The Nostalgic

Luis Rubio
In memory of Dr. Guillermo Soberón

Spanish writer Francisco de Quevedo wrote: “When we say that all time past was better, we condemn the future without knowing it”. The past was not always better, but it is easier to envision it because it stays frozen in time. The new dogma is that the Mexican economy was going very well into the 1970’s and that the subsequent economic reforms were responsible for its destruction. The so-called neoliberal model may be obsolete and may have caused innumerable failures but the notion that returning to the past will solve Mexico’s current problems is pure nostalgia. New thinking will be needed to get out from the Covid-19 pandemic downturn.

The diagnosis of economic problems requires a minimum of honesty regarding the nature of those issues requiring a solution. For example, the current assumption is that Mexico’s annual average growth rate during the past three decades (of around 2 percent) was mediocre, which obviously it was. But this average growth rate hides more things than it reveals: the Mexican economy has become ever more complex and has experienced great fragmentation, with some Mexican states growing at nearly Asian rates, while others are lagging behind.  In this respect, what must be understood is the reason behind these abysmal regional differences.

The idea that what we need is to “Mexicanize Mexico” is nothing more than an ideological catchphrase oblivious to the basic reality of the past decades. Without a doubt, the citizens of Chiapas, Oaxaca and Guerrero are totally right to protest the huge stagnation that these southern Mexican states have fallen into. In great measure, factors of real power within their own milieus have thwarted change. This in addition to what successive Mexican federal administrations have failed to accomplish. In the same manner, when one visits the states of Aguascalientes and Querétaro, the impressive transformation that they have undergone is immediately evident. The relevant point at issue is to understand what the former Mexican states have done poorly and what the latter states have done well.

Those yearning to recreate the Mexico of the 1970s are right when they say that the country is more unequal today given the contrasting growth rates between different Mexican regions. However, resurrecting the economic strategy of half a century ago is impossible for two reasons.

The first reason is that the sociopolitical and economic realities of yesteryear do not have any similarity with those of Mexico today. In the old era, growth was explained as the result of an optimal combination of government investment in infrastructure and private investment. During those years, private investment responded to a framework of certainty that was the product of a clear understanding between the factors of production and the Mexican government. It was not a perfect world but it was extraordinarily successful while it lasted.

The second reason of why it is impossible to reconstruct the Mexico of the 1970s, is that the key element rendering possible high growth rates during those years –oil production and the expectation that prices would increase permanently- are no longer present. In addition to that, Mexico’s oil production has decreased in absolute terms and its relative importance to the entire Mexican economy has radically diminished. In later decades, manufactured goods replaced oil as Mexico’s growth engine. Those Mexican states that embarked in following such path have gained jobs and new sources of income.

There are many misconceptions influencing the current Mexican government’s thinking. The first and most important, since the rest depends on this, is that Mexico abandoned the so-called “stabilizing development” economic model on ideological grounds. In fact, during the 1970s and 1980s, several Mexican administrations made ludicrous attempts to prolong the life of such economic model at a time when its foundations had already disappeared. Yet, the most important thing to remember is that it is impossible to go back to a world that no longer exists.

The central point here is to say that the reason why Mexico abandoned the “stabilizing development” model was because the economy stopped growing. While Mexico was going through an oil binge, the rest of the world changed its ways of production, advancing headlong into the world market. The subsequent reforms to the Mexican economy were nothing more than a recognition of the new economic reality. Going back in time will only deepen Mexico’s ills.

The implementation of a new model required Mexico to develop novel sources of economic certainty. The anchors that had previously sustained Mexico’s growth were wiped out during several political earthquakes like the 1982’s expropriation of private banks. The North American Free Trade Agreement (NAFTA) in 1993 was an economic development tool whose importance was based in generating trust in Mexico among investors and entrepreneurs.

Those Mexican states that joined the new economic logic -based on manufacturing- were transformed. Those that did not were left behind. The key thing to understand are the obstacles that impede investment to reach Mexico’s poorest states and thus act in consequence, not rhetorically, but in reality.

Evidence shows that factors such as property rights and the rule of law are increasingly more important for economic growth the higher the level of development (Acemoglu, 2003). If one asks an auto company what were the reasons that made them decided to set up a plant  in Puebla or in Durango (and not in the southern states of Oaxaca or Chiapas), these arguments would doubtlessly feature prominently in its answer. The key lies in certainty and political harmony.

Focusing solely on Mexico’s growth rate is a distractor given that it lets championing grandiose government projects instead of paying attention to the country’s sociopolitical complexity. The dilemma between growth and stability is a false one, as exhibited by virtually all Asian countries where governments have devoted themselves to smoothing the way towards prosperity. The issue is not an ideological one, but rather a practical one. That is the true departure point.

* Luis Rubio is chairman of the Mexican Council on Foreign Relations (COMEXI) and of México Evalúa-CIDAC. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.

 Twitter: @lrubiof