In past articles I pointed out that given the exhaustion of the inward growth model and the macroeconomic crisis derived from a notoriously irresponsible fiscal and monetary policy followed by the governments of Echeverría and López Portillo (the “tragic dozen”), starting in 1986 with the Mexico’s accession to the GATT began the path to a regulatory state. I highlighted the entry into force of NAFTA, the creation of the Federal Competition Commission (today Cofece), the Federal Telecommunications Commission (today IFT) and the autonomy of Banco de México. To these must be added the INAI, the Energy Regulatory Commission (CRE), the National Hydrocarbons Commission (CNH) and the National Institute for the Evaluation of Education (INEE, disappeared by the current government).
A structural change that is worth highlighting is the reform of the pension system in 1997 that gave rise to the individual retirement accounts managed by the Afores. The demographic change with the gradual aging of the population made the pension system with defined benefits fiscally unsustainable, so it was changed to one of defined contributions. This change meant, above all, the definition of the property rights of each individual over the funds for their retirement.
In terms of social policy, two programs stand out: Progresa – Oportunidades (which later changed its name to Prospera) and Seguro Popular. The first, already canceled by the current government, was a program of direct transfers to the income of the poorest families in the country, conditional on the children’s attendance at school and health services. The second program, also already canceled, provided health services to those individuals who did not have access to formal institutions, mainly the IMSS. In this area of social policy, the creation of the Council for the Evaluation of Social Development Policy stands out.
All the changes mentioned were aimed at providing private economic agents with a more efficient institutional framework, with legal certainty and transparent rules, which would lead to a more efficient allocation of resources and enhance the growth of the economy. Why was it not grown at higher rates? The problem, first, is that the average annual growth during the period 1986 – 2018 hides three crises with significant falls in GDP: 1995, 2000 and 2009, the first due to internal causes and the other two worldwide. But furthermore, why it did not grow more is derived from the existence of a double “two Mexicos” that intersect to a great extent.
The first of these “two Mexicos” is the coexistence, in the three major sectors of the economy (agriculture, industrial, and services) of two types of organization of production, one made up of formal and modern economic agents that experience high growth rates. together with one made up of informal companies that, due to their size, operate with very low production scales and with obsolete technologies that employ labor with low levels of human capital and which, therefore, have very low productivity. Excess bureaucratic regulations, high entry barriers to markets, corruption and a social security system where employer contributions act as an implicit tax on formality explain the existence of this informal economy, which is a drag on growth of the economy as a whole.
The second of these “two Mexicos” is made up on the one hand of the states and regions of the country integrated into the world economy through the flows of both foreign trade and foreign and national investment (the center – north of the country from Querétaro) and, on the other hand, from the areas of the country that have remained isolated from the impulse that the commercial opening and NAFTA gave, that is, the south where the three states with the least economic development stand out (Chiapas, Guerrero and Oaxaca), with low levels of human capital and a high rate of labor informality. Another drag on added growth.
To be continued: the return to the past and destruction.
Twitter: @econoclasta
Economist and professor
Point of view
Knight of the National Order of Merit of the French Republic. Professional Merit Medal, Ex-ITAM.