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Globalizations

ISSN: 1474-7731 (Print) 1474-774X (Online) Journal homepage: https://www.tandfonline.com/loi/rglo20

The Mexican Debtfare State: Dispossession, Micro- Lending, and the Surplus Population

Susanne Soederberg

To cite this article: Susanne Soederberg (2012) The Mexican Debtfare State: Dispossession, Micro-Lending, and the Surplus Population, Globalizations, 9:4, 561-575, DOI: 10.1080/14747731.2012.699932

To link to this article: https://doi.org/10.1080/14747731.2012.699932

Published online: 02 Aug 2012.

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The Mexican Debtfare State: Dispossession, Micro-Lending,

and the Surplus Population

SUSANNE SOEDERBERG

Queen’s University at Kingston, Ontario, Canada

ABSTRACT In the context of the 2008 financial crisis and how it has impacted on countries

across the globe, it is striking how few scholars have critically analysed why and how past

crises have created opportunities for states and capitalists to exploit the so-called ‘bottom of

the pyramid consumers’ in the developing world. By situating the analysis within the wider

neoliberalization processes, this article seeks to denaturalize the extension of consumer credit

to the growing number of informal sector workers who comprise the relative surplus

population in Mexico. Drawing on an historical materialist frame, I outline a key feature of

the neoliberal Mexican state—what I refer to as the debtfare state—that has served to

facilitate accumulation by dispossession strategies. These neoliberal strategies serve to

expose and integrate spaces of informality into different facets of the capitalist market, i.e.

the credit system, without including them ‘inside’ the capital relation–reproducing spaces of

marginality and insecurity.

Keywords: neoliberalism, Mexico, debtfare state, accumulation by dispossession, micro-

lending, surplus population

Introduction

The 2008 financial crisis worsened the living conditions for the majority of the people residing in

the global South. For approximately half of Mexico’s population, low levels of consumer con-

fidence in the United States, coupled with a fresh wave of fiscal austerity programmes have

translated into an even wider gap of socio-economic inequality, swelling rates of poverty and

pushing up unemployment levels (United Nations, 2011). Many Mexicans have either been cat-

apulted into, or entrenched more firmly in, the spaces of dispossession inhabited by the unem-

ployed and underemployed, constituting what Marx refers to as the relative surplus population

Correspondence Address: Susanne Soederberg, Queen’s University at Kingston, Kingston, Ontario, K7L 3N6 Canada.

Email: [email protected]

ISSN 1474-7731 Print/ISSN 1474-774X Online/12/040561–15 # 2012 Taylor & Francis http://dx.doi.org/10.1080/14747731.2012.699932

Globalizations

August 2012, Vol. 9, No. 4, pp. 561–575

(Marx, 1990). In the official and mainstream narratives—most of which have been dominated by

neoclassical economics—the relative surplus population has been erased by apolitical and ahis-

torical representations of the 2008 crisis. As has been the case since the 1980s’ debt crisis, the

focus and concern is not on ongoing human suffering and environmental degradation, but instead

on the ability of states to achieve and maintain growth through faithful adherence to market-led

reforms and strong economic fundamentals (IMF, 2011).

What remains conspicuous in the ahistorical and apolitical framing of the 2008 crisis in

Mexico is any analysis of capitalist power with respect to the root causes of growing levels

of structural inequalities and poverty. Moreover, there has been little interrogation of why

and how the Mexican (capitalist) state has continually consolidated and deepened the pro-

growth development model despite underlying tensions between its theoretical prescriptions

of neoclassical economics and social reality (cf. Morton, 2011). In what follows, I fill this

gap by exploring one feature of neoliberal-led capitalism in Mexico that clearly reflects this

tension: the tripartite connection between the singular obsession with economic growth as the

means of achieving development, swelling levels of relative surplus population, and the com-

mercialization of micro-lending to low-income workers who comprise the surplus population,

e.g. retail banking and privatization of micro-finance institutions discussed below. The

primary objective of this exercise is to denaturalize this neoliberal tension in Mexico by reveal-

ing how and why it has been constructed and reconstructed.

My thesis has two interlocking parts. The first is that the Mexican neoliberal state, and

especially a particular component thereof—the debtfare state—has played a vital, evolving,

yet highly conflict-ridden, role in supporting a debt-driven accumulation strategy, which has

been marked not only by deindustrialization and the dominance of the financial sector but

also by growing dependence on, and thus vulnerability to, the United States and global

capital flows. This historic form of capital accumulation has not only helped to increase the rela-

tive surplus population in Mexico over the past several decades, but has also served to remake

the dualism inherent in the wider accumulation processes characterized, on the one hand, by the

expanded reproduction of capital (e.g. the sphere of production) and, on the other hand, by what

David Harvey has called accumulation by dispossession strategies, which I limit here to the

realm of consumer credit only (Harvey, 2003). The Mexican debtfare state has played a

major role in facilitating, normalizing, and reproducing this dualism.

The second part of my argument is that in an effort to overcome the limits to capital accumu-

lation and take advantage of the lax regulatory environment surrounding consumer credit, capi-

talists operating in Mexico have been actively and aggressively pursuing accumulation by

dispossession strategies, exposing large numbers of people in the relative surplus population

to secondary forms of exploitation by charging exorbitant interest rates. Aside from making

money from money (M . . . M1) (Harvey, 1999), these strategies, which have been actively sup-

ported by the debtfare state, have had another effect: through their relations of power and dis-

ciplinary machinations, accumulation by dispossession strategies expose and integrate spaces

of informality into different facets of the capitalist market, i.e. the credit system, without includ-

ing them inside the capital relation. This, in turn, reproduces and naturalizes the position of the

surplus population outside the capital relation, while remaining within the bounds of capitalist

society. The debtfare state, alongside other components of the neoliberal state form (e.g. work-

fare, competition states, and prisonfare), has partly assisted in the rearticulation and re-creation

of the outside–inside (or, informality–formality) dualism in Mexico, and, more generally, in the

making and remaking of neoliberal forms of domination, albeit in an uneven and paradoxical

manner.

