Diagnoses | Luis Rubio

Luis Rubio

What’s the problem with Mexico’s development? How can we direct the economy so as to recover its vitality, generate wealth and satisfy the population in general? Part of the answer lies in understanding the nature of the problems that we are facing and the context within which these occur. The other part resides in constructing the political capacity to deal with these. One without the other turns out to be irrelevant.

On thinking about this I found myself with an unvarnished diagnosis of our problems. This is it in sum:

It is the fault of the country’s failure to adequately modernize its governing institutions and its economy -its public sector and its private sector.
The problem is that the people are unprepared for the future, and the situation is not so much the cause of that problem as the embodiment of it.
It will not be easy to regain our old trajectory. Economic growth is in essence a function of two factors -workforce expansion and productivity improvement- and the growth of the past half-century has involved both in roughly equal measure.
This suggests that economic growth in the coming decades will depend decisively on productivity growth. If we are to experience anything like the prosperity of the postwar era, our economy will need to be more productive than ever. Efficiency must be the watchword of our economic policy.
The private economy is not exactly getting geared for efficiency either. The failure of education reform makes it difficult for too many younger people to gain the skills that they will need to compete with foreign workers in tomorrow’s economy.
The key is driving productivity and innovation but nothing is advancing there.
The tax code, meanwhile, undermines the competitive position of local producers and imposes immense efficiency costs on the entire economy.
Economic policy is increasingly dominated by an ideal of state capitalism, in which regulators prefer to work with a few large players in each industry -functioning essentially as public utilities- while making the lives of small competitors and innovators next to impossible.
By using the government’s immense leverage to drive innovation and contain costs through competition (rather than to drive volume and inflate costs through price controls), it would be possible to reform the health system.
Finally, we should pursue a human capital agenda to help supply the labor force our economy will need if we are to pull off a productivity revolution.
The real heart of a human capital agenda must be education reform.
Productivity and efficiency need not come at the expense of financial security and social cohesion; indeed, they have often gone hand in hand throughout our history.
Economic growth driven by competition and innovation has been easily the most effective means of lifting people out of poverty, particularly when coupled not with an empty promise of material equality but with a fervent commitment to upward mobility.
Mexico needs more than economic growth. But without growth, we cannot hope to take up our other priorities.

This summary of the study highlights many of our weaknesses and illustrates the challenge confronting us. What is significant about the summary is that it does not refer to Mexico. It is an analysis of the U.S. and the only thing I did was to insert Mexico where it said “America”. The message is that, in a globalized world, the challenges of development are not exclusively of our country. The reality is that, despite the reforms of the past decades, the country has become stiff in the joints and has not broken free of its vicious circles.

In the economic ambit, there are two factors that characterize the Mexican economy. One is the existence of two, radically different, industrial sectors, one focused on productivity and exports, and another entirely focused on the internal market. Typically, the former compete with the best in the world, the latter live precariously, protected, in some cases, by tariffs and subsidies, but the majority by means of traditions and ancestral forms of consumer behavior. The other factor that characterizes the country in general, and not only the economy, is the fact that the government, at its three levels, has not modernized itself. This has produced an exceptional circumstance: we have first-world enterprises but a fifth-world government.

This is not the result of chance. The reforms of the eighties forced the private sector to compete, but they did not do the same for the government-owned corporations. They opened up importation of goods, which forced the manufacturers to compete or die, but nothing similar happened with services, what the energy monsters produce or the government itself. Now, fully engaged in the XXI Century, we must deal with the consequences of what was not done. That is, at the core, the argument of Yuval Levin, the author of the previously cited text*.

The grand question for the new government is whether it will have the disposition and the capacity to reform the system of government that characterizes the country. That is where our greatest problems lie, where the pettiest interests hide and where the status quo is preserved as if it were the government’s and the country’s raison d’etre.

The risk at this moment of change is that we will fall into the willfulness that is the product of arrogance: “the ones before us were very inept; we’re the ones who really know how”. In reality, the country’s problems transcend parties and cannot able to be resolved with nothing more than will. What is required is vision (clarity about what it’s necessary to do); power (the capacity and disposition to sway the interests that they defend and benefit the status quo and that, in their overwhelming majority, are an integral part of the PRIist coalition); and the what for: that is, understanding that the historical objective of the PRI (to protect the interests of the revolutionary family) is unsustainable and that the only thing that’s relevant at this time is to create a wealth base that fortifies the country, generates jobs, makes development possible and recognizes that only a private sector that is competitive and not protected will be capable of achieving this.

The country needs a radical transformation. It’s been decades since such a possibility has been in the cards, the reason why the opportunity is so extraordinary and why the cost of not advancing would be so high.

*Our Age of Anxiety (http://www.weeklystandard.com/print/articles/our-age-anxiety_645175.html).