mexicoperspective.com logo2

MexicoPerspective.com

A leading source for news and analysis about Mexico and the U.S.-Mexican border.

September 2011

Why hasn't Mexico's economy grown better?

Analyst Luis Rubio says issue can be solved, and cites work
of UCSD's Gordon Hanson in diagnosing the problem

luis rubioAnalyst Luis Rubio writes in Nexos that Mexico's problems of violence and poor economic performance are not unsolvable and have had long gestation periods. Rubio (right) says Mexico underwent a profound economic transformation in the 1980s and 1990s followed by a profound political transformation. These transformations, he writes, are still far from complete, even though Mexico has turned into an export power and consolidated a fledgling middle class. He says the transformations have not met expectations in part because of the way they were designed. He says of the political transformation: The Institutional Revolutionary Party says Mexico has always been a democracy; the National Action Party says Mexico has been a democracy since 2000, when it wrested away the PRI's 71-year hold on the presidency; the Democratic Revolution Party, which lost a disputed presidential election in 2006, says it still is not a democracy.

He says power was decentralized without institutionalizing it, opening the door to organized crime as well as the scattering of public spending, debilitating the central government.

He says Mexico has a hyperdynamic sector that can compete with the best in the world, and an old, stagnant sector that continues to hang on. The first generates wealth, he says, while the second survives on the leftover crumbs. He says that when exports grow, like this year, the rest of the economy begins to function; when exports decline, like in 2009, internal demand collapses. He says 20% of the economy is pulling the other 80%. Indeed, the title of his article is "The caboose of the Mexican economy is 80% of the train." He says protectionism for the 80% of the economy is badly damaging the economy overall.

gordon hansonRubio cites University of California San Diego economist Gordon Hanson's December 2010 article in the Journal of Economic Literature, "Why Isn't Mexico Rich?"
nexos cover december 2011Update, December 2011: The article is translated into Spanish and published with the title "El Misterio Mexicano" ("The Mexican Mystery") in the December issue of Nexos magazine.

 

He says Hanson (right) concludes that there are five main factors why Mexico has not achieved sustained economic growth:

• The persistence of the informal economy and the incentives that fortify it
• The credit market is dysfunctional
• Distortion in the communications and electricity markets
• The education system's lack of effectiveness
• The risk of a peso crisis

Hanson writes: "Perhaps what is most striking about Mexico's recent experience is that the country has tried so hard but achieved so little." He says the government is ineffective and has introduced too many distortions into the economy.

Rubio concludes that Mexico needs a strong government that can act so that the market can work. He said this change likely will be a long and tough slog.

 

Previous mention of Luis Rubio, talking about candidacy of Josefina Vázquez Mota

Luis Rubio's CIDAC website

Gordon Hanson's webpage
New York Times columnist Bill Keller praises Hanson's 2007 article about costs and benefits of illegal immigration