How Mexico Got Back in the Game

Monterrey - MexicoIn India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico. Impossible, you say? Well, yes, Mexico with about 110 million people could never rival China or India in total economic clout. But here’s what I’ve learned from this visit to Mexico’s industrial / innovation center in Monterrey. Everything you’ve read about Mexico is true: drug cartels, crime syndicates, government corruption and weak rule of law hobble the nation. But that’s half the story. The reality is that Mexico today is more like a crazy blend of the movies “No Country for Old Men” and “The Social Network” (source: Thomas L. Friedman – NYTimes – 24/02/2013)

Something happened here. It’s as if Mexicans subconsciously decided that their drug-related violence is a condition to be lived with, combated, but not something to define them any longer. Mexico has signed 44 free trade agreements, more than any country in the world, which, according to the Financial Times, is more than twice as many as China and four times more than Brazil. Mexico has also greatly increased number of engineers and skilled laborers graduating from its schools. Put all that together with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise Mexico now is taking manufacturing market share back from Asia, attracting more global investment than ever in autos, aerospace, household goods.

“Today, Mexico exports more manufactured products than the rest of Latin America put together,” Financial Times reported on Sept. 19, 2012. “Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to Chinese market.” What struck me most here in Monterrey, though, is the number of tech start-ups that are emerging from Mexico’s young population, 50% of the country is under 29, thanks to cheap, open source innovation tools and cloud computing. “Mexico did not waste its crisis,” remarked Patrick Kane Zambrano, director of the Center for Citizen Integration, referring to the fact that when Mexican companies lost out to China in the 1990s, they had no choice but to get more productive. Zambrano’s Web site embodies the youthful zest here for using technology to both innovate and stimulate social activism. The center aggregates Twitter messages from citizens about everything from broken street-lights to “situations of risk” and plots them in real-time on a phone app map of Monterrey that warns residents what streets to avoid, alerts police to shootings and counts in days or hours how quickly public officials fix problems. “It sets pressure points to force change,” the center’s president, Bernardo Bichara, said to me. “Once a citizen feels he is not powerless, can aspire for more change….First, Web democratized commerce, then it democratized media, and now it is democratizing democracy”. If Secretary of State John Kerry is looking for a new agenda, he might want to focus on forging a closer integration with Mexico rather than beating his head against rocks of Israel, Palestine, Afghanistan or Syria. Better integration of Mexico’s manufacturing and innovation prowess into America’s is a win-win. It makes U.S. companies more profitable and competitive, so they can expand at home and abroad, and it gives Mexicans a reason to stay home and reduces violence. We do $1.5 billion a day in trade with Mexico, and have been spending $300 million a day in Afghanistan. Not smart. We need a more nuanced view of Mexico. While touring the Center for Agrobiotechnology at Monterrey Tech, Mexico’s M.I.T., its director, Guy Cardineau, American scientist from Arizona, remarked to me that, in 2011, “my son-in-law returned from a tour of duty in Afghanistan and we talked about having him come down and visit for Christmas. But he told me the U.S. military said he couldn’t come because of the [State Department] travel advisory here. I thought that was very ironic.”

Especially when U.S. companies are expanding here, which is one reason Mexico grew last year at 3.9%, and foreign direct investment in Monterrey hit record highs. “Twenty years ago, most Mexican companies were not global,” explained Blanca Treviño, the president and founder of Softtek, one of Mexico’s leading I.T. service providers. They focused on the domestic market and cheap labor for the U.S. “Today, we understand that we have to compete globally” and that means “becoming efficient. We have a [software] development center in Wuxi, China. But we are more efficient now in doing same business from our center in Aguascalientes, [Mexico], than we are from our center in Wuxi.” Mexico has huge governance problems to fix, but what’s interesting is that, after 15 years of political paralysis, Mexico’s three major political parties have just signed “a grand bargain,” aka “Pact for Mexico,” under the new president, Enrique Peña Nieto, to work together to fight big energy, telecom and teacher monopolies have held Mexico back. If they succeed, maybe Mexico will teach us something about the democracy. Mexicans have started to wonder about America lately, said Bichara from Center for Citizen Integration. “We always thought we should have our parties behave like the U.S.’, no longer. We always thought we should have the government work like the U.S.’, no longer.” 


