George Friedman

by The Next Decade: Where We've Been --;Where We're Going

  Even though Brazil is not yet in any way a threat to American interests, the underlying American strategy of creating and maintaining balances of power in all areas requires that the United States begin working now to create a countervailing power. There is no rush in completing the strategy, but there is an interest in beginning it.

  In the next decade, while maintaining friendly relations with Brazil, the United States should also do everything it can to strengthen Argentina, the one country that could serve as a counterweight. It should be remembered that early in the twentieth century Argentina was the major power in Latin America. Its current weakness is not inevitable. The United States should work toward developing a special relationship with Argentina in the context of a general Latin American development plan that also includes resources devoted to Uruguay and Paraguay.

  This is a region where modest amounts of money now can yield substantial benefits later. Argentina’s geography is suited for development; it has an adequate population and room for still more people. It has a strong agricultural base and a workforce capable of developing an industrial base. It is protected from all military incursions except those from Brazil, which should give it an incentive to play the role that the United States wants it to play.

  The challenge in Argentina is political. Historically, its central government has been focused on addressing social problems in ways that actually undermine economic development. In other words, politicians tend to gain popularity by spending money they don’t have. Argentina has also gone through periods of military and other dictatorship with imposed austerity, a cycle in which it does not differ fundamentally from other Latin American countries, including Brazil.

  The Brazilians will see a long-term threat in U.S. support for Argentina, but ideally they will be preoccupied with their own development and the internal stresses it generates. Nevertheless, the United States should be prepared for the Brazilians to offer Argentina economic incentives that would tie its economy closer to their own. Still, two factors play in the Americans’ favor. First, Brazil still needs to preserve its investment capital for domestic use. Second, Argentina has long feared Brazilian dominance, so given a choice between Brazil and the United States, it will opt for the latter.

  The American goal should be to slowly strengthen Argentina’s economic and political capabilities so that over the next twenty to thirty years, should Brazil begin to emerge as a potential threat to the United States, Argentina’s growth rivals Brazil’s. This will require the United States to provide incentives for American companies to invest in Argentina, particularly in areas outside of agricultural products, where there is already sufficient investment. The United States also should be prepared to draw the American military closer to the Argentine military, but through the civilian government, so as not to incite fears that the U.S. is favoring the Argentine military as a force in the country’s domestic politics.

  The American president must be careful not to show his true intentions in this, and not to rush. A unique program for Argentina could generate a premature Brazilian response, so Brazil should be included in any American program, if it wishes to participate. If necessary, this entire goodwill effort can be presented as an attempt to contain Hugo Chávez in Venezuela. It will all cost money, but it will be much cheaper, in every sense, than confronting Brazil in the 2030s or 2040s over control of the South Atlantic.

  MEXICO

  Like Cuba, Mexico is a special case in U.S. relations, and the obvious reason is that it shares the long U.S. border stretching from Texas to California. And yet Mexico is a society at a very different stage of development from Canada, the neighbor to the north, and it therefore interacts with the United States very differently. Nowhere else do domestic politics and geopolitics intersect more directly and perhaps more violently than along the desert frontier south and west of El Paso.

  These two countries have had a complex and violent relationship throughout their history. In 1800, if a reasonable person had asked which would be the dominant power in North America in two hundred years, the logical answer would have been Mexico. It was far more developed and sophisticated (and better armed) than the United States at the time. But after vastly expanding its territory through the Louisiana Purchase, the United States pushed Mexico to its current borders, first by seizing Texas and then by waging the Mexican-American War, which forced Mexico out of its holdings as far north as today’s Denver and San Francisco.

  The reason for American success in appropriating those western lands was ultimately geographical. Compared to the area around Mexico City, the northern part of the country is underpopulated, and it was even more so in the nineteenth century. The reason is that the land running from the border both north into the United States and south into Mexico is intensely dry and desolate, and it is especially inhospitable on the Mexican side. That meant that the Mexicans found it difficult to settle and support populations north of the desert, and even harder to move armies northward. During the uprising of Anglo settlers in Texas, the Mexican president and military leader Santa Anna moved an army of peasants north through the desert to San Antonio. A period of cold weather then crippled many of his soldiers, who were from the jungles of the south and had no shoes. Santa Anna’s army was exhausted by the time it arrived, and while it defeated the defenders of the Alamo, it was itself defeated at San Jacinto, near the present city of Houston, by a force that had only two virtues: it was not exhausted and it was not shoeless.

  The creation of a new border between the United States and Mexico created a new reality in which the populations on both sides are able to move freely back and forth, migrating with economic opportunities and engaging in smuggling whatever is illegal on the other side. These turbulent borderlands exist throughout the world, between any countries whose political boundaries and cultural boundaries don’t match up, usually because, as in this case, the border has moved. Sometimes, as in the case of Germany and France, the issue of the borderland generates war. At other times, as between the United States and Canada, the border is a matter of little importance. The situation of Mexico and the United States in the next decade will be somewhere between the two extremes.

