In one of his memorable interventions in the escalation of the invasion of Iraq, Donald Rumsfeld argued that “…there are known knowns; there are things that we know that we know. There are known unknowns; that is to say there are things that we now know that we don’t know; but there are also unknown unknowns ―there are things we do not know that we don’t know”. While this seems to be a tongue twister, the then U.S. Secretary of Defense laid bare a reality for anyone venturing into unknown lands and circumstances. Governors, businesspeople and investors confront these problems every day because it’s never feasible to have at their command the entire film of what is in store. That uncertainty has been aggravated dramatically in the last years.
Although it is beginning to stir, the European economy is experiencing disastrous times; the U.S. threatens to enter a descending stage of its economic cycle and China appears, finally, to justify its long time Cassandras with lower growth rates. Oil prices, the strengthening of the U.S. dollar and the worsening of the Mexican peso with the failed Pemex Ronda Uno and the growing fiscal deficit has done nothing other than obscure a panorama that itself was already cloudy.
Each of these issues entails its own complexity and potential consequences, but the combination is what is disturbing in all respects. The uncertainty that this causes is infinite and explains the mixture of fear and distrust that characterizes Mexicans at this time. The only one that hasn’t taken note of this is the government.
In his book Mass Flourishing, Edmund Phelps, who was awarded the Nobel Prize in Economics, asserted that the climate favorable for innovation was the trigger of economic growth from the XIX century. This thesis, similar to that of Deidre McCloskey in Bourgeois Dignity, implies that where there exists a milieu of social esteem and support for creators and innovators the economy prospers. I ask myself: what has the current government done to promote innovation, something complex in itself, but at least to generate an environment of trust in the business community and potential future innovators? There’s not the least doubt that the devaluation of the peso responds to external factors, but it is absurd to ignore the internal ones that are worsen it by the minute.
According to Phelps*, innovation is diminishing due to the excess of regulations that overwhelm the producer of goods and services in growing fashion throughout the world. He states that every time a mechanism of regulation or protection is appended the capacity to innovate is reduced: extreme examples of this include the corrupt political systems that protect rent seekers of any ilk. Phelps observes that school systems have abandoned the sources of inspiration that endorse innovation and the rise of creative individuals. Forsaking the reading of the classics and, above all, foregoing the exaltation of individual merit through the readings and histories of discoverers, explorers, scientists, entrepreneurs and, in general, successful people, has had the effect of placating imagination and creativity, key factors in the economic growth of the present stage of the world.
For his part, Charles Boix** notes that on undergoing technological changes, (such as the introduction of new irrigation systems), societies based on simple agriculture experienced social changes that produced distinct political results. In its nomenclature, those whose who benefited from or who knew how to take advantage of the new technologies were denominated the “producers”, who evolved toward the construction of political regimes that today we would call republican with elected leaders, a legislative assembly and a system of government that would come to protect them from the losers. There where the producers triumphed, as in many Greek cities and the city-states of Europe, the society ended up granting privilege to economic growth, productivity and competition.
Those who remained at a disadvantage and who lost out before the producers, whom Boix calls pillagers or looters, devoted themselves to fighting over the crumbs, creating a Hobbesian context of insecurity, which lead to the preference for monarchial or dictatorial governments that would protect the status quo, oblige the producers and the government itself to provide food, work and income and to guarantee the existence of defensive and protective mechanisms for the vanquished. Societies in which the plunderers are the victors propitiate lower growth rates and the flowering of systems of privilege that distort competition and impede innovation and technological change. In Mexico there is no doubt that the pillagers always enjoy the support of the government.
These historical considerations are relevant because they demonstrate that the sources of stagnation and vulnerability are not new. International uncertainty cannot mask the enormous mistrust that the current government and its poor decisions have procreated and aid in understanding the sources of stagnation and the vulnerability in which the country finds itself in the face of the uncertainty presently characterizing the world.
Compete and innovate or protect and preserve? Seek to raise productivity or increase salaries by decree? The deterioration is growing; the sudden change of trend in the depreciation of the peso in the last several weeks should lead us to recognize that what is at stake is the heart of the country’s development: trust-building has been given the cold shoulder for the past three years. In contrast with Rumsfeld’s brief address, the causes of Mexico’s situation are perfectly known.
*What is wrong with the West’s economies?
**Orden político y desigualdad