The Great Debate: Will Mexico Assume Clear Leadership in Latin America?
Thursday, April 4th, 2013
In anticipation of the upcoming issue of the Journal of International Affairs’ issue on “The Rise of Latin America,” the Journal collaborated with the Morningside Post to produce a special edition of the Morningside Post’s Great Debate series. The thirteenth debate in the series seeks to answer the question, "Will Mexico assume clear leadership in Latin America?"
Mexico’s recent economic performance and its swift recovery from the financial crisis are seen by many analysts as near-miraculous. While the Brazilian economic growth has slowed, Mexico has begun to catch up to Latin America’s most-touted state. After experiencing average growth of barely 2% per year from 2000-2010, Mexico’s GDP has increased by 4 percent in the last year. Mexico boasts a skilled workforce, low costs and proximity to the United States. Investment has boomed despite the ongoing drug wars, corruption and a weak rule of law.
(Tomas Bravo / courtesy Reuters)
Marcus Troyjo, Columbia University
In the next decade, especially if Brazil fails to implement a grand strategy for its economic ambitions, Mexico has the clear potential to become the largest economy in Latin America and one of the most dynamic emerging markets.
Mexico’s corporate presence in the United States today reverses the idea that the economic relationship between the two countries boils down to “Maquiladoras” (manufacturing and assembly operations) south of the border in low value-added industries targeting the U.S. market.
Companies and brands like Tracfone, Bimbo, Televisa, Cemex and Corona beer attest to such a rise. In reference to territories lost by Mexico in the war with its northern neighbor in the mid-nineteenth century, the country’s recent rise in fortunes has been referred to as “La Reconquista.”
Due to the prominence in their own country and resources made available via the stock market, Mexican companies have made large purchases of industrial assets in the U.S. and Europe. In comparison, the modest expansion of Brazilian multinationals abroad suggests they have squandered a major opportunity at a time when the Brazilian currency, the real, was very strong.
There is also the China factor in the recent rise of Mexico. Over the past 20 years China’s GDP has multiplied dozens of times – with a natural increase in wage cost factors. As China becomes more expensive, with an overvalued yuan and lower dependency on exports, Mexico becomes more attractive, especially thanks to its membership of NAFTA (North American Free Trade Agreement). And Mexico is definitely profiting now from its network of 44 free trade agreements with 12 different countries.
Marcos Troyjo is Adjunct Associate Professor of International and Public Affairs and co-director of the BRICLab at Columbia University. He was Press Secretary at the Brazilian Mission to the United Nations in New York and Chief of Staff of the Science and Technology Department of Brazil’s Ministry of Foreign Affairs.
Carol Wise, University of Southern California
According to a December 2012 issue of The Economist, Mexico is now poised to compete head-to-head with China and not just in the U.S. market. If this is the case, then Mexico is surely destined to assume economic leadership in Latin America.
The election of President Enrique Peña Nieto last July on the Revolutionary Institutional Party (PRI) ticket did not bode well for a Mexico rebound, as this is the party that ruled the country autocratically for 71 years and was finally voted out in 2000 under the weight of its own debauchery. Yet, Peña Nieto has already made a name for himself as an aggressive reformer, including a move to dissolve major monopolies like those of telecom Mafioso Carlos Slim. Ultimate success hinges on the partial privatization of the corruption-infested state oil company, PEMEX, which is so run down that the country will be importing oil in five years if Peña Nieto fails to clean up this mess.
There are a lot of “ifs” at play here. The stats are currently encouraging for Mexico but they remain predictive. Two concerns: Mexico’s global competitiveness ranking has fallen 12 notches in two years according to the World Economic Forum and its “surge” rests far too much on rising wages in China versus wage compression in Mexico. My money still rests on Brazil, which is in a lull but breaking records in the application of technology to the productive structure and its competitiveness gains are through the roof.
Carol Wise is Associate Professor of International Relations at the School of International Relations at the University of Southern California. She is currently completing a book entitled “China, Latin America, and the End of Neoliberalism,” co-editing two books: “The Quick Rebound of Emerging Markets from the Global Financial Crisis” and “The Political Economy of China-Latin America Relations,” both of which will be published in 2013.
José Antonio Ocampo, Columbia University
A comparison between Mexico and Brazil must be carefully crafted. Just because Mexico did better than Brazil last year does not mean that we should look at Mexico as a rising and Brazil as a falling star. Mexico had the worst recession in Latin America in 2009 and in a sense is still recovering from it. If we compare with 2007 levels, Mexico has grown 1.5% per year, much worse than Brazil’s 3.2%.
Actually, over the long term, what is surprising from Mexico is its incapacity to transform its spectacular export performance into rapid economic growth. For example, since the signing of NAFTA in 1993, Mexico has grown 2.6% a year, in fact one of the worst performances in Latin America and the emerging world. It is also a very poor record for an economy that had grown at 6.6% between 1950 and 1980, indicating that the liberalization of the economy has rendered poor results relative to the most interventionist economic management of the state-led industrialization era.
President Enrique Peña Nieto has started his Presidential term with an ambitious agenda, including reforms in education, energy and telecommunications. It has been a surprise for most of us. But that agenda is still missing what I considered to be the essence of a good policy to accelerate economic growth in Mexico: transforming its export success into rapid growth through an active industrial and technology policy.
