Wednesday, July 05, 2006

Fixing Mexico

Mexico's presidential election seems to be earily similar to the 2000 presidential election in the U.S. Conservative Felipe Calderon appears to have won a very narrow victory over his main opponent, leftist Andres Manuel Lopez Obrador, but Lopez Obrador now demands a recount of the votes. Still, it appears likely that Calderon will be the ultimate winner.

Given the controversy in the U.S. over the large flow of illegal immigrants coming in from Mexico, many Americans have demanded that Mexico fix its economy so fewer Mexicans feel the need to emigrate.

Mexico's economy have been disappointingly weak for the last few decades. While for example South Korea have seen its relative income level rise from 20% of the U.S. level in 1980 to 48% in 2003 (Rising above 50% in 2005), Mexico have in fact fallen further behind the U.S., from having a per capita income at 34% of the U.S. level in 1980 to 24%.

Some may attribute the weak performance of Mexico relative South Korea to Hispanic culture being less focused on thrift and education than Confucian North East Asian ( Japanese, Korean, Chinese) culture. And this is clearly part of the story. But this would not explain why Mexico have also trailed Chile, whose relative per capita income rose from 20% of the American level in 1980 to 28% in 2003.

Chile's upswing of course came after the radical free market reforms implemented under former dictator General Augusto Pinochet. But in what way is Mexico's economic system more statist and inferior than that of Chile or South Korea? Taxes and government spending is no higher in Mexico than in Chile or South Korea. It is mainly a question of a highly corrupt justice system and destructive regulations. As Deroy Murdock put it:

"Registering a Mexican business takes 58 days, versus 48 in China, 27 in Chile, 22 in South Korea, and five here. During nearly two months of procedures, Mexican officials have numerous opportunities to encourage “tips” to speed things along. Mexico’s Private Sector Center for Economic Studies calculates that, in 2004, 34 percent of businesses paid “extra-official” sums to functionaries and parliamentarians totaling $11.2 billion. As the late Carlos Hank Gonzalez — Mexico City’s once-humble, eventually loaded, former mayor — put it: “Show me a politician who is poor, and I will show you a poor politician.”

Among 159 nations Transparency International surveyed last year, Mexico is the 65th most honest place to do business, tied with Ghana. While America is 17th (a pathetic showing, incidentally, for Earth’s leading economy), Chile and Japan tie for 21st, while South Korea and Italy tie for 40th. Businessmen in this poll perceive even Cuba, No. 59, as less corrupt than Mexico."

Moreover, Mexico's most important sector, the oil industry, is 100% controlled by the state-owned Pemex, who is notorius for failing to exploit Mexico's oil resources, something which is particularly disastrous given today's super high oil prices.

That Calderon, who seems to better grasp what the problems are and how to fix them now seems to win is good. However, because the Mexican parliament will be controlled by opposition parties, his ability to deal with the problems will be limited. 6 years ago, the now outgoing president Vicente Fox said largely the same things as Calderon have been saying now, but because of the opposition control over the Mexican parliament, there has been little progress.


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