562 S. Soederberg

I have organized my analysis into three sections. Section 1 provides a stylized elaboration

on three core and interrelated concepts informing my analysis: the meaning of debtfare states,

David Harvey’s accumulation by dispossession, and Marx’s relative surplus population.

Section 2 examines two interconnected scalar features of the Mexican debtfare state: its

macro-articulation in the form of the politics of austerity and its micro-articulation in terms

of the colonization of spaces of informality through commercial credit relations aimed

at the ‘bottom of the pyramid’ market. Section 3 summarizes the argument and draws

conclusions.

Framing Debtfare, Dispossession, and Surplus Workers

It is important to grasp crisis, not as a one-off phenomenon; but instead as a regular feature of

class-led capital accumulation under neoliberalism, or, what others have referred to as a crisis-

restructuring continuum (Bonefeld, 1995). According to Jamie Peck, the analytical challenge is

to figure out how conjunctural episodes of neoliberalism have chained together over time, how

they have become interwoven, and how the project has achieved a form of evolutionary conso-

lidation (Peck, 2010, p. 6). Peck goes on to suggest that capturing and explaining historically

these connected conjunctural episodes of neoliberalism also involve understanding the remaking

of one of its core tensions: the laboratory experiments informed by neoclassical economics and

rooted in (justified) mathematical equations, and the up-till-now unattainability of these lofty

aspirations (Peck, 2010). The above tripartite nature of neoliberal-led growth in Mexico is a

case in point. Thus, despite the fact that neoliberal prescriptions do not work, ‘They have

nevertheless tended to fail forward, in that their manifest inadequacies have—so far

anyway—repeatedly animated further rounds of neoliberal intervention’ (ibid., p. 6).

Seen from the above angle, neoliberalization must be understood as a continual and paradox-

ical process, as opposed to static end state. Since its inception in the 1970s, neoliberalization has

been transformed, albeit in variegated expressions along various scales and territories, to its

more contemporary expression and focus, namely: the construction and consolidation of insti-

tutional and regulatory state forms since the mid-1990s. This more recent expression of neoli-

beralism strives to deepen and expand market rule and commodification. It thus ‘reflects both

the contradictions/limitations of earlier forms of neoliberalization and the attainment of a

more aggressive/proactive form of contemporary neoliberalization’ (Peck and Tickell, 2002,

p. 384). While this understanding of neoliberalization is both rich and informative for our analy-

sis, I believe that we require more conceptual tools to grasp the by the Mexican state in natur-

alizing, legitimizing, and reproducing the prevalence and continued expansion of debt-led

(financial) forms of capital accumulation, or as we discuss below growth cum debt. The latter

has been marked by, among other things, the ability to make money from money (i.e. generate

interest) without engaging in the productive realm (i.e. extracting profit through the exploitation

of labour). It has also been characterized by the relative power of states to push their spending

constraints into the future (e.g. through the sale of government bonds). Furthermore, through

legal and regulatory means, capitalist states have the power to dictate the terms and conditions

under which certain classes in capitalist society gain access to credit and which classes are per-

mitted to generate income (interest) through the extension of credit to the former, non-capitalist

class. States also have the power to create debt as well as socialize privately held debt through

corporate welfare strategies (e.g. bank bail-outs). While these powers are not exclusive to the

neoliberal era, they have become particularly pronounced in most capitalist states since the

late 1970s, and have, as discussed below, shifted since the mid-1990s.

The Mexican Debtfare State 563

That said, the analytical component I would like to introduce to give our analysis more pre-

cision and depth is the debtfare state. Owing to spatial constraints, I can only provide a sketch of

this concept. The debtfare state refers to a particular and historical dimension of capitalist states,

and, more specifically its neoliberalized form. Seen from the above perspective, the debtfare

state represents various functions in legitimizing and guaranteeing debt-led forms of accumu-

lation. Like neoliberalization, debtfare is a complex, multifaceted, contradictory, and uneven

set of coercive and ideological processes (e.g. discourse and policy formation, including legal

and regulatory framing) that seek to consolidate and perpetuate wealth and power in capitalist

society marked by the dominant form of debt-led forms of accumulation (Peck, 2010).

As with the variegated forms of neoliberalization, the debtfare state, too, assumes different

expressions across different scales, places, and territories (Peck and Tickell, 2002; see also

Soederberg, forthcoming, for a discussion of the US debtfare state).

Generally speaking, the debtfare state is a national (and scale) specific state form that com-

prises one of many components of neoliberal states, which include, but are not limited to, orient-

ing economic and social policy toward the attraction and retention of foreign capital flows, i.e.

competition states (Cerny, 1997; Soederberg, 2010), the commodification and individualization

of welfare or what Jamie Peck refers to as workfare states (Peck, 2001), and the criminalization

and marginalization of impoverished workers evident by Loic Wacquant’s concept of prisonfare

(Wacquant, 2009). The variegated expressions of debtfare states, an integral feature of histori-

cally specific spaces of debt-led capital accumulation, relate to the construction, legitimization,

and management of both private and public debt. In short, debtfare states, through regulatory and

legal mechanisms, seek to guarantee, normalize, and reproduce the deepening and extension of

debt-led forms of accumulation through a variety of means such as monetary and fiscal policy

formation, prisons, courts, as well as through ideological strategies such as the mantra of finan-

cial inclusion as popular market-led strategy for poverty alleviation (World Bank, 2006). For

instance, although financial inclusion is not a specific mandate of Mexico’s Central Bank, this

important debtfare state institution has sought to support this initiative through price stability

as well as ‘the promotion of sound and efficient financial payments systems’ (Banco de

Mexico, 2011, p. 3).

