HispanicVista Columnists

Look In The Mirror

By Richard N. Baldwin T.

      For most of México's history it has been an inward looking country with little or no desire for international involvement. This is understandable when the mouse lives next to the elephant.

     But things took a radical change in the Salinas administration after the start of the formation of NAFTA, which was originally the US and Canada. Salinas saw something that could be of great benefit for México, and he wanted (and got) in. That was the beginning of the thinking of having México "take its rightful place" on the world stage. And this line of thought has continued through the Zedillo and Fox administrations, gathering speed on the way.

     This was a logical continuation of an idea back in the 1960s that instituted the "Maquiladoras" ("in bond" plants) built by mainly US interests that received components duty free for assembly with cheap labor that would be totally shipped back across the border to the US. These plants lace the northern border and account for a high percentage of our export market. They also provide for a large amount of the Mexican industrial jobs. As time has passed, more foreign industrial investment has crept further south into central México. This is especially apparent in the automotive sector, which has moved out of the Maquiladora pattern of exporting into domestic sales.

     But the thinking has always been the same, keep the wage levels as low as possible and attract foreign capital for the investment.

     As we lurch into 2005, although the need for foreign investment is still high, México is loosing its place on the world stage as a destination for foreign investment. Over 2004, México has dropped from third place for favorable investment profiles to 22nd place. (Survey by A. T. Kearney.) What is going on here?

     The answer is simple, there are more countries coming on line that can offer even cheaper labor costs, better infrastructure, and more favorable business environments than México can even dream of. In other words, the game is changing. As a matter of fact, México gets more foreign capital from our ex-patriots than from any sector except our national oil business. We are in the business of exporting Mexicans now.

     There are two areas that México needs to address to bring a pattern change from this dangerous situation.

     In structuring México to be attractive for foreign investment, they forgot about making México more attractive for Mexican Investment. Foreign and Mexican investment go hand in hand. If you consider that Botswana is rated more "business friendly" than México . . .  we have a problem. What is required is the "structural" changes that are being totally ignored (corruption, tax/fiscal, legal, education and law enforcement reform). There is investment money right here in México, but a lot of it is going out of México. México has the 9th largest number of billionaires of all countries of the world . . . along with 85,000 millionaires. And remember this (if our government economists can get this through their pointy little heads), an investor invests in order to make a profit on his investment. If the investor is foreign, the profits end up outside of México. The Mexican investor (if the fiscal climate is right) is keeping the profits in México. Which does the most for the Mexican economy?

     The other element here is the total lack of attention to the creation of a viable national market. It is interesting to look at the "China plan". China, of course, has a tremendous edge on labor cost (as México once had). But China, right out from the beginning saw that the low labor cost edge would not last forever, which México doesn't understand. Right from the beginning of the latest Chinese "revolution", China has put the development of a strong national market as the key to long range survival. And, of course, this involves gradually increasing the earning capacity of the workers in the industrial engine, while in México the reverse is true. Remember that China started out with a vast amount of poverty that had to be addressed for stability. They are doing something about this while México's answer is to drive out potential workers. In fact, China has a burgeoning middle class now. México's middle class keeps getting destroyed in our repeating "financial crisis" events.

     It is imperative to remember that one of the biggest strengths of the US economy is and has been the immense national market there. This provides a heavy layer of insulation against negative effects from abroad.

     In the meantime, México concentrates on signing more and more foreign free trade agreements (FTAs), as if that will solve the internal problems here.

     To our political class I would say that rather than concentrating on "taking our rightful place on the world stage", we should be looking inside México to solve our problems. After all, no one else will. 

Richard N. Baldwin T., a HispanicVista.com (http://www.hispanicvista.com/) contributing columnist, lives in
Tlalnepantla, Edo de México. E-mail at: R1041643422@aol.com