Certainty about the rules is key for the functioning of an economy, as I affirmed in a previous article.Quite rightly, Carlos Elizondo made me see that many entrepreneurs do not want greater reforms: many want no more than a few changes that would render governmental regulations more efficient and less onerous to make them happy. In effect, the glorious age of the economy –the hard PRI years- were characterized by a pro-business and not a pro-market economic strategy. The collapse of the PRIist world and of that economic strategy was due in great measure to this contradiction and perhaps that is where the cause lies of the meager economic performance during these decades. Instead of competitive markets we have government-protected monopolies and this does nothing other than inhibit new investments, protect the privileged, and preserve an economic structure without opportunities for high and sustained growth.
Certainty in terms and permanence of the rules is central for an entrepreneur or investor to know what to expect and not to be surprised by every time the wind, or a new government changes. An economy grows when the rules are permanent, change little, and when they do, this is carried out in duly publicized fashion and consequently with the objective of preserving trust, growth and the general well-being. In the golden age of the“stabilizing development”–a closed economy- certainty was key and only the government could confer it. Recognizing the essence of this equation, successive administrations were extremely careful to preserve a reliable political and regulatory framework for the functioning of the economy.
However, because it was a closed economy, in which competition was consciously inhibited (for example, through substitution of imports and the existence of government monopolies), the economy operated with a limited mass of businesspersons and unions and did not pretend to have good products, low prices, or consumer benefits. The entire scheme depended on rapport between businesspersons and the bureaucracy, a relationship that determined companies’ profits in a much more relevant manner than the quality or price of the products. The objective of the economic policy was to benefit the producer as a means of maintaining high economic growth levels.
Deidre McCloskey* describes the scheme perfectly: “When American [input] producers get tariffs or when [manufacturers] get import quotas it is not because of their market power but because of their political power, their access to an all-powerful state”. Many Mexican entrepreneurs dream of returning to that scheme because on not having to be bothered with little things like the consumer, or the price or quality of their products, their life was simpler. Clearly, some of their criticism of the economic policy of trade liberalization that was adopted from the end of the eighties is correct; whenever the opening has been partial, a discriminatory protection strategy persists and governmental monopolies act, well, like monopolies. However, behind these complaints lies the desire to return to a world distinct from that of today, the one that collapsed at the end of the sixties simply because it wore out.
Discussion on trade liberalization and the adoption of a better development strategy tends to be obstructed on two planes. On the one hand, there are those who ignore or pretend that it is possible to ignore the changes that the world has undergone in the last decades. A growth strategy based on closed and protected markets was possible because production of the overwhelming majority of goods worldwide was concentrated on factories that on the one hand received raw material and that delivered finished goods (cars, radios, chemical products) on the other. In an environment of this nature, it was possible to force producers, domestic as well as foreign, to manufacture finished goods within the country. Thus arose, for example, the automobile assembly industry. This same ambit lent itself to rapport among businesspersons, union leaders, and politicians, in which it was in the interest of all to preserve and share privileges.
The problem for those imbued with nostalgia is that the world changed when the Japanese, with the need of raising their productivity levels in order to compensate for the high price of oil at the beginning of the seventies, transformed the way of producing. Instead of manufacturing automobiles at a sole plant, they specialized their factories in motors, gear boxes, etc., with the purpose of raising their productivity dramatically, and with this, the quality of their products. Thus was born a novel productive structure based on suppliers of parts and components whose geographic localization would be determined not by the owner’s nationality but by the proximity of raw materials or final markets. Impossible for factories that existed in the sixties in Mexico to compete with this. The only way to survive in this world is to compete with similar productivity levels. The Mexican entrepreneurs who pretend to survive thanks to governmental favors do not understand that the government can protect them but only at the cost of the survival of the economy in its entirety.
The other place where discussions on liberalization and the role of the government in development are held up is in that of the privileges that persist and which more than one presidential candidate swears by. Once again the scholarMcCloskey**: “In the long run creative destruction relieved poverty. It has been in fact the only effective relief. Wage regulations and other protective legislation, contrary to their sweet (and self-gratifying) motives, have only preserved poverty”. A government supposedly dedicated to the general development of the country and concerned with poverty levels cannot (at least, should not) devote itself to protecting private companies or to subsidizing them, and it should also not preserve private or state monopolies. The contradiction is flagrant, but their persistence leads to the delegitimization of an economic policy centered on consumer, and not producer, benefit.
The prosperity of a country can only be achieved when the welcome mat is rolled out for entrepreneurs and investors with rules of the game that are the same for all, where nobody is discriminated against,and where privileges do not linger. That is, a pro-market, not a pro-business, strategy. It’s not the same nor is it equal.
* Bourgeois Virtues, p. 35, **Bourgeois Dignity, p. 425.