Changing World

Luis Rubio

The way the Morena-party government functions, especially with President López Obrador’s early-morning press conferences, reminds me of an old Russian joke. It was about a peasant farmer whose neighbor saves enough to purchase a goat. The peasant asks God to put right this injustice and God answers, asking the peasant what he wants him to do. The peasant responds, kill the goat.

Lost in his own thoughts and detached from what goes on in the world, the solution is to destroy what exists. Otherwise, alas, the country might prosper.

The outside world changes frequently and in an accelerated manner; the vectors that appear fixed or constant one day, are distinct the next:  the multiplicity of factors and variables that interact with the world alter the environment in unforeseen ways. In the face of a panorama such as this, the natural inclination for many is to entrench themselves, closing oneself off and pretending that the best protection lies in isolation. The problem is that it doesn’t work.

In an interconnected world, where daily life relies on steady and continuous interaction among persons, enterprises, governments and institutions through national borders, the pretense of isolating oneself is, in addition to being infantile, impossible. Just to give an example, 8% of telephone calls worldwide are between Mexico and the United States; the next category is between the United States and India, with 3.2%.* Mexico is one of the most interconnected nations in the world and its economy depends on the demand for Mexican exports. A country with these characteristics should be creating conditions to speed up those opportunities, in terms of preparing the population to take advantage of the latter as well as building the infrastructure to bring them to fruition.

What does in fact occur is the reverse: education and health are non-priorities for the government, whose loyalties are to the unions dedicated to preserving the world of the XX century. Infrastructure is paralyzed and, as if this were not sufficient, the constitutional amendment dispatched by the Executive Branch to Congress in matters of electricity is steered toward price control, a mechanism devised in the seventies to render private investments unviable and then expropriate them.

While Mexico’s government acts like the proverbial ostrich hiding its head in the sand instead of facing the challenges that the world (on which it depends) imposes on it. However, paraphrasing Trotsky, the Mexican government may not be interested in what is taking place in the exterior, but the rest of the world is interested in Mexico. However much it attempts to abstract itself from what is going on in the world, it is impossible.

Here are some examples of how this happens:

  • The incorporation of China into the World Trade Organization in in 2001 altered the Mexican expectation of becoming the main provider of manufactured goods to the United States
  • The U.S. mortgage crisis of 2008 led to an economic contraction in Mexico of nearly 8%
  • That crisis led to the creation of the G20, in which Mexico was a prominent actor with the objective of protecting the permanence of the market for its exports.
  • That same forum obligated China not to devaluate its currency as a mechanism for promoting its own exports.
  • China’s response was to emphasize its internal market and an enormous expenditure in infrastructure to attract cheap labor from its remote regions.
  • The pandemic has driven the tendency toward the consolidation of three increasingly interconnected regions: North America, Europe, and Asia.
  • The growing rupture between the China and the United States destabilizes the long-established supply chains. Rather than take advantage of the opportunity, Mexico distances itself from it.
  • The monetary mechanism employed by the central banks to provide the markets with liquidity, first due to the 2008 crisis and afterward because of the pandemic, begins to diminish, threatening to enact modifications in exchange units among the world currencies.

The global panorama changes minute to minute and each of these alterations entails potential consequences for the Mexican economy. Except for the fact that new investments have not materialized, the retreat with respect to the world and, especially, from the United States that is being pursued by the present administration, has not yet manifested in immediate risks, but these will increase. The lack of investment menaces future growth, while the financial movements put the exchange-market stability at risk.

None of these factors is novel or exceptional. What is novel is the unwillingness of the government to recognize that the way it acts, internally and externally, entertains consequences for stability as well as for the future of the economy and the society. The notion is unsustainable that what happens in the exterior can be ignored or that apparently innocent changes in the interior do not embody consequences from and toward the exterior.

The electrical reform is a nonsense that ignores not only the outside world, but the requirements of the country today. It’s about the proverbial shooting oneself in the foot.

The question is, what is the size of the risk that the government is disposed to assume regarding these interplays?