Mexico vs. Brazil?

“The first principle is that you must not fool yourself,” said physicist Richard Feynman, “and you are the easiest person to fool.” This is how our perception of Brazil seems to be these days: it is easier to conjure up barriers on likenesses and differences than to identify what is relevant and to adopt a strategy to deal with this.


There are many myths about Brazil and at least two conflicting dynamics. The first, the more prominent in the media, is the issue of bilateral trade. Here one can detect all the fears and fallacies that characterize a good part of the Mexican industrial sector. The other concerns the nature of the Brazilian economic policy and its supposed virtues. Fooling oneself is always pernicious.


Decades ago the Brazilians adopted an economic strategy devoted to promoting a certain type of industrial development. Since the era of the CEPAL (Economic Commission of Latin America) in the post-war period, they promoted heavy industry, high technology, and a local manufacturing base. The model adopted at the time was not radically different from Mexico’s, except that they, to a great extent due to the political weight of their military, devoted enormous resources to projects such as aviation and heavy machinery that were not profitable but that followed another logic. Some of their successful exports reflect that priority, although the cost of having arrived at that point had been monumental.


The main Brazilian exports, many of these high-tech, are concerned with agriculture and mining. Their great success of the past several years refers essentially to the enormous Chinese appetite for mineral products, grains, and meat. Just as we have a significant dependence on the U.S. economy, they have the same with respect to China. Time will tell whether one of the two was much better than the other.


But the principal difference between the two nations has little to do with their exports and much to do with the strategy. In the eighties, Mexico decided to abandon the development model based on the subsidy and protection of producers in order to privileging the consumer. This decision was based on experience: instead of decades of protection having translated into a strong, vigorous, and competitive industry, the Mexican productive plant –with many notable exceptions- had grown stagnant.


Why this happened or whether trade liberalization was the best response can be debated, but the fact remains that favoring the producer ended up being extraordinarily onerous for Mexican consumers who paid exorbitant prices for mediocre products. Much of the improvement in the well-being of the population of the past two decades had to do with the competition introduced by the imports. Today we have a hyper-competitive productive plant that, as a whole is far more successful than the Brazilian. The result for the country –albeit not for all companies- has been positive.


The Brazilians opted for another path. Although in recent years they have begun an incipient liberalization of imports, their baseline model continues to be the same: protecting, subsidizing, and privileging the producer. Thus is reflected by the trade conflict in automotive matters that has exacerbated recently. The decision to impose quotas on the importation of Mexican products denotes a less successful industrial strategy than is apparent and an obvious reluctance to compete. It is not by chance that Mexico’s per capita income is higher than theirs.


What has the Mexican response been? On the part of the government, the proposal has been to negotiate a bilateral commercial treaty that impedes changes in the rules of the game. On the part of the Mexican private sector, there is absolute rejection of any negotiation. The reasons are known: because the Brazilians take advantage of the situation, because there are security problems, because the infrastructure, because the costs of the goods… because we don’t feel like it.


Beyond the rhetoric, the posture of the Mexican private sector is contradictory. The main argument for rejecting negotiation is that Brazilian products enter Mexico without restrictions while Mexican exports to Brazil face permanent hindrances and a nightmarish bureaucracy. One would think that this argument would be, or should be, the principal reason for procuring a treaty guaranteeing the access of Mexican imports to that country. If the Brazilians engage in capricious mechanisms to control imports, the best way to eliminate this capriciousness is to negotiate certain and guaranteed access. Over the past decades, commercial treaties have become an instrument for breaking through impediments to access for Mexican products to other markets. Since Brazilian products already enter into the Mexican market, our private sector should be anxious to finalizinga treaty with Brazil as soon as possible.


The learning that I derive from these observations is that what we lack is a government capable of making good on the public interest. In this country we have ended up confusing democracy with paralysis. In the commercial ambit, the collective interest and that of the country should be that of the Mexican consumer and of exporters. Regarding the former, trade should be facilitated; and, in terms of the latter, the conditions should be created for these to penetrate other markets. Paralyzing business negotiations because one or two producers are opposed (for example, those of dried chilies, surely a basic product for the functioning of the economy, as occurred with Peru) is equivalent to sacrificing the rest of the Mexicans.


None of this denies the right of producers to protect their interests, but the function and responsibility of the government is to keep watch over the collective interest. One of the main problems of the country is that the “old” industrial sector, the one that rejects any and all trade negotiations, is not linked to the export sector, which renders it more vulnerable to any change. A government well in places should be making certain that this sector of the economy is subject to competition while having a proper framework to make it function.


Paradoxically, for Mexican industry to prosper it is necessary to let it fly, which implies deregulating, reducing import tariffs, and of course, addressing issues such as the cost of goods provided by the federal government (like energy) or by the suppliers of services whose prices are higher than those of other countries. This said, the industrialists who so bitterly complain should study how the Brazilian paradise works. If they believe that the Mexican bureaucracy is complex or that the prices of goods and taxes are high, they should take note of Brazil: everything that happens here is peccataminuta compared with what goes on there. Time to compete.