Twenty years into Nafta, Mexico has too many criminals and not enough policemen; too many workers earning low wages and not enough skilled jobs; too many false dawns and not enough economic growth.
Such concerns would make for a poor conversational gambit when Enrique Peña Nieto, the Mexican president, proudly hosts his US and Canadian counterparts, Barack Obama and Stephen Harper, in Mexico on Wednesday for their annual check-up on the North American Free Trade Agreement.
So instead he could cast them another way for the so-called “Tres Amigos Summit”. Mexico’s main problems on Nafta’s 20th anniversary, he could say, stem from the fact the country had too many macroeconomists and not enough microeconomists.
That might sound bizarre. Yet, if it was the other way around, Nafta might not be viewed as critically as it is by many now – and Mexican wages (and Mr Peña Nieto’s domestic ratings as opposed to his soaring international standing) might be better too.
Since the three countries inked Nafta in 1994, the US has not suffered “a giant sucking sound” of jobs disappearing south across the border. Canada has also maintained its cultural distinctiveness. But Mexico, while a rising star, has not quite become the developed country it thought it would.
Instead of a process of inexorable convergence, per capita Mexican gross domestic product remains a fifth of that in the US – exactly where it was in 1994. What went wrong?
For one, the world changed dramatically around Mexico.
China rose as a manufacturing power, displacing Mexican manufacturers. The 9/11 terrorist attacks caused the US to boost security, especially along its southern flank (border delays today cost the US and Mexico an estimated $6bn a year).
Mexico also made a transition from one party rule – a boon for democracy, if not always effective governance. Lastly, new technologies such as fracking transformed North American energy markets.
One problem for Mexico is that, even as the world changed around it, Nafta stayed the same. Indeed, for all the growing talk of a united “North America”, Nafta remains a series of often lukewarm bilateral relationships rather than a trilateral one.
On the political front, Mr Harper and Mr Obama have no particular chemistry, while bilateral relations are hung up over the Keystone XL pipeline. Mexico-Canada relations have stiffened since Canada decided Mexican visitors need visas. US-Mexican relations always ebb and flow.
Economic affairs have similarly waxed and waned. Regional supply chains have deepened, yet this process is not reflected in greater intra-regional trade. Today 40 per cent of total North American trade takes place within Nafta, slightly less than in 1993. (In the EU, intra-regional trade is over 60 per cent.)
None of these factors helped Mexican convergence, but they were also largely outside the country’s control. Of more fundamental importance for Mexico’s wellbeing was the huge list of microeconomic reforms it left undone while embracing macroeconomic change.
These include liberalising energy markets and breaking-up local oligopolies, to removing structural bottlenecks, such as a notoriously poor education system, and a high degree of labour informality.
After stonewalling these reforms for 12 years, Mr Peña Nieto’s ruling Institutional Revolutionary Party is now working to make many of them happen, to international if not always local applause.
Industrial policy is also enjoying a new life, in contrast to the mantra 20 years ago that “the best industrial policy is no industrial policy”. Today, there is more talk of “industrial clusters”. These are designed to encourage greater backward linkages into the domestic economy by Mexican manufacturers that more often assemble inputs made elsewhere.
All of these microeconomic policies have a single, crucial vanishing point: to boost Mexican productivity. If Mr Peña Nieto can pull that off, Mexican real wages will rise – as will his domestic popularity.
Fears in Ottawa and Washington about Mexican immigrants would also diminish. Greater prosperity might even reduce the lure of organised crime. And future Nafta summits would more likely be a true meeting of “Three Amigos” rather than an at-times uncomfortable photo-opportunity as they often are now. Who would have thought that microeconomists could play such a large role?
John Paul Rathbone
Fonte: FT
That might sound bizarre. Yet, if it was the other way around, Nafta might not be viewed as critically as it is by many now – and Mexican wages (and Mr Peña Nieto’s domestic ratings as opposed to his soaring international standing) might be better too.
Since the three countries inked Nafta in 1994, the US has not suffered “a giant sucking sound” of jobs disappearing south across the border. Canada has also maintained its cultural distinctiveness. But Mexico, while a rising star, has not quite become the developed country it thought it would.
Instead of a process of inexorable convergence, per capita Mexican gross domestic product remains a fifth of that in the US – exactly where it was in 1994. What went wrong?
For one, the world changed dramatically around Mexico.
China rose as a manufacturing power, displacing Mexican manufacturers. The 9/11 terrorist attacks caused the US to boost security, especially along its southern flank (border delays today cost the US and Mexico an estimated $6bn a year).
Mexico also made a transition from one party rule – a boon for democracy, if not always effective governance. Lastly, new technologies such as fracking transformed North American energy markets.
One problem for Mexico is that, even as the world changed around it, Nafta stayed the same. Indeed, for all the growing talk of a united “North America”, Nafta remains a series of often lukewarm bilateral relationships rather than a trilateral one.
On the political front, Mr Harper and Mr Obama have no particular chemistry, while bilateral relations are hung up over the Keystone XL pipeline. Mexico-Canada relations have stiffened since Canada decided Mexican visitors need visas. US-Mexican relations always ebb and flow.
Economic affairs have similarly waxed and waned. Regional supply chains have deepened, yet this process is not reflected in greater intra-regional trade. Today 40 per cent of total North American trade takes place within Nafta, slightly less than in 1993. (In the EU, intra-regional trade is over 60 per cent.)
None of these factors helped Mexican convergence, but they were also largely outside the country’s control. Of more fundamental importance for Mexico’s wellbeing was the huge list of microeconomic reforms it left undone while embracing macroeconomic change.
These include liberalising energy markets and breaking-up local oligopolies, to removing structural bottlenecks, such as a notoriously poor education system, and a high degree of labour informality.
After stonewalling these reforms for 12 years, Mr Peña Nieto’s ruling Institutional Revolutionary Party is now working to make many of them happen, to international if not always local applause.
Industrial policy is also enjoying a new life, in contrast to the mantra 20 years ago that “the best industrial policy is no industrial policy”. Today, there is more talk of “industrial clusters”. These are designed to encourage greater backward linkages into the domestic economy by Mexican manufacturers that more often assemble inputs made elsewhere.
All of these microeconomic policies have a single, crucial vanishing point: to boost Mexican productivity. If Mr Peña Nieto can pull that off, Mexican real wages will rise – as will his domestic popularity.
Fears in Ottawa and Washington about Mexican immigrants would also diminish. Greater prosperity might even reduce the lure of organised crime. And future Nafta summits would more likely be a true meeting of “Three Amigos” rather than an at-times uncomfortable photo-opportunity as they often are now. Who would have thought that microeconomists could play such a large role?
John Paul Rathbone
Fonte: FT
