Foreign Capital in Mexico

Press, Volume LXXIV, Issue 22358, 23 March 1938, Page 10

Foreign Capital in Mexico

The expropriation of foreign oil companies by the Mexican Government is the not unexpected climax to a long series of labour disputes in the Mexican oil industry. In June of last year foreign companies were compelled by a strike among their employees to establish a 40-hour week and at the same time were ordered by the Labour Board, a State tribunal for the settlement of industrial disputes, to pay all workers for the 12 days they were on strike. Refusal b; the foreign companies to obey this order precipitated further strikes, the workers claiming wage increases in addition to the strike pay to which they were legally entitled. Towards the end pf last year the workers’ claims were referred to the Labour Board, which a week before Christmas issued (at the dictation, it was alleged, of President Cardenas) a decision increasing wages by one-third in the foreigh-owned oil industry. The 16 British and American companies involved promptly issued a statement that they would not and could not pay the new rates and that in their .opinion the Labour Board had reached its decision by extra-legal means. It was contended on behalf of the companies that the rates were from three to five times those ruling in locailly-controlled industries, that the inci’eases were not being applied to workers in the small State-controlled oil industry, and that the Labour Board was in reality the instrument of the Government’s policy of driving foreign capital out of Mexico. At this stage Washington and London combined to exert diplomatic pressure and it was agreed that the ruling of the Labour Board should be tested in the Supreme Court. The move was an unfortunate one for the companies, since the higher tribunal not only upheld the decision of the Labour Board but ruled that the new rates must be retrospective to the board’s original pronouncement. Refusal by the companies to comply with the Supreme Court’s decision has, apparently, supplied President. Cardenas with what he regards as an

adequate legal justification for expropriation. The attitude of the British and American Governments will be watched with some interest, since there are enormous sums of foreign capital, mainly British and American, invested in Mexican mining and public utilities. The American Government has indicated that it does not in the meantime contemplate diplomatic pressure and has advised the companies to seek legal redress; the British Government, although British capital controls about 60 per cent, of Mexico’s oil output, has not yet committed itself. It seems possible, however, that President Cardenas may be willing to compromise. Although his declared goal is to bring all Mexican industry lender Mexican control, he has hitherto been content to approach the goal slowly. For if Mexico is compelled to depend on her own slender resources of capital, the Mexican workers, like the Russian workers under the first Five-Year Plan, will be compelled to make heavy sacrifices for the sake of the future; and there is now so much economic distress that the government which has to demand these sacrifices will probably become acutely unpopular. Moreover, the withdrawal of foreign technicians will create almost as severe a problem as the withdrawal of foreign capital. For many years at any rate Mexican-controlled industries must be less efficient than industries controlled by foreigners. If these considerations do not persuade President Cardenas to modify his campaign against foreign interests, there is still a possibility that the United States Government will play its trump card and stop buying Mexican silver. The result of this step would oe to deprive Mexico of about 13 per cent, of her national income and to destroy the stability of the Mexican currency.