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Mexico (population 106,682,500 in 2008, the 11th most populous country in the world; gross domestic product $1.022 trillion in 2007) is a nation in search of itself. Over the last century it has undergone changes which, while fundamental, have not yet enabled it to sustain substantive improvements to the welfare of its population. A federal republic composed of 32 states, its most urgent problems are unemployment, poverty, migration, violence, and public safety. The free market initiatives of the last 25 years have brought about major changes to the country’s industry, but have not yet translated into the sort of economic growth rate necessary to reduce unemployment and poverty to more reasonable levels.

In the political arena, changes have been slower and less profound because theoretical democracy has not quite translated to practical democracy. The leadership of the country remains authoritarian in its approach, and many of the old structures remain intact, obstructing the administration of justice and the objective rule of law. Corruption is rampant, deteriorating public confidence in the government both domestically and abroad, where such confidence is necessary to encourage foreign investment in Mexico.

Politics has prevented various factions in government from agreeing on the model of development that Mexico should be following, the shape of its future, and the means of getting there. Political parties have served their constituencies and special interests at the expense of building strategic agreements on the structural transformations necessary to long-term national development. Such agreements would in the long run benefit those same constituencies, by leading to fairer, more efficient government.

Mexico’s principal challenge in the 21st century is the need to develop a new social contract that will allow the country to participate competitively in the world economy. Its geographical location is a huge potential benefit because of its extensive border with the United States, the largest market for goods and services in the world. The abundant natural resources, favorable climate, and biodiversity are still virtually untapped compared to the use to which a healthier nation could put them, and the nation’s history and culture contribute to its appeal as a tourist destination.

In terms of human capital, Mexico is one of the largest countries in the world, with a population expected to reach 130 million by 2030. A mere generation away, that population will be primarily middle-aged, with extraordinary potential in production, skills, experience, and intellectual capital. The promotion of science, technology, and education today represents an investment in that near future.

History

Mexico’s origins are in the splendor of the Aztec Empire, still an object of fascination to the modern world by dint of its prowess in agriculture, mathematics, science, and the arts. The Spanish conquest of Mexico then put it on the path of a difficult transition toward modernity, the start of its mestizo heritage. In the 19th century, Mexico gained independence, but saw an extensive period of instability and chaos marked by disputes between conservatives and liberals, monarchists and republicans. A long period of wars, invasions, and losses of territory to the United States and Texas marked the national consciousness, and led to the establishment of the Porfiriato regime from 1876 to 1911, a dictatorial regime masquerading as a democracy. Mexico entered the 20th century rife with instability, with the Mexican Revolution of 1910 eventually leading to an adoption of a constitution in 1917, and a firm commitment to modernization.

After a period of struggle among the factions of the Revolution, the political class that emerged succeeded in creating new institutions that brought economic growth and political stability to the country. The new government called for sharing benefits and power among economic groups, and state-controlled institutions promoted social stability. The successive governments of the Mexican Republic ensured political stability through education, housing, and improvements to public health, leading to a period from the 1950s through the 1970s called the “Mexican Miracle.” The Miracle period also saw improvements to industrialization, based on a model of import substitution that protected national corporations from foreign competition through tariffs and import bans. Inflation remained low, domestic consumption and economic growth remained high.

However, the development model showed its limitations by the end of the 1960s, in a series of internal conflicts that are remembered for the student movement of 1968 that led to the brutal massacre at Tlaltelolco. The model’s flaws reached crisis levels in the following decade, when the growth fueled by the domestic market began to exhaust that fuel, and the government made no significant move to take advantage of the availability of foreign markets. The government’s handle on macroeconomics was shaky, its activity in that arena erratic, and it quickly lost face and public confidence. The government’s economic policy was based on public spending, the monetary policy was inadequate, the problem of balance of payments was ignored, and the government was not prepared to handle the resources of an oil surplus in the 1970s. The deficit and external debt rose unacceptably, devaluing the currency.

