Mexico’s Missing Prosperity

July 3, 2006 in Border Security, Congress, Democrats & The Left, House of Representatives, Illegal Immigration, Republicans & The Right, Senate

From the Washington Post 

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.

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.

One sector involves large, modern firms in semi-protected markets that limit the pressure to improve efficiency or lower prices. “Mexico’s business sector is risk-averse. It’s never had to operate in a true competitive environment,” says Pamela Starr, an analyst for the Eurasia Group, a consulting firm. “It’s operated with monopolies and oligopolies encouraged by the government.”

An extreme case in point is Pemex, the state-owned monopoly oil company. Without competitors or complaining shareholders, its operations are lax. In 2004 Pemex had $69 billion in sales and 137,722 employees, according to its Web site; in the same year, Exxon Mobil had $291 billion in revenue and 85,900 employees. Telmex, which dominates the phone market, is often cited as another example. In 2004 Mexico had the sixth-highest phone charges for an average customer of 29 OECD member countries.

Another example of failed socialistic policies

The other part of the economy is usually called the “informal sector.” It consists of thousands of small firms — street vendors, stores, repair shops, tiny manufacturers — that theoretically aren’t legal, because they haven’t registered with the government and often don’t pay taxes or comply with regulations on wages and hiring and firing. Almost two-thirds of Mexico’s workers may be employed in the informal sector, according to one rough estimate by the International Monetary Fund.

On paper, the leading candidates for president advocate different economic policies. Former Mexico City mayor Andr?s Manuel L?pez Obrador of the center-left Democratic Revolution Party urges more government activism.

More socialism… Exactly what they need….(note the sarcastic tone of my typing)

Felipe Calderon of the center-right National Action Party — the party of the incumbent, Vicente Fox — favors “the market.”

Yet with no plan to ease restrictions on capitol investment, especially foreign capitol. Regardless of who eventually takes the oath of office in Mexico, reform of its economy to one that can support its population will take time, and lots of it.

For Americans, the implications are sobering. Mexico has long regarded immigration as an economic safety valve. Whoever wins, that won’t change.

Which is why it is important for us as a nation to get a bill through congress that emphasizes border security and law enforcement. An overhaul of our immigration policies are needed as well, but take a back seat to securing our borders and enforcing the laws we have on the books.

**This was a production of The Coalition Against Illegal Immigration (CAII). If you would like to participate, please go to the above link to learn more. Afterwards, email the coalition and let me know at what level you would like to participate.**