Mexico Today – May 11, 2021
Luis Rubio
It’s puzzling how countless countries, particularly in Asia, reconcile tremendous disorder with extraordinary economic performance. Anyone who has observed the chaotic street traffic in Indonesia, the Philippines, Vietnam, or India, would never imagine that these are the countries posting the highest growth rates in recent decades. Even more interestingly, this disorder in everyday life is mirrored in the corruption of politicians and government officials. The use of connections and cronyism to advance in business is not uncommon in these countries. Might the key to their economic success and income distribution lie somewhere else?
Order and chaos are two extremes of the same continuum. There are countries where order is paramount. Singapore is unrivaled in validating the major correlation between economic success and order: the rules are clear and are followed and enforced; punishment is accordingly exemplary, and therefore infrequent. On the opposite end are countries where chaos seems to reign, law enforcement is rather lax (if not non-existent), and yet economic success is undeniable. There are also countries with order aplenty (Russia, North Korea, Cuba) and others that are chaotic (Africa, Latin America), most with dismal economic performance. Where lies the difference?
An online video made me reflect on what makes things work. The video compares how people drive in orderly countries with those of a disorderly country like India. It clearly illustrates the contrasts between countries with established rules and those who forge them on-the-go. The video begins with several examples of cars arriving at an intersection and, in the absence of a traffic light or signal, continue straight ahead, presumably assuming the others will brake. The video ends with an intersection in India where no formal rule exists, but the system works nevertheless. Chaos creates its own order.
In countries characterized by the existence of clear and enforced rules, the population builds within itself a series of assumptions that make things work naturally, except when those rules disappear. A Canadian who comes to an intersection knows that, in the absence of a traffic light or a “stop” sign, he can cross carefree, something that no Vietnamese or Indonesian would take for granted. As the video illustrates, the Canadian (or German or Frenchman) ends up crashing because the two drivers instinctively applied assumptions that are invalid when there are no rules. On the other hand, everything adapts naturally in a country accustomed to chaos.
What works for street traffic doesn’t work for the economy. A stable economy requires clear, unchanging rules. More than order per se (or the absence of corruption), such stability creates conditions for savings and investment -hence growth. What makes Indonesia like Singapore is not order, but consistent rules of the game. In Indonesia, private investment legislation is not modified with each changing administration, nor do officials change how they work because of a new boss.
In a comparative study on how Asian and Latin American governments work, the authors quote a businessman: “I lived in Brazil and Indonesia and was responsible for a very similar operation. But in Indonesia I devoted myself body and soul to production and didn’t have to worry about anything else. Regulations were clear and didn’t change. Everything was different in Brazil. There I would wake up every morning wondering if I still had a job because not a day went by that regulations didn’t change”.
Over the last century, the Mexican government has been prone to inventing the wheel every six years. This created the phenomenon of the six-year economic cycle and was directly linked to the duration of the Mexican president’s term. Mexican savers, businessmen, and investors waited for the new administration to “show its true colors” before committing and risking their resources. For almost a century, each incoming Mexican administration changed the rules of the game, which prevented long-term projects from consolidating. Everything had to fit in the president’s six-year term. New economic tools like the NAFTA trade deal in 1993 began to change the six-year tradition because they created mechanisms that granted certainty and legal protection to investors.
President Andrés Manuel López Obrador disdains the need for certainty, clarity of direction, and the checks and balances that underwrite both. Bent on ignoring the world around us, the president imagines he can impose his own rules with no fallout. He tries to ignore things like the corruption inside his own governing coalition (as the recent collapse of a subway overpass in Mexico City shows). That’s why López Obrador’s actions will not yield better results than his predecessors’. He does not understand (nor will he understand) that no one is going to save or invest in Mexico without certainty and credible sources of trust.
* Luis Rubio is chairman of México Evalúa-CIDAC and former chairman of the Mexican Council on Foreign Relations (COMEXI). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
https://mexicotoday.com/2021/05/11/opinion-order-and-chaos-lessons-for-mexico/
www.mexicoevalua.org
@lrubiof