Preferences and Possibilities

Luis Rubio

In her autobiography, African-American anthropologist Zora Neale Hurston writes that “it is no longer profitable, with few exceptions, to ask people what they think, for you will be told what they wish, instead.” That is how we are at present in Mexico: advancing preferences and desires instead of building opportunities and possibilities.

The matter is not one of preferences, but rather about the policies which could lead to much higher rates of economic growth and equitable development. Concentration of power is neither good nor bad in itself because it could as well lead to the creation of auspicious conditions for a more balanced development as to a new economic or political disaster.

To start with, growth depends on investment and it is not growing. The problem did not just begin but in 2016 when, in his campaign, today’s President Trump threatened the permanence of NAFTA. That threat was –and continues to be- much more serious than is generally recognized, because the key factor in attracting private investment to the country over the last three decades has been that agreement, on engendering a political, legal and regulatory framework for investment.

A government can be hard or soft in its conduct, but it cannot force the population to save, consume or invest. Those latter actions take place when individuals make voluntary decisions within the economic and political context in which they are found. This context determines the propensity of the citizen -as a saver, entrepreneur, investor or consumer- to contribute to development and that depends entirely on the factors that justify their confidence in the future. This is exactly the same for a family considering the acquisition of a refrigerator, for a worker pondering the purchase of a bicycle to get to work more rapidly or for an industrial megaproject. The reason that NAFTA was so important does not lie in its technical content, but in the political certainty that it provided.

A second component of investment is the public expenditure. Part of the reason that the Mexican economy grows so little, especially in the nation’s south, is the lack of public investment, above all in infrastructure. A business cannot be installed where there are no highways, railroads, or ports or services (such as electricity, water and drainage and, obviously, security), under adequate conditions. In addition to the political and union-related obstacles that plague the south of the country, an extremely old, inadequate and insufficient infrastructure is found. Successive governments have opted for ever increasing current spending, cutting back on investment expenditure, which has condemned the country to low growth rates. The present government follows the same strategy: although it is changing the expenditure rubrics (reducing salaries and programs to build clienteles), the absence of public investment remains the same. The result will not be distinct and could be worse.

Private investment might substitute public investment in many instances, but those possibilities have been truncated, as illustrated by the case of the Mexico City airport. That project promised to be a magnet of attraction for other investments and services, originating further sources of growth and employment. What is relevant is that its cancellation, in addition to the message conveyed, is going to be expensive in that the costs must be paid in exchange for nothing, while it simultaneously constitutes an exorbitant opportunity cost. It is equivalent to all of the infrastructure not constructed in the south of the country. Still worse will be dispensing billions of dollars on a refinery that is not required, which does not create wealth or jobs and that does not contribute to attracting private investment: it is a blunder of incalculable consequences. It is, above all, the worst use of scarce resources and, as the economists say, one without a multiplier effect.

At the start of the eighties the country found itself in a debt crisis that submitted the economy, and the society, to more than a decade of instability, inflation and uncertainty. The debt overwhelmed any project or opportunity because it impeded any action or investment. Everything was paralyzed and any circumstance exacerbated the panorama, as occurred with the 1985 Mexico City earthquake. In the end, the way out found was in the construction of institutions that became sources of trust and stability, such as autonomous entities –of competition, the National Electoral Institute (IFE), those of energy and telecommunications- until arriving at NAFTA.  Each of these elements –some more structured, others more costly, but all oriented in the same direction- they all ended up building political stability and providing a context prone for the attraction of private investment and, with this, economic growth in some regions of the country.

The privations are evident, but advancement cannot be executed ignoring the factors that make, or would make, growth possible. It is clear that many adjustments and corrections are required, for which the current government has earned exceptional legitimacy that, everything indicates, it is going to waste, one more time. Worse, destroying the factors that have favored stability and investment is self-destructive and, at the end of the day, suicidal.