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Mexico is suffering the consequences of all of the crises that it underwent from the seventies to the nineties. That is the conclusion that the participants in a discussion panel arrived at on the causes of Mexico’s poor economic performance. The driver behind this notion is that Mexicans do not believe the government and suppose that no change is going to benefit them because everything is biased toward preserving the privileges of a few (“those of always”). That is, beyond technical issues, behind the paralysis that characterizes the Mexican economy and its very low levels of average productivity, there is a profound distrust of the population in its government and in the institutions. If this conclusion is valid, the reforms that the government has been promoting are not going to resolve anything because that’s not where the problem is.

The analyses and explanations –the alleged “over-diagnosis”- of what ails the Mexican economy are concentrated on matters that are circumstantial as well as structural: the lack of growth of the U.S. economy; the housing industry crisis; the fiscal reform; the excesses of power and attributions that the government is accumulating; the alienation of the business community on the part of the government; the Rule of Law; overregulation; bureaucratic arbitrariness; the lack of reforms. All of these matters are real and constitute impediments to the acceleration of the economy. However, the conclusion of the panel is that all of this must be seen to, but that the true challenge is that of trust. Back to the future.

This is the summary of what I learned from the panel:

•The economy is growing with enormous rapidity but only one part of it: the modern one. There is an enormous gap in the growth of productivity: while this is growing in some sectors and companies at 6.5% annually, in others it contracts by 5.7%. That is, the average doesn’t tell us anything; thus, it is indispensable to understand the causes the gap. A general policy aimed at fixing one single problem simply won’t do.

•There is a deep bias against the market, capital and the entrepreneurial activity, which is expressed in the most diverse ways. On the one hand the gigantism exhibited by the monopolies: in Mexico everything is big and the consolidation of great entities is promoted, similarly in the business world as in the worlds of unions and politics. In other countries there are no political parties as big and as powerful nor are there companies like Pemex. It’s not only large enterprises: in all ambits there is an enormous concentration of power and wealth. Even the narco cartels are massive. It’s a political phenomenon: it’s the product of the regulations that exist and not of the size of the assets. Its permanence is at the beck and call of a political decision.

•On the other hand our culture punishes and flagellates the creation of wealth. Deirdre McCloskey affirms that growth is only possible when creation of wealth acquires legitimacy. It is not by chance that in Mexico few want to risk their capital, a requisite of the essence for the growth of the economy.

•The institutional structure is not conducive to growth: there are too many rules for everything but these are not made to be complied with and, when they are, it is in discretionary fashion. Many of the recent reforms (e.g., competition) have accumulated instruments for threatening businesses and investors, conferring vast discretional attributions on the authority. Twenty years ago, with NAFTA, the government committed itself to not modifying the rules of the game for investment. The new faculties comprise a menace to that huge achievement, which explains virtually the totality of the growth of these years.

•In addition to the absence of strategic vision, the content of many of the reforms suggests that there has not been the capacity, or disposition, to understand the nature of the problem, above all its complexity (problems that are distinct in each sector or activity) and a great penchant for amassing changes that entertain neither logic nor coherence. None of the reforms address the creation of institutions that guarantee stability or transparency.

•In sum, at the root of the economic problem lies a yawning deficit of trust. Until this is resolved, everything that’s done will fail to change the trajectory but would indeed have the effect of discrediting the political parties and the traditional politicians, throwing open the door to the populists of before and those to come.

Gordon Hanson, Economics professor at UCSD, has for some time argued that few countries have carried out as many changes and reforms as Mexico and, despite that, have been able to harvest so little. His conclusion is that more reforms, although they are required, will not solve the “idiosyncratic” problems that Mexico faces. Those problems are reduced in good measure to the only thing that the current government has not been willing to do: devote itself to convincing the population and the actors that are key in making growth possible of its commitment to the rules of the game, the permanence of the reforms and the trustworthiness of its project. Along the way, it risks undermining the only thing that had indeed functioned well in the last twenty years: the certainty that businessmen and investors have had (had?) to risk their capital.

Tolstoy was once asked how it had been possible that thirty thousand Englishmen subjugated 200 million Indians. His response was pure logic: “The numbers make it evident that it was not the English who enslaved the Indians but the Indians who enslaved themselves”. Something like this seems to happen with economic growth in Mexico today.

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Luis Rubio

Luis Rubio

He is a contributing editor of Reforma and his analyses and opinions often appear in major newspapers and journals in Mexico, the US and Europe (New York Times, Wall Street Journal, Financial Times, International Herald Tribune, Los Angeles Times, Washington Post, National Public Radio).