In its attempts to deal with the effects of the crisis-restructuring continuum, including past fail

forward strategies, the debtfare state has facilitated ongoing aggressive accumulation by

dispossession strategies, marked by contemporary expressions of ‘force, fraud, oppression,

and looting’ aimed at extracting interest payments on personal credit, or secondary forms of

exploitation, from the relative surplus population (Harvey, 2003, p. 137). Capitalists engaging

with secondary forms of exploitation are able, with the assistance of the state and particularly

its debtfare policies (described below), to modify workers’ real income (Harvey, 1999,

p. 285; Marx, 1990).

For Marx, the relative surplus population is constituted by a highly dynamic group of workers

that exist in various forms such as the floating, the latent, and the stagnant. ‘Every worker

belongs to it during the time when [s]/he is only partially employed or wholly unemployed’

(Marx, 1990, p. 794). The term ‘relative’ prefacing the concept of surplus population signals

that the concept shapes, and is shaped by, the wider processes of capital valorization, which nor-

mally involve the exploitation of labour in the formal sector of commodity production (Marx,

1990). However, as various commentators have rightfully warned, it would be historically incor-

rect to grasp the relative surplus population as a functional (to capital) social phenomenon that is

either static or homogenous in nature. Those who fall into the category of the surplus population

experience different degrees of economic insecurity in relation to the ‘inside’ (expanded

564 S. Soederberg

reproduction) (Nun, 2000). Moreover, although not discussed here, the relative surplus popu-

lation is heterogeneous in terms of its gendered, ethnic, and racialized dimensions (cf. Taylor,

2011). Like all aspects of capitalist society (e.g. the debtfare state, credit, capital relation), the

surplus population is a social construct involving a highly dynamic, heterogeneous, and contra-

dictory set of fluid social relations that are spatially and temporally specific and constantly shift-

ing and changing, i.e. workers are not bounded to these spaces, but may move between informal

and formal spaces (Marx, 1990).

Seen through this lens, debtfare captures the ways in which state policy seeks to stabilize the

highly uneven processes and consequences of neoliberal forms of capital accumulation in the

realm of expanded reproduction, targeting the growing and even acute levels of surplus

population—people who stand outside of the capital relation but are part of capitalist

society—lest they revolt or engage in forms of social organization that are based on non-

capitalist production such as subsistence farming, squatting, etc. The problem for states and capi-

talists in the post-1990 neoliberalization is how to enclose and depoliticize these ever-increasing

spaces of marginality that stand outside expanded reproduction in such a way so as to maintain

the (investment) integrity and stability of the inside. Put another way, the relative surplus popu-

lation must be integrated into, and thus disciplined by, the capitalist market without being incor-

porated into the capital relation. As Nun noted, contrary to conventional sociological wisdom,

non-integration (into the relations that constitute expanded reproduction) may be an efficient

manner of achieving social integration in both the outside and the inside (Nun, 2000).

As we will see below, the attempts to achieve social harmony among those relegated to the

outside of the capital relation has been made largely by rhetoric around the democratization

of debt and the transformation of the marginalized masses into consumers of credit. In what

follows, I provide a stylized account of two broad and overlapping scales of the Mexican debt-

fare state: (1) the macro-scale and the politics of austerity, and (2) the micro-scale and the colo-

nizing of spaces of informality through debt.

Scales of Debtfare in Mexico

A Macro-Scale of Debtfare: The Paradoxes of ‘Growth cum Debt’

A key feature of the macro or national scale of debtfare in Mexico is the politics of austerity that

seeks to normalize and discipline social relations, particularly labour, to the exigencies of capital

under the auspices of growth. This disciplinary strategy hinges tightly on the World Bank’s debt

cycle hypothesis (DCH), first introduced in the 1960s. As Altvater explains, through the DCH,

the World Bank seeks to support its claim that the debt crisis can be overcome. The common-

sense assumption driving the DCH is that ‘The only way out of the debt crisis on offer is one

labelled growth cum debt’ (Altvater, 1993, p. 127). As noted earlier, the IMF boasted that

the Mexican government averted crisis in the post-2008 period because of its commitment to

ensuring growth.

In this section, I outline several features that have characterized the ‘growth cum debt’ regime

in Mexico. As with most developing countries, a central paradox of neoliberal-led development

in Mexico has been the disconnect between the promises of the pro-growth orthodoxy (and the

‘Washington Consensus’ of the World Bank and the IMF, more generally) and the outcomes of

neoliberal reform, which have included lower growth levels than the 1960 to 1980 period

(Cypher and Wise, 2010; US Congressional Research Services, 2010), continued lack of inter-

national competitiveness in terms of both export and capital markets, persistent current account

The Mexican Debtfare State 565

deficits, problematic levels of public debt, and higher socio-economic inequality—all of which

have led to increased forms of social discontent and conflict geared toward the state. These

policies pursued by the debtfare state have resulted in swelling numbers of people relegated

to the relative surplus population under neoliberal rule (Cypher and Wise, 2010; Nun, 2000).