Acerca de ignaciocovelo
Consultor Internacional

11 Responses to How Mexico Got Back in the Game

  1. Professor Uziel Nogueira says: The upbeat assessment of the Mexican economy is welcome. It breaks a string of bad news since the economy stalled and the war on drug trafficking took a heavy toll in lives since it started 7 years ago. The good performance in manufacturing exports is the result of a key and risky political decision taken in the 90s. That is, to integrate Mexico to the American economy using a new integration model called free trade agreement (NAFTA). The agreement provided market access to the largest market in the world but without any financial assistance to Mexico as the EU model does to poorer member countries. Now, regarding Tom’s rhetorical question ” which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.” Perhaps it is a little bit too optimistic. As we say in Spanish: “Se le fue la mano a Tom”. This reminds me a fact occurred during my first mission to Panama in 1982 as an economist of the Inter American Development Bank. One of my colleagues, Hugh Schwartz, Harvard fellow, had this novel economic idea to turn Panama into a Singapore of the Western Hemisphere. During a meeting with the Minister of Economy, he gave a detailed briefing about his plan. The Minister listened patiently and, when Hugh finished he said: Mr Schwartz your plan is brilliant. However, it lacks a fundamental piece. We don’t have Chinese workers! ” I hope this is not the case of Mexico becoming the dominant economic power in this century 🙂

  2. Visiting Mexico this past week reminded me of one of my favorite quotes from my days in Beirut. It was when a hostess asked her dinner guests during the Lebanese civil war: “Would you like to eat now or wait for the cease-fire?” One of the lessons of both Mexico and Lebanon is how irrepressible is the human spirit — that no matter how violent a country becomes, people will adapt and take risks to innovate or to make profits or get to school or to just have fun. That is a key reason that Mexico is making something of a comeback these days. Whether it will make it back in a sustainable way is unclear. Mexico still has huge problems: stifling monopolies in energy, telecom and media; a weak K-12 education system; violent cartels; and a corrupt police and judiciary. Together, they will keep a lid on Mexico’s prospects if they’re not addressed, the human spirit notwithstanding. That said, it’s useful to look at what Mexico has gotten right, despite its problems. The first two had to do with actions by the government — improved higher education and macroeconomic policy. The third happened naturally. It’s when a critical mass of youth “just don’t get the word” — they don’t get the word that the government is a mess or that China is going to eat their lunch or that the streets are too dangerous. Instead, they take advantage of how the Internet and globalization promote individual empowerment and opportunities to start stuff and collaborate on stuff really cheaply — and they just do it. Let’s look at all three (…..)

  3. (NYT GOLDEN PICK) Professor Uziel Nogueira says: Mexico’s economy became highly integrated into the US one since the 90s. NAFTA was the instrument used for that market integration. By the way, the same NAFTA model should be used in the current US-EU transatlantic negotiations to integrate the two largest economic blocs. I haven’t see any recent in depth study to show how the integration process is impacting Mexico as far as employment, wages, technological innovation and income distribution are concerned. One expect the overall performance of the economy and, particularly wage of Mexican workers, to have improved after all those years. However, it remains to be see whether such assumption is correct or not. Impressionistic views based on short visits, such as IT development in Monterrey, are not a reliable indicator to assess the state of the Mexican economy or how well their workers are faring.

  4. Celeste: Primary problem with Mexico is inequality. Mexico’s tax take is only 10% of GDP. Why is it so low? Because the wealthy don’t pay close to their fair share. In the US, we all criticized Governor Romney for paying just 14% of his income in taxes, in large part due to the fact that the federal tax on dividends and capital gains is 15%, and almost all of Romney’s income comes from those two income streams. In Mexico, Romney would have paid less than 1%, as Mexico does not have a tax on dividends or capital gains. So now that Mexico wants more revenue, you would think that the politcal class would seek to increase the tax burden on the affluent.

    Instead, it’s seeking to raise the 16% VAT to 21%, significantly increasing taxes on the middle-class.

  5. Professor Uziel Nogueira says: Agree with you on that, Celeste. Mexico cannot be a success story as long as the highly skewed income distribution is not tackled with vigor. Inequality is the result of a plutocratic system set up to preserves wealth and privilege of the 1% elite while the 99% are left to fend for themselves. Better income distribution explains why Brazil is making big social progress in the last few years while Mexico remains socially stagnated.

