Mexico mismanagement

Robert Samuelson:

The subtext for the United States' immigration debate is Mexico. Why doesn't its economy grow faster, creating more jobs and higher living standards? That's the question that inevitably confronts the winner of this Sunday's Mexican presidential election, but it is also a critical question for Americans. A more prosperous country would not be sending so many of its poorest citizens north. Since 1990 about 20 to 25 percent of U.S. immigrants have come from Mexico.

Here is an illuminating comparison. In 1970 average incomes in South Korea were about half those in Mexico. By 2004 Korean incomes were more than twice Mexico's. During those decades, reports the Organization for Economic Cooperation and Development (OECD), average Mexican incomes rose 57 percent, to $9,178 (expressed in constant "2000 dollars"); the comparable Korean gain was 574 percent, to $19,148.

It's not that Mexico has made no progress. Its economy was once crisis-prone, inflation-ridden and heavily insulated from foreign trade. Now it has quelled inflation (about 4 percent, down from 17 percent in the late 1990s), controlled government spending and opened up to trade. Before adoption of the North American Free Trade Agreement in 1994, tariffs on covered imports averaged 12 percent (and were much higher in the 1980s); by 2001 they were 2 percent. The last financial crisis -- a collapsing currency, an outflow of money -- occurred in 1994 and 1995. In recent years its economy has grown almost 4 percent annually.

But that growth -- fine for an advanced country such as the United States -- doesn't suffice for a poor country whose population is increasing (as is Mexico's) by more than 1 percent a year. In China, economic growth averages 9 to 10 percent annually; in India, about 6 to 8 percent. Mexico isn't in the same league.

Economies advance through the adoption of better technologies and business methods. Production and efficiency improve. Prices go down or incomes go up. Either way, people can buy more -- more old stuff (say, food or housing); or more new stuff (say, Internet connections or iPods). In Mexico, this process is weak. To simplify slightly: Its economy consists of two vast sectors, each slow to adopt better technology and business practices.

...

There is more. Mexico's biggest problem is that it is still suffering for its reaction to losing Texas. After the loss of Texas Mexico restricted immigration from the north to keep the gringoes out. This also resulted in keeping their capital and ideas out. Socialism also dragged down the Mexican economy. Like many Arab countries blessed with a lot of oil they have squandered the bounty from this mineral. Corruption also makes people in Mexico poorer. It distorts the free market system where the guy with the best procut or service at the best price does not get the deal because someone slipped some money to the decision makers. This has meant that its government and businesses pay more for less and reduces incentives to become more productive. Samuelson's contrast with South Korea is very apt, since that country invited investment and was eager to create jobs rather than exporting its people.