The Contrarian: Reforms the key to improve competitiveness in Mexico

The World Economic Forum’s annual competitiveness ranking is the global beauty pageant for competing nations.  Mexico, the darling of emerging markets in the 1990s, had gradually slipped into the “ugly duckling” range of nations, ranking No. 66 by 2010.  But Mexico got a bit of a face lift in September 2011, rising eight positions to No. 58, and that was the largest single-year improvement of any country in the Western Hemisphere.

The sudden acknowledgement was well-deserved.  In spite of congressional deadlock and heinous, mob-like crime, Mexico’s executive branch has done what it can to improve the country’s business environment.  The Calderon government has eliminated more than 2,000 admi-nistrative procedures and 16,000 regulations that stifle enterprise.  It established a single online desk to facilitate importer and exporter paperwork, and electronic invoicing was finally authorized in 2011.  The often-maligned Federal Commission of Competitiveness was given some teeth and actually took a $1 billion bite (fine) out of Carlos Slim’s Telmex.

These executive-mandated changes re-present incremental but vital micro-reforms that complement Mexico’s already-impressive macro-reforms of the 1990s.  Under Calderon, the tradition of highly professional and competent stewardship of the Ministry of Finance and the Central Bank continue a 20-year tradition, dating to Pedro Aspe and Guillermo Ortiz, respectively.

The World Bank’s “Doing Business” reports rank Mexico at No. 28 worldwide in the crucial area of macro-economic stability.

But in a legislative democracy such as Mexico’s, no amount of presidential tinkering can affect the deep reforms needed to really boost competitiveness.  The past three presidents – Zedillo, Fox and Calderon – have all been keenly aware of their nation’s defects, and all have tried to pass needed reforms.  Ever since Zedillo’s PRI lost majority control of Congress following the mid-term elections of 1997, Mexico’s presidents have been stymied by a level of congressional infighting that makes Washington politics seem collegial by comparison.  Although Mexican citizens have embraced democracy, their political leaders have spent 15 years failing to perform their most basic function – legislating.  As a result, the emerging market’s most impressive reformer of the 1990s has watched the rest of the world pass it by.  Many of Me-xico’s best and brightest people have voted with their feet.  An estimated 20,000 Mexicans with doctoral degrees now reside in the United States, and most of them have left since 2000.

Some people point with hope to the 2012 elections as an opportunity to vote into power the same party, the PRI, with control of the executive branch and both houses of Congress.  But Mexico cannot put its reform process on hold for decades at a time in the hope that political stars will align.

The reform to-do list in Mexico is daunting.  The 90-year-old labor code, written to bring justice to exploited miners in the 1920s, does not serve today’s service-do-minated economy and a manufacturing sector that must compete with Asia.

Mexico ranks 120th in terms of its labor force, according to the World Bank’s “Doing Business” 2010-11 report.  Mexico’s impressive spending levels for public education come with almost no accountability to teachers or administrators.

In the same study, Mexico ranks 122nd in terms of effective use of talent, 89th in terms of its quantity and quality of engineers and scientists, and 79th in terms of its higher-education quality.

Mexico launched its maquiladora stra-tegy in the 1980s in the hopes of emulating the success of Japanese and Korean manufacturers that began post-war resurgence as low-cost assemblers.   Today, those Asian competitors design, build, market and sell some of the world’s best automobiles and machinery.   Mexico is still working the assembly line for other nation’s companies.

When Mexican companies have excelled, they have done so in part because a collusive government allowed them to maintain a “functional monopoly” status.  In a U.S. State Department memo published through WikiLeaks.org, no less than 11 industries were identified as monopolies or duopolies.

Many of Mexico’s coddled corporate giants have blossomed into competitive global players. Telcel, Bimbo, Cemex, Modelo, FEMSA, Vitro and Grupo Mexico all have impressive international operations –and that is all the more reason to dismantle their hold on the Mexican market.  Most damaging of all to Mexican competitiveness – and democracy – is the concentrations of power in the communications and media markets.

When Mexico embarked on an impressive journey of neo-liberal reforms in the 1990s, the country seemed destined to rise to the elite ranks of world competitiveness.

Unfortunately, Mexico’s political class has failed to make that happen.