  6. amanda: They want to send us their poor people while keeping their rich people. They are succeeding.

  7. The border fence behind Manuel Zamora’s home suggests strength and protection, its steel poles perfectly aligned just beyond the winding Rio Grande. But every night, the crossers come. After dark and at sunup, too, dozens of immigrants scale the wall or walk around it, their arrival announced by the angry yelps of backyard dogs. “Look,” Mr. Zamora said early one recent morning, “here they come now.” He pointed toward his neighbor’s yard, where a young man in a dark sweatshirt and white sneakers sprinted toward the road, his breath visible in the winter dawn. Three others followed, rushing into a white sedan that arrived at the exact moment their feet hit the pavement. “I don’t know how the government can stop it,” Mr. Zamora said, watching the car drive away. “It’s impossible to stop the traffic. You definitely can’t stop it with laws or walls.” The challenge has tied Congress in knots for decades, and as lawmakers in Washington pursue a sweeping overhaul of immigration, the country is once again debating what to do about border security. A bipartisan group of senators has agreed in principle to lay out a path to American citizenship for an estimated 11 million immigrants in the United States illegally, but only after quantifiable progress is made on border security, raising thorny questions: What does a secure border mean exactly? How should it be measured? And what expectations are reasonable given the cost, the inherent challenges of the terrain and the flood of traffic crossing legally each year in the name of tourism and trade? Some Republicans argue that the southern border remains dangerously porous and inadequately defended by the federal government. Obama administration officials, insisting there is no reason for delaying plans to move millions of people toward citizenship, counter that the border is already safer and more secure than ever. They say record increases in drug seizures, staffing and technology have greatly suppressed illegal traffic, driving down border apprehensions to around 365,000 in 2012, a decline of 78 percent since 2000. Indeed, by every indicator, illegal migration into the United States has fallen tremendously — in part because of stricter immigration enforcement — and has held steady at lower levels for several years. But all camps leave a lot out of the discussion. Visits to more than a half-dozen border locations over the past two years show that the levels of control vary significantly along the line in ways that Congress and the White House have yet to fully acknowledge (…..)

  8. Professor Uziel Nogueira says: In December 17, 1992 the US and Mexico’s presidents signed the North American FREE TRADE Agreement (NAFTA). The Mexican economy became highly integrated into the American one. The first time ever a developing country accepted to be integrated into a highly developed one without any benefit except ‘free trade.’ After the free trade agreement was signed, the US government started to build and fortify a border wall with Mexico. The longest one in the world when completed, covering 3,169 km (1,969 mi). The integration between Mexico and the US is unique in the world. Highly integrated by business links-free trade but separated by a fortified wall. The 25 million Canadians had a better luck.

  9. Listen Tome: Corn is Mexico’s staple food. NAFTA resulted in flooding the Mexican market with cheap subsidized American corn. Mexican farmers could not compete and thus were driven off the land. Out of work Mexican farmers headed for the US border. That is why shortly after signing into law NAFTA, President Clinton had to militarize the Mexican border to try to stop the flood of undocumented Mexican immigrants. The sad ending to this tragedy is that once agribusiness discovered they could make fat profits and government subsidies from ethanol the price of corn skyrocketed and speculators piled on. Now Mexican peasants are unable to afford their basic food tortillas.

  10. Siobhan: Thank you for bringing up NAFTA. Way back when, Bob Herbert–whom I miss every day from these pages–was the only NYT columnist who routinely argued against NAFTA. He predicted the massive loss of jobs that would occur. Back in 1993, he wrote: “Concern for American and Mexican workers who are being ruthlessly exploited by rapacious corporations is not a form of neo-isolationism.” He wrote of a “a United States economy that is hemorrhaging good jobs and creating poor ones.” If anyone could be considered a liberal, it was Bob Herbert. We ignored him at our peril. The fact that we continue to do so is a tragedy. Always incredibly prescient, he wrote, also in 1993 of: “a man in rural Vermont who is working full time, but after the rent and other expenses are paid, does not always have money left over for food.” It’s 20 years later–apparently we are completely incapable of learning, let alone listening to those who issue warnings.


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