Lessons from low growth in Mexico

Calderon the very good, not quite, the great, but very good... has government Mexico for 3 and a quarter years. His Party, the PAN, has been in power for 9. Before that it was 70 years of PRI rule. Why hasn't a change to true multiparty democracy borne the fruit of high growth yet?



Forum commentators and contributors from all stripes, you must have a different take than I do.


I will tell you what I think are the causes and lessons of Mexico's slow growth. They are inspired by some similar and some different reasons given in this article:
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/viewpoints/stories/DN-vargasllosa_29edi.State.Edition1.282637f.html

and their article was a source of inspiration. They name lessons such as:
1) not underestimating the power of the remnants of the old regime. I can agree with that. The old regime, the PRI, had used an oil boom to borrow and spend unwisely, but had also bought some corrupt politicians and named virtually the entire Supreme Court in a clean sweep during their last Presidential term. The PAN did not come to any agreement to save more of the oil bonus, perhaps to buy cooperation to push more reforms, I can only give them the benefit of the doubt because Calderon as predicted got a lot more done during his term than his predecessor Fox.

My #1 Lesson would be that socialism and anti-competitive monopolies wether labor unions or government monopolies or even private monopolies can such up a lot of a nation's surplus by buying off and intimidating politicians in a process more prevalent and insidious than some of the nation's drug mafias. Calderon did well to take down the inefficient electrical company running a huge section of the center of the country, a practical and politically astute move because they operated in the heart of the opposition's territory, Mexico City. They had been bitterly defended by the union it employed. Critics say it is a political move, but I say it is just politically possible. Why would he weaken himself in this second half of his term by moving against his own supporters? That would be stupid and weaken his attempts at future reforms. The Electrical Union made a mistake by backing the wrong political horse when it favored the now weak PRD. They helped make reform possible for Calderon.

You could say Calderon is example of how a great man can affect a country, especially when he takes more risks such as by taking on the Electrician's union. A lessor man would not have done so. If he wanted to be remembered as a great man, he has the political skill where he probably could, especially when considering that the opposition control's Congress, he has already achieved most of what he's tried, even when the opposition waters it down. He could do even more. If he tried for more and bigger changes, he may fail more, but he may also inspire greater change and more successes where he achieves.

Examples, what happened with making the labor market more flexible and taking on more of the monopolies in the private sector, why not use the PRI-PAN majority to make some changes to the Constitution to encourage competition and private capital rather than fanciful wording about the nation (public sector) having dominion and ownership over so much of the economy in theory... have they already worked around the constitution to where it's not practically beneficial enough compared to other reforms?

I would say that the public-controlled oil sector is dragging on growth so much and on government funding that it is harming the nation's finances while at the same time it's a much a bonus for the rest of the country's exports as the resource curse is a drag.


Anyway, back to lessons, the article's #2 is: never sleep on your laurels. Duh, that goes without saying. Without reforms you leave a lot of pro-growth reforms undone.

#3 by them is never peg yourself to 1 nation so much, which I again agree is true, it's just a principle of diversification. Few people now talk about how Calderon started his term traveling to Europe drumming up more trade and economic ties to help diversify Mexico's US dependent economy.

#4 is pick your battles wisely, which would be a wise thing to say, but then goes on to criticize the nation's drug war. Caving to the drug cartels the PRI protected would be unwise and stupid. This is the article's biggest error. The drug wars were growing and deaths were doubling before Calderon took office, so inaction would've only been worse.


My priorities in lessons would be that people have short attention spans and the productivity of the non-oil economy is paramount as is investments and technologies. Look at India and Costa Rica's growth with IT sector investments and call centers. Mexico has only started a long process of building a critical mass of such sectors as it has done with automobiles. It just needs to do more savings and investing, including domestic savings and investing, because foreign sources can be so fickle (to some extent even FDI).
The short memory comes from the commodity bonuses caused by China's growth from Communist peasantry to free-market modernity, which has caused a commodity boom. Busts come and go, but we're in a fairly large boom generally due to China's size and rapid growth. Commodity booms are helping much of Latin America including Brazil. The journalists and the stories are praising Brazil now, but what have past cycles taught us? The final bust leaves commidity dependent economies hurting, and their biggest supporters with egg in their face... but people forget and the press spins or forgets its past and lets readers forget.

