GLENN HUBBARD: If life at home were better, fewer Mexicans would leave to look for work up North. So, why isn’t the Mexican economy growing faster? Why isn’t it raising both employment and living standards?
Some critics blame economic policy. But that response is too glib. Since the late 1990s, Mexico has tamed inflation and cut government spending. It’s adopted the North American Free Trade Agreement and opened itself up to trade.
But it’s still not growing fast enough to lift living standards materially. Mexico isn’t investing in new technologies or doing business efficiently, the way we do.
That’s because two major Mexican economic sectors are mired in government favoritism and protection.
Major industries lack competition. Instead, the Mexican government fosters monopolies. Phone giant Telmex generates some of the most expensive phone service in the industrial world. And Pemex, the state oil company, squanders the country’s wealth with bloated employment and poor investment.
And Mexico also has a big informal sector of small vendors and manufacturers that operate under the government radar. Onerous labor and tax regulations and a lack of access to credit keep a lid on the size of these often nimble entrepreneurial firms.
Even those who do have property rights, like small farmers, find that their rights are rarely enforced. But upholding those rights and lowering the barriers to doing business are the only ways to promote competitiveness.
Getting more out of the domestic economy will be Job 1 for the new Mexican president, regardless of his preference for “government intervention” or “the market.”
But only one thing is clear: Mexico needs to break up monopolies and foster entrepreneurship. That will raise living standards and generate funds for greater social spending.
And memo to Congress and the Bush Administration: Our immigration policy is not just about barriers or guest workers. It’s about telling our southern neighbor what I’ve just said.
KAI RYSSDAL: Glenn Hubbard is dean of the Columbia Business School. He’s also former head of the Council of Economic Advisors.