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Entrenched interests enslave Mexicans in cycle of hopelessness

At a modern factory set amid cactus fields in this central Mexican city, workers wielding pneumatic tools carefully attach rudders, elevators and horizontal stabilizers to the aft fuselages of state-of-the-art jets.

The plant, owned by Canada’s Bombardier Aerospace, the world’s third-largest civil aircraft manufacturer, embodies Mexico’s growing industrial prowess and a vision of its future – prosperous and modern, where workers and their families enjoy a standard of living befitting one of the world’s most populous countries, sitting next door to the world’s largest economic power.

But the image is far from the Mexico of today, and many here now wonder if it will ever be the Mexico of tomorrow.

Twelve years ago, Mexicans thought their country had been given a fresh start when, for the first time in seven decades, the political party that had been identified with a do-nothing bureaucracy, crony capitalism and a corrupt government lost its hold on the presidency. The defeat of the Institutional Revolutionary Party, known here as the PRI, opened the door, many hoped, to better government, fairer distribution of the country’s wealth, and a real start toward remaking Mexico into a booming nation of middle-class consumers, instead of its long-standing role as a source of cheap and often illegal migrant labor.

When Mexican voters go to the polls July 1, however, the PRI’s candidate is all but certain to win, exiling from power the business-friendly National Action Party, the PAN, whose two terms in the presidency ushered in scant beneficial change. Instead, the optimism that pervaded Mexico when Coca-Cola executive Vicente Fox took power in 2000 has turned into a persistent malaise, where a drug war filled with public executions and horrific beheadings is the overriding image.

Why this resource-rich nation has become trapped in low growth is a story of political paralysis where entrenched monopolies remain in control, the schools fail to educate, and the development policies all but enslave workers in a cycle of poverty that threatens to trap future generations as well.

For the United States, Mexico’s future is more than just an idle curiosity. A booming Mexico could be an enormous boon for the United States as well. Its citizens would buy more U.S. products and services, demand better governance from their own leaders and not flee their country looking for better prospects north of the border.

“Compared to the rest of the world, Mexico has essentially been at a standstill during the past 30 years,” said a report issued in April, “A New Vision for Mexico 2042: Achieving Prosperity for All,” produced by Centennial Group International, a strategic consulting firm in Washington, and Mexico Evalua, a public policy think tank in Mexico City.

If Mexico takes bold steps to unleash its potential, striving to match the growth of successful Asian nations, the report said, it could aspire “to become a country with an average per-capita income equivalent to that of Germany or France.”

That means elevating per-capita annual output from $13,800 today to around $50,000 in 2042 in constant dollars, the report said. If Mexico muddles through with the kind of recent subpar growth that has been the norm, its per-capita output will reach a little less than $30,000, it added.

But getting there will require a complete retooling of the way Mexico operates, emphasizing opportunity for the 52 million of Mexico’s 113 million people who live in poverty, instead of policies that enforce inequality and the lack of social mobility.

“You end up in the social strata where you were born,” said Alejandro Hope, an analyst at the Mexican Institute for Competitiveness, a nonpartisan think tank. “People need to believe they can make it to the top. Right now, they don’t think they can.”

Mexico’s malaise comes despite conditions that ought to foster a boom. The market economy is open and stable. A champion of global commerce, Mexico has free-trade agreements with 43 countries, among the most of any country on Earth. The autonomous Banco de Mexico keeps a tight lid on inflation. Mexico’s beaches and Mayan ruins draw a steady flow of tourists despite crime elsewhere in the nation. The country has also made decisive steps toward the sharing of power. Indeed, Mexico today is what it never really was before – a democracy.

But analysts say Mexico lacks a sense of purpose and is torn by the seeming relentlessness of the drug war, which has been the dominant feature of the current government, led by the PAN’s Felipe Calderon.

“There seems to be in Mexico today a nostalgia for a Mexico that no longer exists and that we fought against, and at the same time a disappointment in the democratic Mexico we now have and that we fought for,” Arturo Sarukhan, the Mexican ambassador to Washington, said in a talk in early April.

Sarukhan said Mexico needs a clearer vision and sense of purpose, and a map with a path to follow.

“Where do we want to be in 20 years? What do we want to look like?” Sarukhan asked. “And how do we get there?”

Mexico “carries a chronic culture of lawlessness and impunity and faces a grave crisis of public security, with a political system that is often the obstacle rather than the solution,” said Gerardo Gutierrez Candiani, head of the Business Coordinating Council, a business umbrella group.

An array of powerful interests with a stake in the status quo have kept the economy from expanding more than a paltry average 2.4 percent a year for three decades, Gutierrez said. He asked why it couldn’t grow at double or more that pace.

