Laying Odds on Development

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Take a gamble on development or on influence? For developed countries, the great powers, there is no distinction: one leads to the other. For a country yet to achieve development and to satisfy the needs, even the most elemental, of its population, this poses a real quandary. This matter came to mind when a Brazilian won out over Mexican Herminio Blanco for leadership of the World Trade Organization (WTO). Many reproached the government for having concentrated on its foreign economic relations instead of constructing a capacity of influence all over the world. The defeat of the Mexican candidate hurts, but the country had made the correct bet, though without the intensity required.

Paraphrasing Clausewitz, foreign policy is an instrument of internal politics, not an objective in itself. In the eighties, the Mexican government opted for a development strategy centered on the construction of a competitive economy, interjected into the world’s economic, financial, technological and industrial circuits. Recognizing the growing globalization of the world at large, the focus that was adopted then implied breaking with the wager on development based on a closed, protected and subsidy-heavy economy. Rather than high levels of taxes set aside for financing an enormous public expenditure, the country would endeavor to permit the markets to function, the economy to specialize and the average Mexican would come out the winner. NAFTA became the cornerstone of the strategy, in the factor that would confer certainty upon the people and provide permanence of the reforms for businesses and investors.

Twenty years after NAFTA took effect the structure of the economy has undergone an extraordinary transformation that, albeit incomplete, bears significant fruits. First and foremost, it consolidated a stable economy; second, growth rates have been procured that are superior to the world average, although doubtlessly inferior to those most desirable; third, a hypercompetitive industrial platform has been erected that competes with the best in the world; finally, virtually all new investments made are conceived within a logic of competition in the global economy. The country experienced a true revolution that, unfortunately, remained inconclusive. The challenge is not to reconsider the economic model but to wrap up the process in order to leverage future growth on the enormous assets now in existence.

I return to the question at the outset: Would it be better to bet on influence rather than on development? Brazil, the country that trounced us in the match for the WTO, entertains a concept of the world and of itself that is radically distinct from Mexico’s. While Brazilians conceive of themselves as an emerging power, we Mexicans are more introspective and see ourselves more as victims. Brazil has developed a foreign policy that transcends their governments (according to one of Brazil’s ex-presidents, its Foreign Ministry, Itamarati, is so powerful that it imposed its agenda on the president), and is oriented toward projecting the might of the South American giant with a geopolitical vision. In Mexico we have a professional diplomatic corps that does not possess a strategy independent from the government and its vision is held in check by that established by the presidency. The Brazilian influence is noticeable when cases arise such as that of the WTO, in which decades of investment came to fruition. Also, I have no doubt, the Brazilians congratulated themselves for having defeated Mexico, with which they have maintained a peculiar rivalry above all from when Mexico opted for NAFTA.

The relevant response to this query can be none other than development. The average Mexican lives better than the average Brazilian, has better schooling and income levels, and interest rates paid by Brazilians are higher than those paid by Mexicans. Mexican industry has been transformed while a big part of the Brazilian industry continues to be relatively protected. Of course there are some indicators that are in favor of Brazil, but the crux of the matter is very simple: the relevant wager is placed, must be placed, on development and where Mexico has failed is not in the sense of the wager but in the conviction of achieving development and the disposition to do what’s necessary for making it possible. Contrary to what many critics affirm vis-à-vis the strategy of liberalization, the problem is not that a series of prescriptions have been applied in dogmatic fashion, but that these have been applied without conviction and without determination. The result is that the rate of economic growth is much lower to what it could be. This is what we should invest in, not in the elusive international clout that contributes little to the needs of the population.

Nothing better typifies the difference in the Brazilian and the Mexican strategy than the aeronautical industry. Embraer is the signature industry of the southern country: its planes are everywhere and constitute a visible and perceptible icon of the Brazilian and of its influence in the world. For its part, Mexico has built up an impressive aeronautical industry that at present employs more people than the Brazilian one and adds greater value to the Mexican economy than that of Brazil. The difference is that there is no “MexAir” trademark that had there been, would have been visible and would have projected such strength. However, in which country is this industry more successful? which population has the greater probability of accessing wealth? The case is emblematic because it illustrates two radically distinct conceptions of what the two nations are and of their objectives.

Mexico’s problem is that it has not yet concluded the revolution that began in the eighties. The country lives on the remains of the former protected system next to a formidable, productive and successful industrial sector totally integrated into the global economy. The fusion has not been a very happy one because it has limited the capacity of the more modern and competitive enterprises, while preserving the old industry that lacks any capacity whatsoever to compete. The dilemma is how to come to grips with these gaps. The tessitura is obvious: press on to development or perpetuate mediocrity.

Twenty years after the beginning of NAFTA it is evident that in politics ––be it in the political arena or in that of economic, social or international policy- long-term investment is what pays dividends. Many of the political avatars of past years, and not a few of our economic difficulties, have been the product of short-terms bets, the very ones that never turn out well. NAFTA is the best example that long term vision is what garners results.

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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).