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As the saying goes: When the tide goes out, you find out who has been swimming without a bathing suit. Few countries have emerged as naked from the receding waters of the global economic crisis as Mexico. Saddled with an economic contraction of 8 percent of GDP, higher than any other Latin American country, Mexico is also slipping in the global competitiveness index, lags behind in key social indicators, is being downgraded by investment ratings agencies and faces the prospect of declining oil revenues, owing to a dramatic drop in production.
According to recent official data, 50.1 million Mexicans -- out of a total population of 104 million -- live below the poverty line, and 17.5 million do not have enough money to eat. So a country that has managed to produce Carlos Slim, reckoned to be the second wealthiest man in the world, produces millions of others who scrape by on two dollars a day.
Mexico has long considered itself the leader of Latin America, but Chile, Colombia and the rising regional giant, Brazil, are increasingly leaving it behind.
Depending on oil industry.
Over the past 20 years, oil functioned as a type of life jacket for Mexico's economy. It hid economic distortions, allowing successive governments to postpone needed structural reform as it financed the status quo. Mexico was able to float along, buoyed by billions of dollars of oil revenue, without having to swim more quickly or forcefully than its competitors in the sea of emerging markets.
But now that oil production at Pemex, the state-owned oil monopoly, is plummeting, the country faces some hard truths that the oil bonanza obscured. The government had become too dependent on a nonrenewable resource, and therefore did little to deepen or widen the tax base. Moreover, the manufacturing sector had become too dependent on U.S.-driven export demand, and the population had become too dependent on remittances from emigrants working in the United States.
The global financial crisis thus revealed the Mexican economy's inability to innovate, promote investment, create jobs or provide conditions for social mobility. The fault does not lie exclusively in President Felipe Calderón's timid counter-cyclical measures, or in the country's social policy, or in the drop of manufacturing exports, or in the U.S. financial crisis. Mexico's essential problem in achieving accelerated economic growth lies elsewhere.
The fundamental explanation lies in a crony capitalist system with too many vested interests to maintain. Government after government has prioritized the preservation of corporatist loyalties over the promotion of economic growth and emphasized clientage distribution over entrepreneurial innovation and creation of level economic playing field.
Mexico is trapped by a dense network of rent-seekers and monopolies in sectors that are crucial for economic growth, including telecommunications, energy, transportation and financial services. This network operates on the basis of political favors, collusion, regulatory capture and the maintenance of privileges that the government offers in public-sector unions in return for political support.
Piecemeal reforms
Regrettably, the promotion of economic growth has not been a priority for either the Calderón administration or that of his predecessor, Vicente Fox. For too long, government officials have tinkered with Mexico's economic structure through piecemeal reforms that seek to ensure political stability but that do not address the key obstacles to greater innovation and competitiveness.
The results have become increasingly obvious and painful: an economy that has suffered more severely in the global crisis than its neighbors to the south; a rent-seeking business elite that is unaccustomed to competition; public and private monopolies that no one seems to have the political will to dismantle; and corporatist pacts that siphon off public resources to unproductive unions, thwarting productivity and growth.
What the current crisis has proved is that Mexico cannot continue to float, ignoring its nakedness. It needs to rethink the fundamentals of an economy and political system in which entrenched interests have become ``veto centers'' for reform. Otherwise, when the tide comes back in, Mexico will find itself struggling to survive in shark-infested waters.
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