  Mexico is a country of 100 million people, most of whom live hundreds of miles away from the United States. It is now the world’s fourteenth largest economy—counting only legal commerce—with a GDP of over $1 trillion. It annually exports about $130 billion worth of goods to the United States and imports about $180 billion worth, making it the second largest trading partner with the U.S., after Canada. The United States obviously can’t afford to disengage from Mexico, certainly not in less than a generation. Nor does it want to.

  But the United States faces two problems: Mexico’s illegal export of immigrant workers and Mexico’s illegal export of drugs. In both cases the underlying issue is the appetite of the American economic system for the commodities in question. Without the appetite, the exports would be pointless. Because of the appetite—and particularly in the case of drugs, because of their illegality—the export is advantageous to individual Mexicans and to Mexico as a whole.

  It is important to understand that Mexican immigration is fundamentally different from immigration from distant countries such as China and Poland. In those cases, people are breaking their tie with a homeland that is thousands of miles away. Some degree of assimilation is inevitable, because the alternatives are isolation or a life within a culturally segregated community. Although immigrants have frightened Americans ever since the Scots-Irish arrived to unsettle the merchants and gentry of eighteenth-century America, there is a fundamentally geopolitical reason not to compare Mexican immigration with those precedents.

  Not only is Mexico adjacent to the United States, but in many cases the land the migrants are moving into is land that once belonged to Mexico. When Mexicans move northward, they are not necessarily breaking ties with their homeland. Indeed, within the borderland, which can extend hundreds of miles into both countries, the movement no
rth can require minimal cultural adjustment. When Mexicans move to distant cities, they react as traditional immigrants have done and assimilate. Within the borderland, they have the option of retaining their language and their national identity, distinct from whatever legal identity they adopt. This state of affairs can create serious tension between the legal border and the cultural border.

  This is the root of the profound anxiety within the United States today about Mexican illegal immigration. Critics say that American concern is really an aversion to all Mexican immigration, and they are not altogether wrong, but this analysis does not fully appreciate the roots of the fear. Non-Mexicans within the borderland and even beyond are afraid of being overwhelmed by the migrants and finding themselves living culturally in Mexico. They are also afraid that the movement north is the precursor to Mexicans reclaiming formerly Mexican territories. The fears may be overwrought, but they are not irrational; nor can they be avoided.

  The irony, of course, is that the American economy requires these migrants as low-wage workers. The only reason that individuals take the risk of coming to the United States illegally is the certainty that they will be able to get jobs. If migrants were not required in order to fill these jobs, the jobs would be filled already and the migrants would not come.

  The counterargument—that migrants take jobs from others, or that their claims on social services outweigh whatever economic advantages they provide—is not entirely frivolous, but it has some weaknesses. First, 10 percent unemployment in the United States translates into about 15 million people out of work. The Pew Hispanic Center estimates that there are about 12 million illegal immigrants in the United States. If the replacement theory were correct, then getting rid of illegal immigrants would create 12 million job openings, leaving only 3 million unemployed and an unemployment rate of only about 2 percent. That such a replacement scenario seems intuitively illogical argues to the point that most of the low-cost, unskilled labor that is imported does not compete with the existing workforce. The American economy requires additional workers but doesn’t want to increase the pool of citizens dramatically. The Mexican economy has surplus labor it needs to export. The result is predictable.

  And this problem will only intensify, because the fertility of nonimmigrant women has fallen below the rate of replacement, and this at a time when life expectancy has expanded. This means that we will have an aging population with a shrinking workforce—a condition overtaking the advanced industrial world in general. That means that countries will be importing labor both to care for the aged and to expand the workforce. Rather than subsiding, the pressure to import workers will increase, and even while Mexico improves its domestic economy, it will continue to have an abundance of exportable labor.

  Compounding the turbulence along the border are the law of supply and demand and the cost of goods applied to the American appetite for narcotics. Heroin, cocaine, and marijuana, the drugs of choice, originate as extremely low-cost agricultural products—weeds, essentially, that require almost no cultivation. Because the drugs are illegal in the United States, normal market forces don’t apply. The legal risk of selling drugs drives efficient competitors out of the market, enabling criminal organizations to create regional monopolies through violence that further suppresses competition, which further inflates the cost of the drugs.

  Illegality means that merely moving a product a few hundred miles from Mexico to Los Angeles will increase the price to the user by extremely high multiples. Official estimates of the amount of money flowing into Mexico from the sales of narcotics run from $25 billion to $40 billion a year. Unofficial estimates place the amount much higher, but even assuming that the $40 billion figure is correct, the effective amount is staggeringly high. When you look at the revenue from a product, it is not the amount you sell it for that matters—it’s the profit margin. For a manufactured product, such as the electronic components that Mexico exports to the United States legally, a profit margin of 10 percent would be quite high. Let’s assume that this is the profit margin for all legal imports from Mexico into the United States. Mexico’s exports of $130 billion would then generate about $13 billion in profit.