According to the neoliberal paradigm, economic growth was to be fuelled by foreign direct

investment (FDI) and foreign portfolio investment, as well as the targeting of lucrative export

markets. The narrative also entailed a construction of the structural power of capital markets

vis-à-vis the state in which the politics of austerity were normalized as an integral and necessary

feature of economic stability and growth. State policy aimed at austerity is naturalized and

further galvanized by the apparently scientific (quantitative) and objective scoring mechanisms

put in place by the fickle gatekeepers of investment: credit-rating agencies, such as Moody’s and

Standard and Poor’s. To achieve good credit ratings growth, all obstacles to a ‘perfect market’

must be removed, including state-owned enterprises, regulations on trade, state-controlled inter-

est rates, and so forth. According to the neoliberal ideologues tied to the Consensus as well as

their sympathizers in the Mexican state, the only logical objective of state policy is optimizing

economic growth by boosting the role of private sector activity (Soederberg, 2004).

The Mexican debtfare state actively pursued tight fiscality aimed at limiting inflation, which

in turn weakened already thin social programmes. Since the success of restructuring presupposed

a huge amount of foreign capital investment to aid the transition to export promotion industri-

alization, the state has held the door wide open to transnational capital, especially from the US,

by re-regulating the stock market (i.e. reduce government restrictions on strategies of making

money from money) and expanding foreign ownership of banks, particularly from the United

States, Canada, and Spain, whose ownership levels topped 85% in 2005 (Marois, 2012). More-

over, the continual adoption of supply-side policy instruments by the debtfare state has resulted

in successfully controlling inflation and stabilizing prices through high interest rates and the

build up of substantial foreign reserve currencies (Ocampo et al., 2006). Indeed, like other gov-

ernments in the global South, the Mexican state has turned to building up a war chest of foreign

currency as a way to reduce its financial vulnerability. This has led to a contraction of domestic

investment and increased domestic debt levels, which has in turn translated into a serious short-

age of public revenues and rising financial commitments to pay foreign and internal debts

(Correa, 2006).

Mexico’s public sector debt grew to over 50% of the gross domestic product (GDP) in 2003

(Álvarez Béjar, 2006; Del Castillo, 2006). Like most developing countries, internal debt has con-

tinued to rise due to an explosive increase in new and expensive forms of government borrowing,

e.g. servicing internal debt in 2007 amounted to $600 billion, or triple the cost of servicing the

external debt for developing countries (Toussaint, 2008). Building up foreign currency reserves,

engaging in corporate welfare activities (i.e. bail-outs), and issuing government bonds are some

reasons for the ballooning of internal public debt levels. Although Mexico’s major sources of

foreign exchange—oil, tourism, and the remittances of migrant workers—have all been on

the rise, the current account deficit continues as imports exceed exports, a pattern that has

remained consistent since the onset of neoliberalization in the country (Soederberg, 2004).

Moreover, while inflation has remained low at the time of writing, it has been accompanied

by one of the highest rates of unemployment in recent times, which is more than likely

higher than official reports reveal given that unemployment statistics have been minimized by

the government at least since the early 2000s, i.e. the Mexican state considers anyone who

works for one hour of one day per week to be employed (Álvarez Béjar, 2006). Indeed, the

growth cum debt accumulation processes, which have been facilitated by the Mexican debtfare

566 S. Soederberg

state, have ‘been marked by stagnation, astonishingly high levels of emigration, and an explod-

ing “informal” economy where perhaps a majority of the economic population ekes out a pre-

carious hand-to-mouth existence’ (Cypher and Wise, 2010, p. 9). The informal sector, as it is

understood here, encompasses the relative surplus population, and is defined by workers ‘who

are not officially listed as operating registered businesses or employees not listed in the official

accounting of the labour force as determined by social security or similar entities and working

without officially sanctioned labour contracts’ (ibid., p. 26).

Given the organic link (Harvey, 2003; Marx, 1990) between expanded reproduction (inside)

and accumulation by dispossession strategies involving the surplus population (outside), it is

useful to provide an overview of the effects of the growth cum debt strategies pursued by the

wider neoliberal development model in Mexico. Up to the time of writing, Mexico’s pro-

competitive micro-industrial policy has simply meant further deregulation as opposed to any

substantial investment in innovation-driven industry. Thus, Mexico’s comparative advantage

continues to rest on its great quantity of cheap and unskilled labour. This has, in turn, resulted

in an increasingly larger relative surplus population since there are limited employment spaces

for this type of labour inside the capital relation. Mexico’s surplus population has been experi-

encing worsening employment conditions due to the weakening of union power and overall

labour flexibilization policies. This has meant, in contrast to the DCH, that trade liberalization,

especially in the form of the North American Free Trade Agreement (NAFTA), has not altered

Mexico’s dependence on large amounts of FDI (Cypher and Wise, 2010; Randall, 2006). Indeed,

many authors have suggested that NAFTA is characterized by a tendency toward deindustriali-

zation (Cypher, 2001; Soederberg, 2004). As Kathryn Kopinak (1994) notes, the new industries

in the maquiladora sector offer fewer jobs than the number lost from Mexican-owned industry

and agriculture. Indeed, as maquiladoras expanded, manufacturing as a share of GDP stagnated,

and the share of the labour force diminished (Jonakin, 2006). Moreover, jobs in the maquila-

doras are comparatively unskilled and poorly paid, which implies not only that workers have

reduced purchasing power and thus increased economic inequality, but also that the internal

domestic market has shrunk with the shift towards export production (Kopinak, 1994). It is

quite telling that one of the main sources of income generation in Mexico’s alleged export-

led economy has been remittances, i.e. exporting its labour to the US to facilitate the latter’s

accumulation by dispossession strategies (cf., Cypher and Wise, 2010).

