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Mexico: The Old Path to New Riches

Enrique Peña Nieto’s victory in this week’s presidential election in Mexico is a big one for Mexico, and not only because it means the return of his Institutional Revolutionary Party (PRI) to power. It also means new (or perhaps a return to the old, pre-Calderón) policies towards the country’s out-of-control drug trade.

The FT reports that Peña Nieto will, among other things, create a 40,000-strong security force  focused on protecting citizens rather than actively seeking out drug lords and illegal crops. But the fight against the cartels will continue as well: “There will be no pact or truce with organised crime.”

There are a couple of important things to understand about this election, and about Mexico today. First, Mexican citizens are sick of the violence that has engulfed their country, and Peña Nieto is well aware of this. Those Americans who were alive in the 1970s no doubt remember the awful crime waves in many of our own cities. It was unbearable. It had to stop. Mexico is in an even worse mess today and the public is demanding basic security on the streets.

Second, this represents a major opportunity both for Peña Nieto and the country he is about to lead. If he can get the crime and violence under control, Mexico is ready to take off. The return of manufacturing to North America has already boosted the economy, but once the streets are reasonably safe, and once Mexicans see legitimate business as the best opportunity for wealth and advancement, boom times will truly hit Mexico.

This would be great for the United States. It would reduce our immigration problems and it will boost our economy as the Mexican domestic market grows. Let’s hope Washington is ready to work with the new Mexican government to figure out how we can help.

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  • Peter Franks

    Should be referred to as Pena Nieto or Mr. Pena. Nieto is his mothers last name, typically added as a second last name in Mexicon

  • Patricio

    Im not agree! The 68% Of the Mexicans doesnt want him like a President. And all him is fake! PRI = Narco.

  • Walter Sobchak

    You don’t suppose we could get the State Department to start paying attention to the countries in North America and its waters?

    Stupid Question. I know. It is only foreign policy it is about people who hate us on the other side of the world.

  • Luke Lea

    The thing that would boost the Mexican economy most would be an import duty on low-wage manufacturing goods coming into the U.S. from China and Southeast Asia. Nafta would have worked if not for Gatt followed by letting China into the WTO under the same kind of false pretenses that allowed Greece into the Eurozone.

    BTW, do readers know that Mexico’s ruling class is lily white? Whiter than our own, that is for sure. What gives?

  • Fiddlesticks

    Remember, migration helps prop up the PRI party’s vote percentages. The runner-up, leftist PRD party candidate Andres Manuel Lopez Obrador, was the overwhelming favorite among US-based Mexicans, who were unable to vote en masse in the Mexican election.

  • Kris

    “Let’s hope Washington is ready to work with the new Mexican government to figure out how we can help.”

    Here’s a thought: don’t facilitate weapons shipments to the drug cartels.

  • thibaud

    The main driver of Mexican immigration to the US is the corruption and oligarchy in the Mexican agricultural sector.

    Growth in manufacturing, as encouraging as it may be, will do little to improve the condition of the desperately poor campesino class from which the vast majority of Mexican immigrants are drawn.

    If you want to help the latter, then you should call for an end to the NAFTA carve-out for US corn farmers that allows them dump over a billion $ worth of US corn into Mexico each year.

  • thibaud

    btw, King Corn’s indirect contribution to uncontrolled unskilled immigration is yet another example of how regulatory capture is close to or at the center of nearly every one of the big, messy national cluster-phuques we face.

    The list of regulatory capture artists is long, as is the list of their massively malignant effects:

    – King Corn (obesity epidemic, devastation of Mexican small agriculture => immigration, huge waste of budgetary resources)

    – the Realtors and the mortgage industry sharks (the real estate bubble, destruction of millions of Americans’ retirement savings, Fannie ‘n’ Fred debacle, creation of TBTF banks sucking up billions in bailouts and standing in the way of workouts to move the residential RE market forward etc)

    – the for-profit health insurance mafia – a few hundred billion $$$ thrown down the toilet each year in needless admin expense, millions of families’ finances ruined every year, etc etc)

    How about, instead of the BSM, we talk about the RCM, or the Regulatory Capture Model, as the main obstacle to reform and prosperity in this country?

  • Fiddlesticks

    “The FT reports that Peña Nieto will, among other things, create a 40,000-strong security force focused on protecting citizens rather than actively seeking out drug lords and illegal crops.”

    This sounds like a nice, well-meaning proposal, but any force that’s granted uniforms, authority and firepower in Mexico will be caught between a rock and a hard place.

    When your visibility and authority make you a force that must be co-opted or intimidated by wealthy, powerful bad guys, there’s no blue-helmet “I’m just a peacekeeper” out – no way to protect all citizens even-handedly. They will be forced to take sides.

