Mexico's Defective Politics

Mexico's cliff-hanger presidential election--and the threat by loser Andres Manuel Lopez Obrador to fight the result in the streets--has disappointed Mexico's friends around the world. But what else is new? Mexico is a perennial disappointment to everyone, and to the people of Mexico above all.

By world standards, Mexico is not an especially poor country. If you use the CIA's statistics, which try to adjust for local costs of living, the average Mexican produces only a little bit less than the average Pole, almost twice as much as the average Chinese or Egyptian, and three times as much as the average Indian.

But the average Mexican can be forgiven if he takes a more dismal view.

The Mexican economy is not growing. Since 1980, South Korea's annual production has quadrupled. Ireland's has more than tripled. Even Turkey's has nearly doubled. Mexico has more or less stood still: Its economy produces only 17% more than it did a quarter century ago.

Why has Mexico performed so poorly? The short answer: misgovernment. Three times since 1980, Mexico's leaders have plunged Mexico into financial and economic catastrophe: In 1981-82, when president Lopez Portillo nationalized the country's banks and devalued the peso; in 1986 and again in 1996. Since 1996, Mexico has governed itself something more like a modern, open society. Since 2002, it has had the benefit of higher oil prices. But even with those advantages, it has achieved only a little better than 2% annual average growth over the past 10 years.

Such growth as has occurred has tended to benefit only the wealthiest Mexicans. Mexico is one of the four most unequal societies in Latin America, itself the most unequal region of the planet. Mexico's poorest 40% receive only about one-tenth of national income.

Why are Mexico's poor so very poor? Again, the answer is Mexico's defective politics.

Nineteenth century Mexico was a country of vast estates, ruled by a tiny landowning elite. The 1910 Revolution and the leftist nationalist regimes that followed overthrew the old ruling class. But rather than distribute lands to those who worked them, Mexico's new leaders took the best land for themselves--and transformed the rest into communal farms. To this day, millions of Mexican peasants try to earn a living from tiny uneconomic plots they do not own. They can leave their land and migrate to the city--but they cannot sell it to acquire capital for their new life.

When Mexicans do arrive in the city, they find themselves locked out of the formal economy by some of the strongest unions and most restrictive labour laws in the Western world. New industries and new companies are suffocated by heavy regulation and crony capitalism. Foreign investment in Mexico's oil industry is forbidden by the Constitution--costing the country billions of dollars in potential output and an estimated 200,000 potential new jobs.

And even if jobs were generated, it's doubtful that Mexico's poor could fill them. Mexico's cash-strapped governments have never invested much in education--and what little they do spend is gobbled up by Mexico's huge, powerful and corrupt teachers' union. Result: Mexicans show among the lowest level of educational attainment of any of the 30 major economies grouped in the Organization for Economic Co-operation and Development. Ominously, educational levels are just as low among today's under-20s as among over-40s--a warning that the Mexican economy will struggle with poor human capital for decades to come.

Friends of Mexico have seized with hope on every seeming turning point. In 1982, a bankrupt Mexico decided to turn away from statism toward a more open economic future. In 1994, Mexico joined a North American Free Trade Area. Multiparty democracy arrived at the same time. In 2000, it held its first truly free presidential election--and elected a charismatic modern reformer, Vicente Fox.

Yet at each turning point, remarkably little really turned. Fox was outmanoeuvred by the reactionary old-time statists who control the Mexican Congress and maintain the choking bureaucratic status quo. As if he himself had given up on reforming Mexico, he worked instead to help Mexicans leave, trying to negotiate a deal with President Bush that would open North American labour markets to Mexico's unskilled workers. He failed, but four million Mexicans have migrated northward anyway since 2000, most of them illegally.

Can Mexico's next president do better? Assuming the courts confirm Felip Calderon's apparent victory, he will face more daunting obstacles even than those that defeated Fox--starting with a radicalized and embittered opposition.

Obrador and the populist party want to mobilize the understandable grievances of Mexico's poor in order to sustain the corrupt and backward political system that keeps Mexico's poor in poverty. If the past is any guide, it is a very real risk that they will succeed.