Debtfare II: Colonizing Spaces of Informality and Remaking the ‘Other’

The second and overlapping articulation of the debtfare state operates at a more micro-scale and

predominantly involves disciplinary strategies that may be referred to as ‘colonizing structures’

of debt. Briefly, the colonizing structures of debt facilitate and normalize secondary forms of

exploitation by guaranteeing appropriate structures of law and governance. These secondary

forms of exploitation act to socialize and impose temporal discipline over the excluded

masses in order to serve the prerogatives of capital, e.g. construction of market citizens who

are respectful/fearful of market discipline. Such strategies are aimed at integrating members

of the relative surplus population within capitalist society despite their exclusion from the

capital relation, or what Marx refers to as the expanded reproduction of capital.

Specifically, this second articulation of the debtfare state assists in legitimizing the penetration

of formal banking institutions into spaces of informality, where the relative surplus population

resides. These strategies, which coincide with the consolidation of a wave of privatization

schemes in the banking sector, became prominent in the mid-2000s under a new mantra that

The Mexican Debtfare State 567

has been integral to the neoliberal development model: banking the unbanked, or what is also

referred to as the bottom of the pyramid (BOP) market. Who are these others that have been

recast as the unbanked? And, why draw these others into the formal banking system? According

to a World Bank 2008 study entitled Who are the Unbanked?, 60% of the unbanked in Mexico

belong to a ‘marginalized’ group since they work in the informal sector (World Bank, 2008). The

marginalized are overrepresented by indigenous peoples, who have suffered the most from the

policies of the debtfare state and wider neoliberal restructuring strategies. According to another

World Bank report, in rural areas, 61% of the indigenous population live in extreme poverty

compared with only 19% of non-indigenous Mexicans (World Bank, 2007). The gender and

ethnic profiles of the unbanked are also noteworthy. While 19.1% of males in Mexico were

unbanked in 2006, 80.9% of females were unbanked. Moreover, three-quarters of the unbanked

households had children or economic dependents. Unlike the United States, 69.3% of Mexican

unbanked households owned their home in 2006, and thus had some form of collateral to offer

lenders (World Bank, 2006). Given the limits of the neoliberal-led forms of expanded reproduc-

tion discussed above, this so-called BOP market represents an immense opportunity for

capitalists.

Like many developing countries, Mexico is still predominantly a cash-based economy, in

which only 25% of households have accounts with formal financial institutions and payment

systems (CGAP, 2008). This means that, in principle, there is room for formal banking

systems, e.g. mobile banking, retail banking, and so forth, to expand their operations under

the rubric of financial inclusion and its implications for Mexico’s ‘growth potential’ as well

as an innovative poverty reduction tool (Banco de Mexico, 2011; World Bank, 2006). Moreover,

the unbanked demographic continue to rely on informal lending institutions, such as Cajas de

ahorros populares, as well as money-lenders (loan sharks) and pawnshops. While the latter

two lenders may charge interest rates up to 300%, Cajas de ahorros charge, on average,

lower rates than commercialized lenders. Nevertheless, all informal lenders remain unregulated.

For business observers, Mexico is underdeveloped in terms of consumer lending and banking

operations. Remittances, which have been hovering at around $25 billion per annum, are

largely outside the grasp of banks. ‘According to the Central Bank the majority of [remittances]

is sent via money orders, leaving small room for banks to take off some of those funds to inject

into the financial system’ (Latin Business Chronicle, 2010). This perspective on remittances is in

line with the growth cum debt regime, which suggests that building capacity in lending within

the financial system and creating a credit culture in Mexico, particularly among the relative

surplus population, will lead to a profitable banking and credit market as consumption in

durable and non-durable goods will, among other things, help stimulate the productive realm

(expanded reproduction of capital). For example, several studies have found a positive corre-

lation, but not conclusive evidence, between access to finance and firm creation, economic

growth, and poverty alleviation at the country level (World Bank, 2009).

According to the official development discourse, while informal lending organizations

provide a valuable service to the poor, their lack of accountability and transparency make

them an inefficient means of moving Mexicans out of poverty and helping the unbanked

strengthen and expand their asset bases (World Bank, 2005b). Following this logic, formal

banks play an essential role in ending poverty insomuch as they encourage responsible and

rational behaviour with regard to saving and borrowing. Of course, the issue is: to whom will

the poor turn for these services, and under what conditions? The World Bank reports ‘that

banked households borrow far more than the unbanked, and are also more likely to report con-

sumption smoothing in the face of negative income shocks, suggesting that the opening of bank

568 S. Soederberg

accounts does not just reallocate financial transactions to the formal sector but also has real

welfare impacts’ (World Bank, 2008). Consumption smoothing is premised on a neoclassical

assumption that people desire a stable path of consumption, particularly in light of ‘external

shocks’, such as a debt crisis or dismissal. The smoothing effect refers to the ability of consumers

to draw on savings or borrow in times of uncertainty (World Bank, 2009).

The mainstream discourse is premised on assumptions underpinning the justification for the

democratization of credit in advanced industrialized countries such as the United States

(Burton, 2008). Briefly, this notion implies that the removal of barriers that exclude the

access of all individuals—particularly poor people or those with no credit history—to main-

stream (formal) financial services is a fundamental and desirable policy ensuring not only that

all individuals are active market participants (savers and consumers), but also that these individ-

uals, regardless of considerations of place, race, class, and gender, are on equal footing (level

playing field) (World Bank, 2005b).

Two of the most important policy decisions implemented and normalized by the Mexican

debtfare state are the lack of legal limits on interest rates regarding consumer loans and the

lack of government oversight of the financial industry (World Bank, 2005a). This position

was firmly rooted in the Mexican state’s attempts to lure in and retain foreign banking interests

from 1998 onwards to help recapitalize and modernize the existing banking system. Major

reforms passed in 2001 sought to improve transparency in the financial system and open it to

more investors (World Bank, 2005a). Decoded, these moves were aimed at consolidating neo-

liberalism in Mexico in two ways: first, by signalling to capitalists that their rights as minority

shareholders would be protected by law; and second, by making the Mexican financial system

more transparent (predictable) to foreign investors by sharing information with foreign regula-

tors, demutualizing (i.e. privatizing) the stock exchange, and so forth (World Bank, 2005a).

