but by a strange turn of affairs, the laws of Mexico have worked out to the creation of salable privilege instead of defensible rights, and this has thrown all business into the same group. The business problem of Mexico is literally the achievement of this exchange of privileges for rights. And until that exchange is effected, he is but a gambler who goes into Mexico to seek or to offer honest business, for even though he should gain much sure profit in the beginning, those profits will be more than wiped out later unless the legitimate business of Mexico is given the legitimate rights of business.

And how is this exchange of privileges for rights to be effected? This is the problem that confronts American business and American government to-day. The issue is joined clean and is simple indeed. The provisions of the Mexican Constitution of 1917 and the laws which give it effect remain on the Mexican statute books to-day because they are profitable to the group in control of the government. They mean, literally, graft and power, for where privilege is necessary for the carrying out of business, there is a price on privilege, but where rights are provided for business, the price and the prize are upon industry and activity.

To the members of the American Chambers of Commerce on tour in Mexico, to the American manufacturers who are invited to ship goods to Mexico to-day, offers of privilege are made, privilege without graft or price, now. But the price is there, and is clearly worked out in the subtle Mexican mind. These American business men, pleased with their reception, are to become boosters of the Mexican government, demanding its recognition and scouting the great financial interests who are their traditional enemies at home. That is price enough to the Mexican mind. But when recognition is gained, and when those same individuals seek to do business in Mexico under “normal” conditions, the laws which ensconce privilege and give it into the hands of petty and high officials for dispensation, will reap their toll.

One way only remains--the removal of privilege, the establishment of rights. Insistence on these issues alone will almost solve the Mexican problems politically and commercially. But the Mexicans are wise indeed when they seek to divide the counsels of this country, to place the small American business man and manufacturer in a position of antagonism to the issues that are set clear in Washington, the issues of political privilege versus political rights, the issues of the business privileges which those individual Americans seek to gain for themselves versus the business rights that will include them and all their fellows.

The call is again for clear foresight and not for sentimentalism, for a social conception of business and not for a selfish, individualistic hope of getting in ahead of the next fellow. The Americans who have been longest in Mexico are begging to-day for rights in exchange for privilege. They know, as those who look upon Mexico from outside or as newcomers do not know, that until Mexico mends her ways with business, business can never rescue Mexico from the slough of her present unhappiness. They know that no business in any nation can long prosper without the prosperity and the good sense of the government of that nation. They are not pirates, and they know that piracy, in government or in business, leads but to the destruction of both. What they know we may have for the listening. If we do not take it, we, too, must learn, as they learned, in the costly school of experience.