Monday, May 21, 2007
World Bank Diagnoses Mexican Economic Problems
By Allan Wall
Economic growth in Mexico is in just about everybody's interests. It would benefit Mexico and
its people, the Mexican political system, and the United States as well.
Though the fundamentals of the Mexican economy are solid, a greater dynamism that would provide
more and better-paying jobs seems to elude the country's economy.
The World Bank has just concluded a diagnosis of Mexico's economy, and its problems.
The study, entitled "Democratic Governance in Mexico: Beyond the Capture of the State and Social Polarization," was headed
up by the Bank's Yasuhiko Matsuda.
The document lists 11 problems in the Mexican economy that impede the country's development.
1. The Competitive
Environment — Mexico's economy has bottlenecks that impede economic growth, with public and private monopolies that
limit economic competition. So the World Bank recommends curbing the influence of interest groups that promote such monopolies.
It's a good suggestion. However, as the Bank document itself points out, there are "untouchable" interest groups in the country
that don't want that to happen.
2. Taxes and Tax
Law — Mexico has a complex tax system and tax bureaucracy. Nevertheless, tax evasion is rampant — it's
been estimated the country has a 40 percent tax evasion rate. So the system clearly is not working. The government makes up
the shortfall by utilizing the oil monopoly PEMEX as a source of revenue — which in turn takes funds away from oil development.
3. Regulatory and
Investment Environment — It costs a lot of time and money to start a business. This in turn encourages corruption
and discourages entrepreneurship.
4. Education —
The Bank report recommends more funds for education. Of course, just throwing money at a problem doesn't solve it, because
there are other problems in Mexican education such as the SNTE, the teacher's union, said to be the most powerful union in
the Western Hemisphere. As happens in many countries, teachers' unions are more concerned with protecting their
own privileges than truly reforming education.
5. Commerce and Transport
— The Bank document points out that Mexico has high costs in importation and exportation, and for transportation. Reducing
such costs would help economic development.
6. Corruption — Corruption
is a part of Mexican society, and on one level it exists to grease the wheels of progress.
Corruption is a shortcut used to speed up a bureaucratic process. But in the long run, widespread corruption
is a detriment to the economy. Long and costly bureaucratic procedures need to be reduced anyway (see number 3 above).
7. Innovation — Investment
in technology is low in Mexico. And this is related to problem #1. Generally, Mexican businessmen get rich through political
connections, not technical innovation.
8. Finance — The
report states that monopolies impede healthy competition. Well, that gets us back to problem #1 again, doesn't it?
9. Energy — According
to the World Bank, the costs of natural gas, electricity and gasoline are among the highest in the world. And this in a country
that is constitutionally dedicated to the proposition that mineral wealth is the property of "the people”!
10. Labor Market —
Mexico's labor law is rigid, and counterproductive. It's hard to fire workers. Rather than protecting workers, as the law
was designed to do, it discourages employment and encourages employers to come up with ingenious tricks to save money. For
example, some schools dismiss their teachers each semester and rehire them the next, so they won't accumulate seniority.
Environment — On this question, the Bank says Mexico needs continuity in its policies.
This World Bank report is a good summary of Mexico's obstacles to greater growth. Though
it's a new study, it repeats the same problems analysts have been pointing out for quite some time.
The Mexican government has failed to deal with these problems. Though the solutions are rather
clear, enacting them would be difficult due to strong vested interests and deep-rooted political traditions.
No monopolist wants to lose his monopoly, so powerful entrenched interests can be expected to oppose
Mexico's liberal constitutional traditions militate against reform in the areas of petroleum
and labor law.
Rather than deal with these big problems, the Mexican elite has taken shortcuts to keep Mexico's
economy afloat — such as encouraging never-ending emigration to the U.S., a policy that causes more problems than
it solves for both nations.
Nevertheless, problems presented in the World Bank report are there and await resolution. One might quibble about the details, but that's what political debate is for. The
fundamentals are sound.
What are needed are courageous and pragmatic Mexican politicians who are willing to take the
bull by the horns and do what's right for Mexico.
Allan Wall, a MexiData.info columnist, recently returned from a tour of duty in Iraq.
He currently resides in Mexico, where he has lived since 1991. He can be reached via e-mail at email@example.com.