Foreign, for-profit banks in Mexico have charged lower-income Mexicans interest rates

ranging from 50% to 120%, well above what these same banks charge their clients at home

(Businessweek, 2007c). The neoliberal justification of this policy stance is that high interest is

a rational response to higher levels of risk that are involved in lending to the poor, that is, an

inevitable feature of the democratization of credit. Questions of race, class, and gender are con-

veniently removed by depoliticizing mathematical tools used in the formula of risk-based

pricing whereby the higher the risk (or, poorer the consumer), the higher the interest the creditor

is permitted to charge.

It follows from neoliberal logic that the extension of credit to poorer segments of the popu-

lation will create ‘responsible’ and rational market citizens who, by embracing the (impersonal

and apolitical) market and its (neutral) temporal discipline (i.e. repayment schedule, work and

saving ethics), will help lift themselves out of poverty (Harvey, 2003). Indeed, the lack of ‘finan-

cial assets’ such as savings and credit forms an important explanatory factor in the official neo-

liberal development discourse with regard to poverty rates as well as structural inequalities

incurred by growth-led development (World Bank, 2007). What remains an enigma, however,

is how the relative surplus population is to build up financial assets in the face of a deindustria-

lizing productive realm and a predatory credit system based on strategies of accumulation by

dispossession. Two important features of accumulation by dispossession (backed by the debtfare

state) that have emerged over the past decade in Mexico are the commercialization of micro-

finance institutions and the rise of retail banking—both of which seek to integrate the poor

into the secondary forms of exploitation involved in making money from money. Before conti-

nuing, it is important to note that I have selected these cases because they are not the only forms

of micro-lending in Mexico; but rather because they represent some of the more recent, and

The Mexican Debtfare State 569

largely unexplored, attempts to expand and intensify debt-led accumulation strategies through

consumer credit.

Micro-Financing and Retail Banking in Mexico

Operating under the aegis of the need to further democratize credit among the poor in more effi-

cient ways (i.e. greater scale), the commercialization of non-profit micro-financing institutions

(MFI) began in the 1990s. This was partly due to perceived demand and to ongoing financial

reforms in Mexico, which introduced—among other things—more openness and flexibility in

the banking system, as well as foreign competition. Since the mid-2000s, major financial

actors have been attracted to the high interest on MFIs. Hedge funds, venture capital firms,

and other big players such as pension funds are jostling to get in on the action. According to

Scott Budde, a managing director at US pension colossus, TIAA-CREF, which aims to invest

$100 million in micro-financing, MFIs are ‘not a charitable activity . . . We’re looking to

produce competitive returns’ (Businessweek, 2007b).

Since 2000, for-profit MFIs in Mexico have experienced strong growth, as millions of

(primarily) Mexican women who live in spaces of informality (‘outside’ the capital relation)

have attempted to gain more economic security for themselves and their families by becoming

small-scale entrepreneurs. A key player in this area of lending for the purpose of establishing

micro-enterprises has been Compartamos Banco (or, the ‘Let’s Share Bank’ in English), cur-

rently the largest micro-finance lender in Latin America. In 2007, Compartamos completed a

landmark initial public offering (IPO) of its stock, becoming the first MFI to transform itself

into a publicly held corporation. The IPO has been a huge success and has generated high

returns for shareholders. Compartamos has been dubbed ‘one of Mexico’s most financially suc-

cessful banks, providing investors with an average annual return on equity of 53 percent from

2000 to 2007’ (Businessweek, 2007a).

A key reason for this financial success has been the extremely high interests charged by Com-

partamos. According to its website, the bank’s effective interest rate was 105% in 2007; the 2011

rate is estimated to be hovering around 195% (Roodman, 2011). To put this rate in perspective,

in Andhra Pradesh, the Indian state that has recently experienced a crisis of farmer suicides that

have been linked, among other things, to high rates of indebtedness, the rate of interest was

around 30%; Compartamos has charged over 100% (CGAP, 2007; Roodman, 2011). Owing

to the dominance of Compartamos in the MFI market, interest rates average 81% in Mexico.

As with most MFIs, Compartamos ensures repayment primarily through peer pressure mechan-

isms, ensuring that the bank is repaid, even if the small groups of mostly women have to make up

the difference when a member is unable to meet her payment (Bateman, 2010; Taylor, 2011).

Behind the rosy claims that its clients ‘are agents of change who are building a better

country and world’, Compartamos engages in secondary forms of exploitation that have made

handsome dividends for its shareholders (Roodman, 2011).

As is the case with other MFIs in Mexico, Compartamos caters exclusively to loans for micro-

enterprises. Concurrently, a new wave of banking has emerged since the early 2000s catering to

the consumption of lower-income groups in Mexico, or what is known as the ‘bottom of the

pyramid’ (BOP) market. As in the case of the MFIs, the debtfare state has facilitated growth

and high levels of income generation in the retail-banking sector largely through lax regulation.