José Antonio Ocampo is Director of the Economic and Political Development Concentration at SIPA. He also currently heads a Commission to review the activities of the International Monetary Fund’s Independent Evaluation Office. In 2008-2010, he served as co-director of the UNDP/OAS Project on “Agenda for a Citizens’ Democracy in Latin America.”
David Barkin, Universidad Autonoma Metropolitana
This weekends’s editorial in the New York Times (31 March 2013) cautiously suggested the possibility of a brilliant future for Mexico in the hands of our new president, Enrique Peña Nieto. Elected on a reform platform that brought back to power the “grand ole party” (PRI), the new administration has made it clear that it intends to implement thorough going reforms in telecommunications, education, public finance, anti-poverty programs, and energy, as well as other secotrs that have still not been announced. He began with a dramatic flourish, convening all of the political parties to agree to a consensus program for political collaboration. The editorial follows on glowing op-eds by Thomas Friedman, writing from Monterrey about the region’s future.
Giving the lie to this glowing neoliberal version, inflationary pressures, growing unemployment, poverty, and a deteriorating quality of life for broad segments of the population (including substantial parts of the middle class) are aggravated by an aggressive program of foreign investment in natural resource extraction that is wreaking havoc on the environment in one-third of our territory. The results are there to see for any sensitive observer of the Mexican scene: growing numbers and increased militancy of social protest, continuing violence that is now spreading to the capital and beach resorts, and declining confidence by widening portions of the population.
Mexico will also suffer from the increased intensity of international pressures to broaden the impacts of free trade, privatized intellectual property rights, and technological changes accompanying the privatization of public services and energy. These will directly impact initiatives of small-scale traditional artisans and producers, limiting opportunities for most Mexicans, and threatening our biological, cultural, and ethnic diversity. Social movements in Mexico have their work cut out for them attempting to limit the scope of these changes.
David Barkin is Distinguished Professor at the Universidad Autonoma Metropolitana in Mexico City. He is a member of the Mexican Academy of Sciences and the National Research Council. His research focuses on collaborating with societies engaged in building and strengthening their post-capitalist societies.
Brenda Ciuk, Columbia University
Not that long ago, in the 1980’s, Mexico had an inward-looking economy in which domestic subsidies, high tariffs and export quotas prevailed and state-owned enterprises controlled the main economic sectors. Today Mexico has signed 44 free trade agreements, more than any other country in the world, and 4 times more than Brazil. The country’s trade as a percentage of GDP represents 65% compared to Brazil’s 25%, and its economy relies not only on oil income but also on a solid manufacturing industry. However, Mexico is still struggling with an ongoing crime problem, a weak judiciary system and a lack of consensus to approve the structural reforms to foment long-term growth.
The reform agenda that President Enrique Peña Nieto has undertaken since he took office in December 2012, has created high expectations, both inside Mexico and abroad. Within the first hundred days of his administration, President Peña presented the “Pact for Mexico”, which is an agreement among the three main political parties that encompasses 95 commitments. In doing so, President Peña is seeking the necessary support to pass the strategic reforms that the country needs to underpin its growth.
If Mexico wants to assume clear leadership in Latin America, its government needs to pass and implement the strategic reforms, improves its judiciary system and improve its foreign policy strategy with other Latin American governments. Mexico needs to have a more ambitious leadership strategy in order to emerge as Latin America’s leader and to influence the development of a new international scenario.
Brenda Ciuk is a Master of Public Administration candidate at SIPA. Currently she is working as a Financial Inclusion Intern in the Office of the UNSG’s Special Advocate for Inclusive Finance for Development at the United Nations. She has over 4 years of experience in the financial sector, in both public and private institutions.
Ramón Peña-Franco, Columbia University
Mexico’s economic outlook is different than that of the rest of Latin America. Though its economic growth underperformed its regional peers for most of the last couple of decades, the opposite trend has now taken hold. There are reasons to be skeptical, however. Expansionary periods in Mexico have been followed by financial crises during the 80s and 90s. Nevertheless, given the solid macroeconomic fundamentals and the structural reforms that are being advanced by the new administration, Mexico is in a much better position to achieve lasting economic growth.
As many Latin American countries face an adverse policy outlook, they will be increasingly tempted to embrace state capitalism and further rely on nationalist measures. On the other hand, Mexico’s geographic position and integration with the world economy will provide it with the incentives to continue opening its border to international trade and investments.
This means that Mexico, unlike most Latin American countries, is willing and able to serve as a more and more important strategic partner to the U.S., a country where economic issues are at the top of Obama’s second term agenda. Its economic model and proximity make Mexico a pivot state that could serve America’s interests, both domestically and geopolitically.
Ultimately, assuming economic recovery in the U.S. and the passage of key structural reforms, such as the fiscal and energy ones, Mexico would secure economic growth, while outperforming that of Brazil. This would not only highlight two distinct economic views in the region, but would also create a new geopolitical configuration, with Mexico setting a model to other commodity-driven economies.
Ramon Peña-Franco is a second-year graduate student at SIPA, focusing on International Finance and Economic Policy. He currently works as a political risk consultant with Eurasia Group and as a Research Analyst with The Economist Group. While at SIPA, he was the president of the Latin American Student Association.