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 Editorials | Issues | August 2007 
Mexicans Getting Left Behind
 Augusta Dwyer - The Globe and Mail
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 |  | The monopolies live in a paradise in Mexico.
- Prof. Jose Luis Calva |  | |
As Mexico's newly staffed Finance Ministry begins to chart the country's economic course, it carries some heavy baggage: years of weak growth, apparently entrenched poverty and highly skewed market concentration.
"Economic growth over the past 20 years has been slightly above two per cent," said Fausto Hernandez, an economist at the Centre for Economic Research, "which is really very bad for a country like Mexico with so many needs."
Economists say if the Mexican economy continues to grow at same pace it has over the past two decades, its gross domestic product per capita will reach $14,764 (U.S.) by the year 2028. China's GDP per capita - currently less than $6,500 - will have grown to $39,000. It is a pill hard to swallow for a country with 43 free trade agreements, a border with the world's greatest economic power, and a firm belief in the panacea of market forces.
Behind those dismaying figures lies another: the growth rate in productivity. According to Miguel Messmacher, the Finance Ministry's Harvard-trained chief of economic planning, "Over the past 25 years, productivity growth has been zero in Mexico." Currently, labour productivity is only a third of the OECD average, says the Organization for Economic Co-operation and Development.
What's more, Mr. Messmacher and institutions like the World Bank actually agree with what critics of government fiscal policies have been saying all along. Mexico's hugely unequal concentration of economic power is having a negative effect on competitiveness and innovation.
For Jose Luis Calva, a professor at the National Autonomous University of Mexico, the real problem is "the neo-liberal philosophy of Mexican governments over the past 25 years. In this philosophy, you cannot regulate markets, but open them so that there is more competition."
In practice, pretty much the opposite has occurred, he said. Privatization in the 1990s of everything from banks to telephony, together with government favouritism and weak institutions, have made billionaires of a lucky few. Carlos Slim, whose personal fortune of $67.8-billion has now placed him as the richest man in the world, holds a monopoly on the telephone system. Lorenzo Zambrano's Cemex sells 85 per cent of concrete and cement in the country, while Alberto Bailleres controls 98 per cent of the silver market. Maria Aramburuzabala's Grupo Modelo, Mexico's largest brewer, is responsible for 60 per cent of the nation's beer sales, matched only by Eugenio Garza's Coca-Cola Femsa SAB, Latin America's largest beverage maker. Two men, Emilio Azcarraga Jean and Ricardo Salinas Pliego, control pretty much what everyone watches on television.
Little wonder that less than one per cent of Mexican firms are responsible for 95 per cent of its exports. A World Bank study found that Mexico's billionaires have a potential income almost 400 times the top 0.1 per cent of the population and 14,000 times the national average. "The monopolies live in a paradise in Mexico," said Prof. Calva.
It is not only their personal wealth, however, that creates a problem for Mexico's economic growth. Unequal concentrations of market power, suggests the World Bank study, can influence policy designs "that favour anticompetitive and rent-seeking policies, which are bad for growth."
Along with higher costs for consumers and economic activity in general, Mr. Messmacher said, monopolies or oligopolies "are reducing incentives for technological innovation and productivity increases."
In the past, smaller competitors found little recourse at the government's Federal Competition Commission, as big companies easily won protection against the FCC's finding from the nation's pliant court system. Since last year, however, changes to the commission's mandate and powers have given it new teeth. The protection orders are no longer allowed and fines for misconduct have risen fourfold to about $4-million, with recidivists in danger of losing 10 per cent of their annual sales or their assets.
It recently blocked Coca-Cola Femsa's recent $470-million takeover of Del Valle Juices, only relenting once the beverage giant met a set of conditions, such as not forcing small retailers to only sell Del Valle products on pain of losing their lucrative Coca-Cola supply. "But the law doesn't prejudge anybody," said FCC commissioner Eduardo Perez Mota. "It's what you do that gets you in trouble, not how big you are."
Will a fine of $4-million deter a billion-dollar company like Telmex? The telecom giant "has been a great worry to us in terms of competition conditions," Mr. Perez admitted. "But we have been very active in promoting regulatory changes that make use of technological convergence, in telephony but also in cable TV, where you have local monopolies." Technological convergence, he said, "lets everybody play in each other's gardens. And that's a big chance for the competition to become better in both of those markets and eventually, most importantly, in broadband access."
Number portability is another factor that "is at last starting to happen," he added. "I believe you could see significant changes in the way the telecom market operates in the next couple of years."
For Mr. Hernandez, however, strengthening the FCC is only half the equation. "Competitivity policies should target the consumer," he said. "Cancelling your telephone line or Internet service, or your cable, or a bank account, is impossible. Once you open a bank account you are tied to that bank. So consumer protection and competitivity go hand in hand. As consumers enforce their rights, producers will become more efficient."
While Mexico has been through a long process of adjusting imbalances, said Mr. Messmacher, "with 4 per cent average growth over the past three years, we are now in a more favourable situation."
At 4.8 per cent, Mexico's GDP growth in 2006 was the fastest in six years.
Yet according to the OECD, even a sustained 4 per cent growth rate for Mexico "is barely enough to keep per capita living standards rising at the same rate as the OECD average. Convergence toward these much higher living standards would require faster actual growth for many years."
The Finance Ministry is "laying some pretty small foundation stones in the right direction, yes," said Mr. Hernandez, "but there are still many challenges in this country." |
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