Although credit cards have been the fastest growing component of the financial system since

2000, representing 51% of consumer banking loans (World Bank, 2005a), the average per

capita of credit cards circulating in Mexico in 2009 (0.6 cards per person) was nearly three

570 S. Soederberg

times lower than the Latin American average (1.5 cards per person) (Franco, 2010). As is the

case in many countries, Visa-branded cards, which represent about 75% of total credit, dominate

both the credit card market and ATM cards in Mexico (World Bank, 2005a). One consequence of

this domination is that Visa and MasterCard have effectively restricted entry into the credit card

market by being allowed by the state to create and enforce certain rules. For example, card

associations have imposed a barrier to non-banks by providing their brand to issuers subject

to the same type of regulation as commercial banks. In effect, non-banks, such as retailers,

cannot issue credit cards (World Bank, 2005a). Another result of this market control is that

annual interest rates of bank-based credit cards are still high. In 2002, for example, the

average rate was 39%, whereas at the start of 2011 the average rate was 30.1% in Mexico

(Mexican Business Web, 2011). Credit cards have been traditionally issued to a bank’s most

solvent consumers, but the service is now being offered to a much wider segment of the popu-

lation. The concept of the secured credit card, in which a deposit guarantees the balance of the

card, is also being developed in Mexico (World Bank, 2005a). Banamex, Mexico’s second-

largest bank and a wholly owned unit of Citigroup, is aggressively pitching its personal loans

to the working poor through its Crédito Familiar (Family Credit) unit.

The major growth in credit cards over the past decade has occurred outside the realm of the tra-

ditional and foreign-owned banking sector, however. The expanding relative surplus population

combined with the limits to capital accumulation inside the market as a result of the maquilador-

ization of the Mexican economy has given rise to accumulation by dispossession strategies.

Recent attempts to euphemize relative surplus population with the term ‘bottom of the

pyramid’ (BOP) has aided in masking the root causes of marginality from neoliberal-led restruc-

turing strategies. The rebranding of the working poor and structurally dispossessed in Mexico has

also sanctioned secondary forms of exploitation as a new and improved way of engaging in devel-

opment while turning a profit. The Inter-American Development Bank, for instance, recently

launched its first forum on the ‘Development of the Base of the Pyramid’, which aims to bring

together ‘business executives, development professionals, entrepreneurs, government officials,

impact investors and others who are involved in the new and exciting work of creating innovative

BOP business models by connecting private sector resources and ingenuity with the untapped

potential at the base of the socioeconomic pyramid’ (World Bank, 2007). Of course, these

private–public initiatives are not new (Soederberg, 2004), but the emphasis on commercial

credit and the need to recast the poor as a high-yielding investment opportunity is novel and

could, therefore, point to a new phase of neoliberal-led development in Mexico.

The potential for reaping high-yielding interest from the BOP has not been lost on retailers

operating in Mexico where the potential for accumulation by dispossession strategies targeting

the BOP in the retail sector is substantial. Department stores, for example, account for the largest

source of credit for unbanked Mexicans (48.6%), which is considerable when compared to other

sources of credit, such as friends (8.6%), credit unions (1.4%), and non-governmental organiz-

ations (1.4%) (World Bank, 2006). With the assistance of the Mexican debtfare state, large retai-

lers have been able to transform and extend their credit operations by not only establishing

themselves as banks, but also charging interest rates that far exceed the high levels of their char-

tered counterparts. In what follows, we explore the cases of Wal-Mart and Grupo Elektra—the

latter is both a retail and banking corporation, whose main financial component is Banco Azteca.

In 2002, Banco Azteca opened over 800 locations focusing on low-income clients. Azteca,

like its parent, Grupo Elektra, Latin America’s largest electronics and home appliance chain,

enjoys the same ubiquitous presence, and thus scale, that Wal-Mart enjoys in Mexico. Similar

to Wal-Mart, Banco Azteca targets lower-income Mexicans, who account for around over

The Mexican Debtfare State 571

70% of total households earning between $5,100 and $33,600 per year and form part of the infor-

mal economy. This group also includes small, informal businesses that lack the documentation

necessary for obtaining bank loans (World Bank, 2009). Drawing on Grupo Elektra’s experience

in making small instalment loans for its merchandise as well as information and collection tech-

nology, Azteca charges extremely high annual percentage rates (APRs) ranging from 86% to

over 100% and operates on the same ethos of high-pressure employee quotas and incentives

as Elektra, particularly when it comes to convincing customers to spread payments over the

longest possible period, i.e. 104 weeks. This accumulation by dispossession strategy has

served Elektra well over the years, which is evident in its 22.3% return on shareholder equity

(BusinessWeek, 2007c). The well-organized and highly coercive features of Azteca’s operations

include 3,000 loan officers and collection agents ( jefes de crédito y cobranza). The World Bank,

which has supported the initiatives of Azteca and similar organizations, has suggested that

‘access to credit and savings of low income households has a significant impact on the labour

market and income levels’ in Mexico. At the same time, the World Bank also finds that the

impact on income levels for men and women increased, but did not improve enough to raise

them completely out of poverty (World Bank, 2009, p. 2).

In the absence of effective consumer protection laws, particularly with regard to personal

bankruptcy and collection agencies, the Mexican debtfare state has facilitated both the coercive

and disciplinary techniques used by financial institutions like Azteca. With the assistance of its

jefes de crédito y cobranza customers who fail to meet a payment are dispossessed of their pos-

sessions in order to cover their debt. The ambit of what belongs to a particular customer and his/ her immediate family is blurred as are the ramifications when a debtor does not own enough

value in possessions to cover his/her debt. Due to these coercive debt-collection practices,

and its equally unregulated accounting practices, Azteca claims a default rate on consumer

loans of just 1% compared with banks serving more affluent clients, who average a 5.3%

default rate (Businessweek, 2007c). In its efforts to ensure that as many unbanked Mexicans

as possible are integrated into the web of credit relations, the debtfare state has also facilitated

Azteca’s ongoing dispossession strategies by granting the company exception status with regard

to disclosure laws, which require banks to inform their customers of the total financing costs

being charged. When Azteca’s average lending rate is translated into an APR, used in countries

like the United States, it comes to 110%, double Azteca’s claim of 55%. The primary reason for

this is that Azteca charges interest on the entire amount borrowed throughout the life of the loan,

not on the declining balance, as is common practice in the US (Reuters, 2008).