Nearly everyone cites the drug violence as a major drag on Mexico’s economic and political hopes. Under Calderon, who took office in late 2006, crime gangs embraced ever-more terrifying tactics – beheading rivals and hanging slain enemies from bridges. The death toll surged from 2,826 in 2007 to an estimated 12,539 in 2011. Calderon will leave office Dec. 1 with well over 50,000 homicides on his watch.

But experts say the crime problem may sort itself out. Cocaine use is falling in the United States – White House drug czar Gil Kerlikowske recently said the number of cocaine users had dropped by 40 percent in recent years – and Mexican authorities are better trained than they were in the past.

“My guess is that drug trafficking will decline over the next 10 to 15 years,” Hope said.

More intractable are the political forces that block reforms. They include political parties, trade unions, private-sector monopolies in areas such as telecommunications, banking and transportation, and, perhaps surprisingly, state governors.

Santiago Levy, an economist who is a former chief of Mexico’s social security institute, said these forces have formed a “sturdy political equilibrium.”

Political parties and trade unions receive huge sums of money funneled through federal and state coffers and use the cash freely to protect their interests. Under decentralization efforts dating to 1997, state governors receive revenue from Mexico City for which they barely have to account. They do not raise state taxes and thus do not make promises to voters about services they will offer.

“The governors control the local media. They have a great deal of influence over the local election boards, (and) a lot of influence over state legislatures and state judicial systems,” said Joy Langston Hawkes, a political scientist at the Center for Research and Teaching in Economics, a Mexico City think tank.

“You need stronger institutions at the state level to act as a brake on the powers of the governors,” she added.

Monopolistic companies avoid competition and charge Mexicans premium prices, exacting a surcharge on the poorest citizens, experts say.

“The greatest tragedy of the PAN’s 12 years (in power) was not taking on public and private monopolies,” Langston said.

Lack of competition is partly why Mexico scores lowly on the most recent Global Competitiveness Report, landing at No. 58 behind Brazil, Panama and Chile.

Those who thrive on Mexico’s status quo – through privilege, corruption or by living off state largesse – betray the hopes of the majority of Mexicans who would work harder if given a fair shake.

“There is a sense of complacency in some segments of Mexican society, where people are not trying harder. People are not hungry,” said Harinder Kohli, a former senior World Bank official who co-authored the “New Vision for Mexico” report. “That is a big difference with Asia.”

Mexico also scores poorly in rankings of corruption, languishing at No. 100 of 183 nations in the nonprofit group Transparency International’s latest survey.

“Mexico is worse than the Latin American average in terms of perceived corruption in the executive branch, judiciary, and military, ranking 10th out of 12 Latin American countries in overall corruption,” the report said.

The roadblocks have made some Mexicans feel as if they are running in place or, worse, even falling behind.

“In the 1970s, we teachers were well paid. Now we are paid as if we are unskilled workers,” said Carlos Dorantes, a sociologist at the Jesuit-run Iberoamericana University on the outskirts of Mexico City, adding that professors earn an average of $1,600 a month. “We call ourselves ‘taxi professors,’ because we go from one place to another trying to earn extra money.”

To unleash private enterprise, experts say, policymakers should harness the energy of Mexicans – who long ago left the “siesta” behind – and set free the armies of semi-hidden, informal businesses embedded in the economy.

About half of the labor force toils in informal jobs – a high rate for a semi-developed country like Mexico – at businesses that stay small to avoid being noticed, adapt late to technology, shun credit and offer little training to employees.

Informal businesses also avoid taxes. In all of Latin America, only Guatemala to Mexico’s south collects a lower percentage of taxes on economic activity, meaning officials have less money to build roads, improve schools and retool the economy.

Despite the problems, pockets of manufacturing strength dot the country. Mexico this year will become the globe’s fifth biggest exporter of automobiles, topping 3 million units. Production of medical diagnostic equipment also soars.

The Bombardier plant here in Queretaro shows what can be accomplished if the will exists. To woo Bombardier, Queretaro built an aeronautical university to provide engineers and helped promote an industrial center for the company’s suppliers. Bombardier’s Queretaro operations now employ 1,800 engineers and technical people working on Learjet 85s and Global Express long-range aircraft.

"Mexico has developed very quickly in the aerospace industry for many reasons," said Real Gervais, a vice president for Bombardier Aerospace at its Mexican manufacturing center.

And behind companies like Bombardier, the aerospace sector booms. Mexico now tallies 249 companies in five major clusters making parts or engines for aircraft. Exports hit $4.3 billion last year.

“If Mexico can make airplanes, what can’t it make?” asked Manuel Sandoval Rios, head of the business intelligence unit at ProMexico, an export promotion agency.


(Video by Tim Johnson and Marcelo A. Salinas)

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