Shall We Grow?

Luis Rubio

Everyone wants the economy to grow. The government promises growth. The worldwide economic situation becomes complicated. Three realities that must be dealt with.  In concept, there might be many ways to achieve this so greatly coveted growth. But the only one that would permit conciliating the three circumstances is raising the productivity of the economy in its entirety and making it more flexible and adaptable.  Whichever one’s preferences are, Right or the Left, liberal or conservative, the only way to achieve growth is through productivity. However, the government is doing the contrary:  it is strengthening the mechanisms of protection through tariff and non-tariff barriers, developing industrial policy strategies and, carefully but certainly, incorporating control mechanisms over the states, the private sector, the unions and other components of the society. We’re not going to get there that way.

The business community is delighted with the industrial policy, the subsidies and the protection. Bureaucrats and politicians revel in the controls and the spending. All of these come out ahead at the cost of growth. In this manner, although there is agreement on the need for growth, little by little we are seeing that the mechanisms the government is adopting constitute a poor take on the nature of the problem and/or an attempt to imitate the practices of other countries, above all Southern, which look good from a distance but are unlikely to yield the desired result.

Mexico requires a strategy for growth. In concept there are only two things that can achieve this in a relatively brief time period.  One is employing stimulus measures that foster economic activity, as the construction of infrastructure has typically been. It is not the only kind of stimulus possible, but in a country that continues to entertain an acute deficit in infrastructure (quantitatively as well as qualitatively), this route continues to be valid, above all if it is the product of a joint view that coordinates federal, state, municipal and private efforts.

But the key to growth in the long term does not reside in the infrastructure, as important as it is (but whose impact is limited in time), but rather in the existence of a political and public policy framework that drives it. There is no other way. This is not an ideological mantra but merely practical: when general measures are adopted the whole population can benefit; when individual measures are employed (often favors), such as those inherent to industrial policy, some win and others lose due to political or bureaucratic decisions.

There are innumerable instances of the former. When high tariffs are imposed on the importation of soles for shoes one would  think that this would favor development of the footwear industry; however, what we have observed in recent decades is that Mexican shoe manufacturers have been dying out because they cannot compete with the imports given that the soles are too expensive. Protection for the one implies the destruction of the others. The same occurs with NOM (Official Mexican Norm), the norms emitted by the government and that frequently serve to protect an industry, or a company, in particular. According to the respective NOM, electrical cables in Mexico must be twisted in a distinct direction from those of the U.S. and Canada. Thus, consumers of these cables have to pay for the privilege of consuming more costly goods than their competitors. Impossible to find a more flagrant example of impervious favoritism.

The important point here is that this type of measure, greatly relished by businesses, unions and bureaucrats, does nothing other than limit the potential for the general economic growth because it hampers productivity from burgeoning and discriminates against those who could be excellent entrepreneurs but who lack the capacity to curb these particular favors.

A growth strategy has as its objective the systematic rise of productivity and for this to happen it will gravitate toward creating general conditions for growth, eliminating preferences and discriminatory mechanisms, revoking formidable regulations (frequently useless and always a source of corruption) and, above all, adopting measures that diminish the costs of creating and opening businesses. Some actions deriving from this general framework are long-term, other of immediate impact, but all must be implemented.

Lowering costs would imply actions such as the following: improve the training of those emerging from the educative system (reduce retraining costs); improve the infrastructure (reduce transport costs); improve security; facilitate compliance with fiscal responsibilities, of the IMSS,  etc.; greater work flexibility (we demand this from the Americans for the migrants, why not for Mexicans?); lowering of tariffs practically to zero; review all regulations with the cost criterion for functioning of the economy; eliminate or drastically reduce the use of subsidies in production; ensure the supply of energy sources at competitive prices; ensure efficiency and competitive prices in providing services. The point is to create the conditions for productivity to grow briskly. There is no other way of achieving this: reform that does not heighten productivity is irrelevant.

These matters take us back to the function of the government in the society in general and in the economy in particular. What I have observed in the months during which the current government has been in power is that it wants to establish itself as the authority in order to impose the rules of the game. This seems to me a necessary and even commendable trajectory. The country has for some time has lacked a sense of direction and the capacity of conducting public affairs. Decisions and actions on diverse fronts are vital, implying a government with the faculties and the capacity to execute its mandate. The question is how the government is going to use this enhanced authority: to control or to make development possible. As the ad says, it’s not the same and it’s not alike.

The country requires a government that as such works not to control the population and its diverse subgroups, but to generate prosperity. For this general policies are needed, that is, institutions, not actions directed toward endorsing the favored groups at the cost of all of rest. Nor does it require a bureaucratic resource allocation system. What are urgent are institutions to exert effective checks and balances without paralyzing the government or the functioning of the economy. Much is at stake with respect to the criterion chosen, but where it’s been going recently will not cut it.