So Mexico is wise to stick to non-oil reforms mostly and badly needs more labor-market reforms and more competition reforms, more savings and investments in its productive sectors, tech sectors, service sectors, etc. Mexico is the long-term story, but Calderon needs to push for Mexico's greatness and his own through market reforms.

The great man theory may not explain all of history, but there are many relevant examples of where it applies. Mexico today is one such footnote in history.

I wonder if the large flow of Mexican immigrants into the US will have an effect on Mexico's future economic policies?

Many of these immigrants are likely to return to Mexico (at least periodically) - or they still have family and friends in Mexico. The immigrants will talk to the folks back home and make all sorts of observations about the way the economy works in the US, and will likely want to see Mexico do things the same way.

Perhaps some of these immigrants will become entrepreneurs who will want to start a Mexican Silicon Valley somewhere - and will put pressure on the Mexican government to provide the necessary universities, infrastructure, security, and other amenities that will make this "Valley" attractive to highly-skilled workers and investors.

Originally posted by Melanerpes
I wonder if the large flow of Mexican immigrants into the US will have an effect on Mexico's future economic policies?

Many of these immigrants are likely to return to Mexico (at least periodically) - or they still have family and friends in Mexico. The immigrants will talk to the folks back home and make all sorts of observations about the way the eco ...[text shortened]... er amenities that will make this "Valley" attractive to highly-skilled workers and investors.

I would say that the current flow of immigrants into the US IS one of Mexico's unwritten economic policies. Just send the poor across the borders and watch the money flow back to Mexico. It not only brings more money into Mexico, but it also relieves the government of the burden of all those potentially troublesome poor Mexicans who might be demanding change in their own government.. Meanwhile, the elitists in the Mexican government can continue corruption as usual unimpeeded.

Originally posted by Melanerpes
I wonder if the large flow of Mexican immigrants into the US will have an effect on Mexico's future economic policies?

Many of these immigrants are likely to return to Mexico (at least periodically) - or they still have family and friends in Mexico. The immigrants will talk to the folks back home and make all sorts of observations about the way the eco ...[text shortened]... er amenities that will make this "Valley" attractive to highly-skilled workers and investors.

This is a real force you've pointed out that already exists, although the results are usually smaller and more subtle as individuals learn about managing their own finances and support new policy positions and exchange new ideas, yet the lessons are not widespread and innovations may be impeded or slow to make it through. Business parks and technology clusters like silicon valley take time to develope, but these things are indeed already being pursued in Mexico.

It is a positive force to exchange ideas, but a slow process that doesn't get the attention that say an expired visa receives and inspires so much nastiness and pettiness.

Originally posted by whodey
I would say that the current flow of immigrants into the US IS one of Mexico's unwritten economic policies. Just send the poor across the borders and watch the money flow back to Mexico. It not only brings more money into Mexico, but it also relieves the government of the burden of all those potentially troublesome poor Mexicans who might be demanding chan ...[text shortened]... Meanwhile, the elitists in the Mexican government can continue corruption as usual unimpeeded.

Whodey's tripping in yellow submarine land again...

Mexico recognizes the loss of professionals and the out-migration of farm laborers as a real phenomenon, but not one it creates or immediately controls. Where two large economies share a large border and one has a much larger economy that the other, migration will occur. What would you expect? It's an obvious and expected phenomenon.

Mexico is pushing reform, but economies grow rates show real effects on migration over the decades, Mexico won't catch up to US incomes in one administration, there is no incentive to not reform based on the reality of out-migration. That is stupidity defined and thrown around by all the ignorant nativist groups and even some well-meaning but still ignorant others. Emigration is not the plan, but it is recognized as reality.