War Against SMBs

Luis Rubio

In his book From Beirut to Jerusalem Thomas Friedman describes his experiences as a correspondent in the Lebanese capital at the middle of the civil war that characterized that country some decades ago. In an especially vivid scene, while mortar explosions and shots were heard through the window, the hostess at a dinner party asked without the least hesitation, “would you like to eat now or wait for the cease-fire?” Unfortunately for millions of businesses and unpretentious Mom and Pop-type grocery/variety stores, the ceasefire of municipal presidents never seems to make an appearance.

Businesses, above all small ones, live amid a war of annihilation and extortion and not only from criminals; given the circumstances, it would be a relief if the author of the attack was only organized crime. As such it could be expected that, some day, when the umpteenth governmental strategy was at last successful, the abuse would come to a halt. Regrettably, the great mafia encountered by shops, restaurants, companies and variety stores throughout the country stems from the municipalities and delegations in the case of Mexico City. It is there that a true war is being waged against business.

Businesses, shops and variety stores are the favorite target of municipal presidents and delegates, because from these flows an apparently inexhaustible source of income and bribes. As sovereign entities established under Article 115 of the Mexican Constitution, municipalities levy ever more creative taxes, dispatch inspectors to strong-arm owners and to exact legal and illegal contributions in systematic fashion. The harassment is permanent and nonstop. Paraphrasing Winston Churchill, “some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow to be milked. Not enough people see it as a healthy horse, pulling a sturdy wagon”.

The war being waged against small and medium businesses (SMBs) in Mexico (PYMES, their antonym in Spanish) is pathetic not only because it reduces, if not extinguishes the economy of the families that create employment and wealth in each locality, but also because it impedes the remaining half of what Churchill said in his previous phrase: that these authorities do not recognize that it’s about the horse that pulls the cart of development. The system is designed to prey upon, not be advantageous to the growth of the economy.

According to INEGI calculations and to those of UN entities committed to small and medium businesses, small companies represent the overwhelming majority of employers (more than 90%) and more than 50% of jobs created in the country, in addition to having created more than 65% of all new jobs in recent decades. While many large companies systematically raise their production levels and lay off employees, small companies –formal and informal- tend to be the main source of new jobs.

With this I do not pretend to argue that the low productivity characterizing a great part of small businesses is good or that constant expansion of the informal sector is desirable. However, if one sticks to the facts, what is indisputable is that without this economic sector, half of the country’s population would be unemployed. In this sense, it is impossible to ignore its social and political transcendence. Thus, the war unleashed by delegates and municipal presidents against these businesses is that much more disturbing.

The war takes on distinct forms. It begins with the famous “permit-ology”, the interminable number of red-tape bureaucratic procedures with which a person is required to comply to open a workshop, restaurant or company. Each procedure is accompanied by its respective snares, all tailored to grease palms. Many establishments forsake the process along the way and many others don’t even bother to attempt it. Informality ends up being an option but only temporarily for, from the perspective of the delegate or the municipal president, the existence or not of the permit ends up being the same thing. Both are legitimate quarry.

Extortion has many guises but all entertain the same objective: to exploit the entrepreneur or the variety store owner. The instrument the so-called authorities make use of is the threat of closure. As if they were appraisers, the governmental inspectors know that a variety store cannot survive more than a minimal number of days after closing, so they tighten the screws sufficiently for the extortion to work, but not enough to kill the goose that lays the golden eggs.

The war is real and proceeds to wipe out the main means of survival of the vast majority of the population. In this context, it’s not coincidental that, when one talks with Mexican migrants in the U.S., the first thing they say is that they feel free of the abuse of the authorities. Those able to launch their own business take pride in the fact that there everything is destined for them to be successful. The municipal authorities help, first, by not getting in the way; later, by facilitating the procedure so that whatever the permit required, the rules are clear and easily complied with. When one observes the contrast in the performance of the small businesses of Mexicans outside the country with that of those in Mexico, most noteworthy is the difference in the system of government. In both cases the person –the Mexican- is one and the same; what changes is the government, the quality of the government. Here it is designed to pillage, there to help. The difference is not minor.

Now that a new fiscal structure is being forged for the country –regarding tax collection as well as the relation between the federal government and the states and municipalities- it would behoove us to mull over the costs of the way our system of government operates. If in the last analysis, as they say in the detective films it’s all about money, the federal government has a very powerful weapon in its hands for forcing local governments to deregulate, transform themselves and become wellsprings of opportunity for the development of the country. While any state or municipality would be delighted to attract the new investment of a large automotive company, to cite the prototypical example, to its locality, the majority of jobs would continue to become available from SMBs. Killing them off bit by bit as our diligent authorities do is not a good way to ensure neither the locality’s development nor that of the country.

When the causes are discussed of the economy’s poor performance the great problems of infrastructure, competition for foreign investment or the confidence of foreign businesses in the country tend to be found at fault. However, often the problem lies, uncomfortably, much closer to home. As Hemingway wrote in For Whom the Bells Toll, “Was there ever a people whose leaders were as truly their enemies as this one”?