  The profit margin on drug sales is enormously higher than 10 percent, because the inherent cost of the commodity is extremely low. Marijuana needs no processing, and processing costs on heroin and cocaine are insignificant. A reasonable and even conservative estimate for the profit margin on narcotics is 90 percent, which means that the $40 billion from the illegal trade generates a profit of about $36 billion. Drugs generate free cash, then, at a level almost three times greater than all of Mexico’s $13 billion in legal exports.

  Even if Mexico makes only $25 billion a year at an 80 percent margin, that still means a profit of $20 billion a year, which is still $7 billion more than the profit being made from all legal exports. Play with the numbers as much as you like—even demonstrate that drugs generate only half the profit of legal exports—and the fact still remains that drug money helps the liquidity of the Mexican financial system tremendously. Mexico is one of the few countries, for example, that continued to make loans for commercial real estate construction after the financial crisis of 2008.

  It follows, therefore, that the Mexican government would be foolish to try to stop the trade. Certainly there is violence from the cartel wars, but it is generally concentrated along the border, not in the populated heartland of Mexico. On balance, the enormous amount of money pouring into the country—all of which finds its way into the banking system and the general economy in some way—benefits the country more than the violence and lawlessness harm it. As a consequence, the rational approach ought to be for the Mexican government to give the appearance of trying to stop the drug trade while making certain that all significant efforts fail. This would keep the United States mollified while making certain that the money continues to pour in.

  AMERICA’S MEXICO STRATEGY

  The American economy is too integrated with Mexico’s ever to allow a disruption of legal commerce, which means that large numbers of trucks will be moving between the United States and Mexico indefinitely. The volume of traffic is too high for agents at the border to inspect all cargoes, and therefore even if the border is walled off, both illegal aliens and drugs will continue to slip through at international crossings and elsewhere. Given the low cost of the narcotics before they reach the United States, the interception of cargoes has very little effect on trade. Cargoes are readily replaced with little impact on aggregate revenue.

  It should be much easier to stop illegal immigrants than drugs, because it is easy to detect immigrants once they are in the country. The simplest means of doing this is to institute a national identity card with special paper and embedded codes that make it extremely difficult to forge. No one could be employed until his or her employer first cleared the card via the sort of system currently used for credit card transactions. Any alien without a card would be deported. Any employer who hired him or her would be arrested and charged with a felony.

  But this simple method is highly unlikely to be employed, in part because many of the people most opposed to illegal immigration also have a deep mistrust of the federal government. The national identity card could be used to track the movement of money and people—to detect tax fraud and deadbeat dads as well as to monitor political organizations—which could easily lead to government abuse. Dissension within the anti-immigrant coalition on these issues will preclude support for such a system.

  But there is a deeper reason this relatively easy step won’t be taken: the segment of society that benefits from large numbers of low-cost workers is greater and more influential than the segment harmed by it. Therefore, as with the Mexican government and drugs, the best U.S. strategy is to appear to be doing everything possible to stop the movement of immigrants while making certain that these efforts fail. This has been the American strategy on illegal immigrants for many years, creating a tension between short- and mid-term economic interes
ts and long-term political interests. The long-term problem is the shift in demographics—and in potential loyalties—in the borderland. The president must choose between these options, and his only rational course is to allow the future to tend to itself. Given the forces interested in maintaining the status quo, any president who took the steps needed to stop illegal immigration would rapidly lose power. Therefore the best strategy for the president is to continue the current one: hypocrisy.

  Similarly, the drug issue has a relatively simple solution that will not be implemented: legalization. If drugs were legalized and steps were taken to flood the country with narcotics, the street price would plunge, the economics of smuggling would collapse, and the violence along the border driven by all the money to be made would decline precipitously. Along with that there would be a decline in street violence among drug addicts seeking to steal enough money for a fix.

  The downside of this strategy is that there would be an unknown increase in the amount of drug use and in the number of users. Existing users, no longer restricted by price, would increase their indulgence, and it is almost certain that some individuals who are unwilling to use drugs illegally would begin to use drugs once they were decriminalized.

  The president—and in this case it is up to Congress as well, so it is not really a foreign policy decision—would have to calculate the benefits of stopping the flow of money to Mexico and limiting violence in the borderland against increased drug use and worse, and would have to appear to favor or at least be indifferent to that increase. No significant political coalition in the United States is prepared to embrace the principle of crushing the illegal drug trade by legalization. So, like national identity cards, legalization simply won’t fly, for internal ideological reasons.