structural weakness

Despite the potential that Mexico has to become a country with high levels of economic development that includes not only a high level of aggregate and per capita income, but also other dimensions such as greater equity in the personal-family distribution of that income, personal and property security, high environmental quality of places of residence, etc. Two centuries after the consummation of independence, we continue to be a country of medium development, notoriously inequitable and with a growing deterioration in general living conditions.

The explanation for such poor performance really lies in only one thing: the structural institutional weakness that Mexico has and, for the same reason, it has not provided the correct incentives aligned with the objective of high and sustained rates of economic growth. If we can draw any lesson from world historical experience, it is that high levels of development cannot be achieved if there is not a process characterized by the continuous accumulation of physical capital and, above all, the increase in high-quality human capital in an educational system expressly designed for that purpose. Furthermore, this greater stock of physical and human capital must be accompanied by continuous technological change that increases total factor productivity.

Seen in this way, the design of the institutional arrangement that includes individuals/families, organizations (companies, unions, schools, government, etc.) and the rules of the game under which they interact (laws and regulations) must be such that encourages physical and human investment and technological change. Thus, what is crucial to achieve a sustained process of development is that the institutions and especially the rules are efficient, simultaneously providing certainty that they will be complied with and that there will be transparent, efficient and effective mechanisms for penalization in case they are violated. . And this is what Mexico has historically lacked.

After the disaster represented by the government management during the “tragic dozen” of Echeverría and López Portillo and the lost decade of the eighties that followed when Mexico lost access to international capital markets as a consequence of such a disaster, it was clear that work had to be done to build a new institutional arrangement. The first step was the government’s decision to start a process of opening up the economy by joining the GATT in 1986 and the renegotiation of the external debt in 1989 and 1990. Subsequently, significant far-reaching changes such as the autonomy of Banco de México in 1993, the entry into force in 1994 of NAFTA, the creation of competition agencies (today IFT and Cofece), the INAI, the reform of the Judiciary of the Federation and the reform of the pension system, what happened from a system of defined benefits to one of defined contributions and that defined the property rights for each worker of the resources for his retirement.

All these changes in the institutional arrangement were in the right direction and with the objective of making the economy more efficient in such a way that this translated into greater capital accumulation and technological modernization and, consequently, greater growth and economic development. However, there were two crucial changes that were not made: the labor and social security reform that would make this market more modern and efficient, and the tax reform that would structurally strengthen public finances.

Incomplete reforms consequently resulted in three “two Mexicos”: a) the modern NAFTA/T-MEC Mexico with high growth rates and the isolated and stagnant Mexico; b) north-central Mexico (NAFTA) and southern Mexico (isolated and stagnant); and, c) formal labor Mexico (45% of the labor force) and informal labor Mexico without access to social security. A split Mexico.

President López could have chosen to continue on the path of modernization, incorporating those “three Mexicos” that were lagging behind in the development process. On the contrary, because of his sick desire to accumulate power and with an ossified vision of the world, he chose to weaken and almost destroy the modern institutional arrangement, even endangering, because of a sick hatred he has for the United States, the main source of growth that is the T-MEC. The result of his actions is plain to see: an economy that is structurally weaker today than it was four years ago and, therefore, with less capacity for development. That will be, among many others, one of his negative legacies that he leaves to Mexico.

Twitter: @econoclasta