In November 2006, the Mexican government approved Wal-Mart’s Mexican subsidiary to

operate a bank. Wal-Mart failed to secure banking privileges in the United States, where

banking and retail are still separated (Gelpern, 2007). The rationale behind the Mexican govern-

ment’s approval of ‘Banco Wal-Mart’ was to increase competition in the concentrated banking

sector, to help reach the three-quarters of unbanked Mexicans, and eventually to aid in lowering

the cost of consumer borrowing. Wal-Mart is Mexico’s largest retail chain with over 997

locations, which include supercentres, food and clothing stores, and restaurants. Lowering the

costs of credit is not, however, something Banco Wal-Mart has been striving to achieve. It is

taking full advantage of a market where annual interest rates often exceed 100%. For

example, a low-income Mexican worker can obtain a $1,100 Whirlpool refrigerator for 104

weekly payments of $23, which more than doubles the cost to $2,392. Banco Wal-Mart is a

highly profitable venture, which offers customers their first-ever savings accounts, credit

cards (Super Crédito credit card) and micro-financing (supplier development through its Cre-

dimpulsa programme) (Bloomberg BusinessWeek, 2007). In 2011, Banco Wal-Mart celebrated

572 S. Soederberg

opening its millionth account and announced its plans to open 62 new branches, which represents

an increase of 24% over 2010. The primary aim of Wal-Mart, aside from earning high rates of

income through its high interest rate policy is to eventually become a key source of credit for

low-income Mexicans, so that they can buy Wal-Mart products (Reuters, 2010). The Mexican

debtfare state reinforced these efforts by altering banking regulations to allow authorized retai-

lers to use their cash registers as virtual bank branches, so that customers can make deposits and

withdrawals from their accounts.

Democratization or Colonization?

Seen through the analytical lens framing our discussion, the above two cases throw critical light

on the democratization of credit trope, which conceals not only the coercive and exploitative

nature of accumulation by dispossession, but also its effects, namely marginalization, informal-

ity, and insecurity that expose the poor to new forms of social discipline that have been in part

facilitated and legitimated by the debtfare state. Since credit, as a form of money, is not a neutral

object but a social relation that wields class power, the movement of formal, private lending

institutions and practices into the informal sector has important implications, not least in

terms of forcing the relative surplus population into accepting the temporal power of the

terms of credit. In essence, through colonizing spaces of informality via the power of money,

the debtfare state has played a key role in permitting, legitimizing, and facilitating the

banking sector’s accumulation by dispossession strategies. The Mexican debtfare state has,

for example, sought to root formal banking institutions in spaces of informality by developing

subsidized credit programmes and grants that support micro-finance institutions.

The debtfare state has also sought to expand and ‘modernize’ (read: marketize) the ‘social

financial sector’ (e.g. co-operatives and credit unions) (World Bank, 2006). In August 2008,

for example, the Mexican government passed a Credit Union Law that would expand activities

of credit unions and bring them into line with international governance standards. Some of the

revisions pertinent to our discussion include the removal of restrictions on foreign investment,

limiting membership of credit unions to parties engaged in business, and allowing credit unions

to acquire shares in companies (with the commission’s prior authorization) (International Law

Office, 2008). Aside from rhetorical insistence on good corporate governance practices and

transparency, there remains a lack of effective consumer protection schemes. In contrast to con-

sumption smoothing, it is difficult to see how credit at exorbitant rates, coupled with the nature

of expanded capital, will effectively resolve the fundamental problem of the poor.

Conclusion

I have argued that the specific expression of neoliberal-led development in Mexico has been con-

solidated through accumulation by dispossession strategies. These capitalist strategies target the

working poor and structurally unemployed, or what Marx refers to as the relative surplus popu-

lation. Aside from engaging in secondary forms of exploitation, accumulation by dispossession

strategies, through their relations of power and disciplinary machinations, also act to expose and

integrate spaces of informality into different facets of the capitalist market, i.e. credit system,

without including them inside the capital relation. This, in turn, acts to reproduce spaces of

informality, marginality, and insecurity—hallmarks that are both constitutive of, and created

by, debt-led capitalism. I have also introduced and explored various scales of an important com-

ponent of the neoliberal Mexican state—what I refer to as the debtfare state—that has helped to

The Mexican Debtfare State 573

promote and legitimate accumulation by dispossession strategies. These strategies are conflict-

ridden and serve only to suspend the paradoxes of capitalism that they seek to overcome.

Indeed, colonizing spaces of informality through secondary forms of exploitation and market dis-

cipline has done little to enhance the welfare (social protection and security) of informal workers

pushed outside the capital relation, workers who remain vulnerable to ongoing debt, food, and

fuel crises in a more tightly interconnected world market, largely due to policy design. As

accumulation by dispossession strategies continue to evolve and expand in spaces of informality

in Mexico, only time, struggle, and the social configuration of class power will tell if Mexico will

fall prey to yet another debt crisis fuelled by the paradoxes and limits of growth cum debt.

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Susanne Soederberg is a Professor and Canada Research Chair in the Departments of Global

Development Studies and Political Studies at Queen’s University, Canada. Her most recent

book is Corporate Power and Ownership in Contemporary Capitalism (2010). She is currently

working on the book Global Spaces of Debtfare and Dispossession.

The Mexican Debtfare State 575