by Shannon K O’Neil for Bloomberg
(Bloomberg).- Globalization made today’s Mexico, transforming its economy, society, and politics, much to the dislike of current President Andres Manuel Lopez Obrador. Now, if he wants to save his presidency and the nation from the coronavirus pandemic and a punishing recession, the man who used his inauguration address to denounce neoliberalism as “corruption” must embrace Mexico’s international ties.
Over the last 30 years, Mexico became one of the world’s most open economies. Trade tops 80% of gross domestic product: Millions of Mexican jobs depend on a booming export sector of car parts, plane engines, medical devices, TV screens, agricultural products, and much more. According to the McKinsey Global Institute, these internationally tested sectors are the most productive, providing a base for higher-paying jobs and long term economic growth.
More than a half-trillion dollars of foreign direct investment has poured into the nation over the last two decades. It helped build a globally competitive manufacturing base, and more recently, began to stabilize and modernize a declining energy sector. The peso’s liquidity has made this that much easier, with more than $100 billion crossing borders every day.
Mexican society is deeply international. Half of Mexicans claim family abroad, most in the U.S. From Main Street to Wall Street, construction sites to farms, migration has drawn Mexico’s humble and well-heeled, its entrepreneurs and its desperate. These 12 million Mexicans, 10% of the population, send back remittances (some $40 billion in 2019) that are a lifeline for families and communities at home.
As in other countries, globalization has brought costs. Many of Mexico’s criminal organizations are transnational, moving illegal substances and trafficking people across borders even as they also prey upon those at home. Inequality increased as Mexico opened (though it has lessened over the last decade), and poverty endures. Planes and ships brought a devastating virus that was first incubated an ocean away.
But the real balance of globalization for Mexico can be seen in the vast disparities between north and south: The open and connected north fares far better in terms of incomes, wealth, education and lifespans compared with the isolated south. Mexicans’ own choices reveal which world they prefer: The populations of the more internationally linked states are growing.
Yet Lopez Obrador still looks to decouple Mexico from the world.
He began his crusade against a global Mexico long before his successful 2018 campaign for the presidency and this year’s outbreak of Covid-19. (His 2006 presidential platform, for instance, called for rejecting lower agricultural tariffs agreed to in NAFTA.) Now, in his daily press conferences, he rails against the outward-looking policies of his predecessors, blaming them for poverty, inequality, corruption and insecurity.
In energy he sees only the state, moving to halt auctions and undercut private contracts. Pushing to make Mexico self-sufficient in gasoline, he is spending billions on refineries (even as Mexico’s existing ones operate at just a quarter of their capacity), and ending policies to buy the cheapest energy possible (often imported and cleaner natural gas).
Self-sufficiency rather than reliability guides his thinking on agriculture, too. His government spends billions of dollars on free fertilizer for farmers, guaranteed prices for corn, beans, flour, rice and milk, and subsidies for consumers to pay less than market rates for these and other foods in a basic food basket.
More broadly, he seems to care little about international market norms. He turns to sham local referendums to decide investment decisions. Such “popular consultations” (often representing a tiny portion of voters) have been used to shut down construction on a new Mexico City airport in 2018, authorize a train across the Yucatan rainforest and stop the maker of Corona beer from opening a plant in Baja California. He is undermining the independence of regulatory agencies, scaring away investors as he pushes to replace qualified experts with loyalists.
Lopez Obrador’s government hasn’t totally pulled back from the world. It pushed through free trade agreements with the U.S. and Canada, as well as the European Union. It is prioritizing factories tied into North American supply chains as the country reopens. But these few positive steps are overwhelmed by the increasing disregard for basic market rules.
And tellingly, Lopez Obrador hasn’t left the country since his electoral victory. He instead sent others to the Group of 20, the United Nations General Assembly and the World Economic Forum in Davos, abandoning Mexico’s track record of leadership on issues from finance to climate change.
If the president truly wanted to help those he claims to represent, he would embrace global Mexico’s advantages. He would welcome foreign money and expertise into the energy sector, accelerating the transition to a cleaner, more stable and more efficient energy grid. This would benefit the poor the most with lower prices. Growing private sector-led output would also mean higher government royalties to spend on social programs. Prolific electricity would also attract more manufacturing, a vital step in expanding Mexico’s role in international supply chains and bringing more and better jobs.
More agricultural trade would keep consumer prices low, helping the poor without expensive government outlays. It would also enable specialization in more profitable fruits, vegetables, coffees and other products — a path out of the permanent poverty of subsistence farming. And adherence to market-based rules and non-politicized support would bring back the domestic and international investment that fuels economic growth.
Sadly, Lopez Obrador isn’t likely to change course. Instead, the current recession will deepen. The 10 million new poor will be joined by millions more. The relocation of supply chains out of China that is happening now will bypass the nation, limiting its longer term economic potential. Lives and livelihoods will be lost. And a more alone Mexico will be a more diminished one, draining hope from those so far left behind.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
