Luis Rubio
All the governments of the world, of all colors, want private investment, but none can get it by force. Nobody -big or small, national or foreign- assumes risks or commitments without feeling comfortable and welcome, and those feelings do not depend on political speeches or the will of the ruler, but on the existence of clear and reliable rules. It’s that easy and that hard.
The notion of an “obsession” for investment sounds enticing and attractive, but it is a chimera. No one obsesses about investing. Who should be obsessed is the politician who needs private investment to achieve his development objectives, poverty reduction, employment and, in general, a generalized improvement in the life of the population. But a political or discursive obsession is anathema to private investment: the key lies in the reliability of the rules.
1. Investing involves risk taking: she who puts her money into a project -be it in the form of savings through a purchase of shares in a company, or he who undertakes a certain productive objective- is betting that they can achieve attractive returns. Their bet represents the recognition of a risk that the project will be successful. Many restaurants open their doors with a bang, only to end up closing a few months later. A failed bet.
2. Investing is an act of faith and trust both in the specific project and in the context in which the investment is made. The franchises are successful because they reduce the risk of the project. The same is required for the environment in which the investment would take place.
3. Nobody invests without a reasonable chance that their project will be successful and success depends on two big circumstances: the first is that the project itself is viable; the second, that there is a reliable and stable regulatory framework. The latter is what should concentrate the obsessions of the ruler.
4. Despite this obviousness, most governments focus on changing laws, launching major initiatives, creating bureaucratic monsters, rewarding their favorites and developing clienteles, when what is required is to strengthen the environment (a better educated work force, better infrastructure and multiple sources of certainty), that is, something very simple, but very difficult to achieve: stability in the rules of the game. Simple because it’s obvious; difficult because it implies going against endless accumulated prejudices.
5. The virtue of the NAFTA, and its enormous success in attracting investment, was rooted in the normative framework that was its essence: clear, reliable and non-changing rules. More specifically, in the original NAFTA the key was not the thousands of pages of procedures, but its chapter 11, which gave certainty to the investor regarding the security of their investment. It is no coincidence that NAFTA has become, through exports, the main engine of the country’s economy. Instead of inventing the hot water, as the Mexican saying goes, what would be required would be to extend the rules inherent to NAFTA to the entire national territory. It would be the most expeditious way to create a regulatory environment conducive to investment, while solving the mess created by Trump in the matter: certainty generated within Mexico.
6. And this implies a great lesson for the Mexican government and its base: in the interconnected world of today there is no difference between national or foreign investors or savers. They all follow the same rationale, everyone wants clear and reliable rules. Many Mexican companies have invested in Mexico through the North American or European FTA precisely to enjoy the same certainty. When Morena’s contingent in Congress proposes to limit foreign investment, it is in fact threatening all investment, beginning with the domestic one.
7. The current government wants to subordinate economic decisions to its political preferences. It sounds good and it is logical in its perspective, but there is nothing more pernicious for private investment than political decisions. Investment goes where there are clear and reliable rules, not where politicians change the rules or subordinate them to their political preferences. That’s why the decision about the airport was so damaging.
8. Private investment does not respond to speeches or prodding: all it requires is certainty or what is known as “trust,” which is nothing other than the conviction that the rules of the game will be the same on the day the investment is made and when the project comes into fruition.
9. The government can beg, implore, demand or criticize, but it cannot force a person to risk their savings through an investment.
10. The only thing a government can do is to control its checkbook, develop strong institutions that confer certainty, and ensure, through leadership, that the entire country is dedicated to attracting investment and enhancing it. It’s that easy and that hard. The better the labor, educational and infrastructure environment, the lower the risk and the greater the investment. It’s not rocket science.
It is still time to obsess about creating conditions for the country to really focus on attracting investment, all of which has not been done in the past decades.
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