Bogged-down Buggy

When the growth engine is stuck in the mire, one should question oneself as to whether the premises sustaining how to start it up again are valid. Bertrand Russell, the great British philosopher, once affirmed that “I think that what needs to be preached in modern industrial countries is significantly different from what always has been preached”. In matters of development, what has always been fostered in Mexico is demand, that is, greater expenditure. It is possible that, in some circumstances, spending could be useful; however, what truly should concern us is why investment is so sluggish.

The governmental perspective, by nature, is from above: the whole is what is viewed and it is very difficult to understand the parts or to act with surgical precision. That is the reason for the failure of the majority of sector-promotion or growth programs in general. Except under very particular circumstances, what favors or inhibits investment is very distinct from what, from above, can be understood by a bureaucrat who, necessarily, must make decisions featuring the whole.

A paper in a Chinese fortune cookie stated it with full clarity and in the vernacular, “Crowded elevators smell different to midgets.” This person, that is, the run-of-the-mill citizen, experiences problems that begin at the door of their establishment but that do not end there. The citizen must deal with garbage on the sidewalk and fluctuations in voltage, scarcity of water, potholes in the street, and the interminable traffic involved in getting anywhere, and what of the violence and insecurity? Before even beginning to think about establishing a business –whether it’s an automobile engine plant or a stand for repairing household steam irons- the potential entrepreneur already sees the world as an uphill climb.

This potential entrepreneur or investor doesn’t even imagine what’s coming: zoning laws; ground use permits; environmental impact evaluations; import red tape; registering before the Ministry of Finance; the municipal government, or the Federal District delegation. If they sit down to plan the integral process, those aspiring to entrepreneurship will be required to contemplate a veritable troupe of lawyers and accountants months prior to production of the first screw. Judging by the tangible reality, the majority of these succumb in the planning stage: ergo, our large informal economy.

Supposing that these are sizeable or multinational businesses, with the capital and capacity to deal with all the red tape and costs inherent in the process, their considerations become yet more practical: how does Mexico compare with countries like Korea, China, Brazil, Hungary, or Taiwan. If the potential market is the U.S., the intrepid investor will begin to research what Mexico offers for their project. The advantages will be evident: proximity and access governed by a bilateral commercial treaty. With this we have a leg up. However, as soon as other things are proffered for comparison, their costs and potential benefits require recalculation.

From the other side of the table, as aspirants to this investment (although it doesn’t always appear to be thus), we would be required to ask ourselves how we compare with nations such as the aforementioned  and at how great a momentum do these two enormous advantages begin to be eroded by the onus of our problems and limitations. In contrast with China or Korea, our infrastructure is pathetic: decrepit; below par in quality; streets chock-full of potholes; permanently chaotic transit (more in some cities than in others), with a bureaucracy whose incentives always privilege the short-term (personal benefits as well as slush funds for public officials) instead of aligning itself with growth of the economy.

What Mexico needs is a change of focus. Ideally, this could emerge at the global level, when a great national leader convinces the collectivity to focus on the future, accompanied by growth and development criteria. Although attractive, judging from what we have witnessed in recent times, a cynosure of this nature seems scarcely realistic. The function and responsibility of the government is to eliminate obstacles, both internal as well as external, to private investment. However, the amount of the obstacles that exist is the equivalent, says Luis de la Calle, of the speed bumps that we car drivers encounter everyday: this comprises the best evidence of underdevelopment because speed bumps are substitutes for what does not exist, that is, respect for the law, traffic lights, and other means that, in theory, should serve to norm development and make it possible.

One way of attempting to right these wrongs would involve a bureaucratic and regulatory revolution that, although conceivable, does not appear possible. However, there are other ways of considering these themes. Perhaps the best achievement of the two PANist administrations of recent years is having made possible the mortgage market that has allowed several millions of families to acquire a home. Instead of seeking to resolve all of the problems that impede the growth of low income housing, Fox summoned together bankers, builders, regulators, and bureaucrats to explain impediments and define options. The solution arising from that did not transform the world, but did indeed resolve the heart of the problem. It seems to me that this should be the model to follow in the future: small but competent solutions to the specific problem.

The true challenge concerning the growth of the economy and employment in the country does not lie in the absence of ideas, projects, and opportunities but rather, in mistaking the focus that supplies the norms for governmental function. Wealth is created by entrepreneurs and it is these who generate employment. The former premise should be understood in the entirety of its dimension: everything that hinders or impedes the development of investors and entrepreneurs reduces growth and job creation. Clear as a bell.

In classic economics, growth was made possible by the “invisible hand” of the market. The problem is that, according to Rafael Fernández-Macgregor, in Mexico this hand is tied behind our back. It is tied there by red tape and the bureaucracy, state-owned energy companies, private political projects, and impunity that, de facto, give free rein to corruption and stagnation. Our problem is not the absence of opportunities or potential entrepreneurs, but the excessive presence of obstacles and impediments that in the last analysis quash even the most persistent of these. The success of countries such as China with the revolution initiated by Deng Xiaoping is not the product of their perfection but rather, of the fact that they accord privilege to those who create wealth. Simple as that.