The cost of the government’s missteps was tremendous. Mexico has faced cyclical crises since, with particular increases in poverty and unemployment in 1976, 1981, and 1994. The annual economic growth from 1970 to 2000 barely averaged 1.5 percent, and the job market has not been able to keep pace with the growth of the population. The last decades have been marked by the devaluation of the erratic peso, rampant inflation, and rampant migration, largely to the United States. Additionally, the “informal economy” has become gradually institutionalized. Two out of three jobs in the country are informal, paying under the table with no tax revenue yielded to the government to keep up with the costs of infrastructure and public welfare. The excessive procedures and regulations imposed by the government, and its reputation for corruption especially at the local level, do much to maintain this situation. Most alarming has been the growth of drug trafficking and a kidnapping industry (ransoms are small, but so are legitimate paychecks).

Challenges

The transformation of Mexico’s economy dates to the beginning of the 1980s, when the country faced a deep economic crisis from which it has been attempting to depart ever since. The government has done its best to adopt the recommendations of international financial institutions like the IMF and the World Bank in order to improve the health of its economy through fiscal discipline, monetary stability, and restrictions on public spending. It has renegotiated its external debt, privatized many public enterprises and the banking system, encouraged foreign direct investment, and redefined the social security institutions.

In a short time, Mexico became one of the most open economies in the world. In order to promote economic growth and competition, the government opened the economy to external markets and joined the GATT treaty, eliminating many of its foreign tariffs and domestic subsidies, and signed more than a dozen free trade agreements leading up to the North American Free Trade Agreement (NAFTA). But after almost three decades, this new model has not yet been able to solve the deep problems of economic inequality facing the country. Social problems have shown that the necessary solution cannot be simply economic, because growth without distribution is not wealth. Mexico’s socioeconomic problems require a political transformation as well, to encourage democratic government, eliminate corruption, and administer justice correctly. It is in these areas that advancements have been most insufficient.

At least half of the population lives in moderate poverty, more than 20 percent in extreme poverty. Mexico is one of the largest exporters of labor in the world, with 9 percent of its population working in the United States; 10.6 million Mexicans were living in the United States in 2005, half of them undocumented.

Out of every 100 criminal offenses, 97 go unpunished. The country operates on arbitrariness and arrangements outside the law, from the court systems to the informal economy of the typical employer.

For Mexico to shape its future, it needs to design and implement a new model of economic growth and political health to reduce poverty, retain its citizenry and reduce immigration to the United States, and reduce the scope of the informal economy. It needs to maintain an economic growth rate of at least 4 percent, and to strongly support education, science, and technology for the sake of the coming generation. It must boost its export capacity through the promotion of competition in the market, the improvement of infrastructure, and the attraction of foreign direct investment. In politics, democracy must be upheld, corruption eliminated, and human rights protected.

Bibliography:

Sarah Babb, Managing Mexico: Economists From Nationalism to Neoliberalism (Princeton University Press, 2004);
Janine Berg, Christoph Ernst, and Peter Auer, Meeting the Employment Challenge: Argentina, Brazil, and Mexico in the Global Economy (Lynne Rienner, 2008);
Emily Edmonds and David A. Shirk, Contemporary Mexican Politics (Rowman & Littlefield, 2009);
Gilbert M. Josephe, The Mexico Reader: History, Culture, Politics (Duke University Press, 2005);
Yevgeny Kuznetsov and Carl J. Dahlman, Mexico’s Transition to a Knowledge-Based Economy: Challenges and Opportunities (World Bank, 2008);
Dag MacLeod, Downsizing the State: Privatization and the Limits of Neoliberal Reform in Mexico (Pennsylvania State University Press, 2005);
Gerard Otero, Mexico in Transition: Neoliberal Globalism, the State and Civil Society (Zed Books, 2005);
Fernando Romero, Hyperborder: The Contemporary U.S.-Mexico Border and Its Future (Princeton Architectural Press, 2008);
Jon Shefner, The Illusion of Civil Society: Democratization and Community Mobilization in Low-Income Mexico (Pennsylvania State University Press, 2008).

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