  • An

    I believe PRI will restore the old mordida (bribery) machine, updated a bit for the 21st century and the change in Mexican expectations. Nieto is considered something of a pretty face, a puppet for the old powers that be according to some of my business contacts in Mexico. For a long time Mexico was called the perfect dictatorship as PRI talked reform but kept the system in place as political and economic favors were in exchange for bribes. Case in point is Carlos Slim, the richest man in the world. He has a monopoly on phone services where Mexican citizens pay rates multiples higher than in the US.

    Concerning the drug lords, back in the good old days of the PRI dominance there was an understanding that the drug lords would keep out of politics and keep the violence to a minimum for certain government concessions. The Mexican government and politicians would receive large bribes, and promised to keep the police at bay, except for the occasional large drug bust to keep the Americans happy. The Drug lords had free reign in doing what they do best, and the Mexican government received a handsome cut of the profits with a cold peace.

    While President-Elect Nieto has announced he is keeping the pressure on the drug lords and disavowing any truce, his actions speak for themselves. Nieto announced he wants to reduce the military role in the drug war and enhance the capabilities of the federal police. As WRM stated he wants to create a 40,000 federal police.

    The problem with this is most Mexican institutions are hopelessly corrupt, with the police having little respect in the eyes of most Mexican citizens. The Mexican military is the least corrupt of the major institutions. Wikileaks released a memo where the US would give the details on the most wanted individuals to Mexican Navy as they always executed missions to perfection. The Mexican Army in this memo was classified as less trustworthy. Whatever shortcomings to the Mexican Army, they are leaps and bounds ahead of the Mexican federal or local police. The Mexican Army bore the brunt of the fighting in the drug war and captured and killed scores of high ranking cartel members.

    My hope is PRI will at least continue on the path of economic and political reform while reconstituting the mordida system. We are fortunate NAFTA binds the Mexican people to the path of reform but without political reforms necessary for a modern economy, the innate entrepreneurial talents of the Mexican will be wasted for another generation.

    Calderon will go down as one of the great Mexican presidents. During his presidency Mexico’s economy performed exceedingly well and the middle class grew immensely. Whatever his faults on executing the drug war, he was not corrupt like every other leader in Mexican history. Calderon attempted systematic reform in the judiciary and police that was popular with the people.

  • Art Deco

    The main driver of Mexican immigration to the US is the corruption and oligarchy in the Mexican agricultural sector.

    About 14% of Mexico’s labor force is employed in agriculture.

    It has been a while, but if I recall correctly, the prevailing model in the sociology of immigration has it that the conjoined factors of economic opportunity and social networks in host countries are what drive immigration (i.e. “chain migration”). Some sort of economic and political shock induces pioneer migration which is then succeeded by a self-sustaining process. The per capita income of the middle 80% of the Mexican population is about a quarter that of their American counterparts.

    – the Realtors and the mortgage industry sharks (the real estate bubble, destruction of millions of American

    – the for-profit health insurance mafia – a few hundred billion $$$ thrown down the toilet each year in needless admin expe

    Not all social processes involve every one of your preferred bogies.

  • An


    The corn carvout is not a major impetus for illegal immigration.

    1) Yes, the US agricultural sector is heavily reliant on illegal immigrants but not corn. Corn, wheat, and other grains are heavily mechanized. Migrant workers typically work at meat processing, picking fruits, and vegetables. Just take a look at the demographics of heavy corn and grain producing states such as Iowa and Nebraska, mostly white with very little Hispanics. Hispanic farm workers are found in the vegetable and fruit producing states such as California and Georgia.

    2) Approximately 55% of the illegal immigrants are from Mexico. Most of the rest are from Central America whose nations are not signatories to NAFTA. How does the corn carvout affect illegal immigration from Guatemala and Nicaragua?

    3) Mexican corn production in 2000 was approximately 17 million metric tons. In 2010 Mexican corn production was slightly over 20 million tons. Consumption, however, rose from 24 million to 32 million tons during the same time period. Mexico does not produce enough corn to meet demand, NAFTA has been beneficial to both parties.

    4) Yes corn subsidies are deplorable. And yes the subsidies do lower the price of corn depressing wages. But negating the price deflating nature of subsidies, we have a general commodities bubble over the past 10 years due to shortages. The inflation adjusted price of corn (in 2011 dollars) for 2000 hovered around $100 per metric ton. During this period there was a gradual rise in the price of corn with a huge spike in 2008. Today the price of corn is approximately $300 per ton. Mexican farmers reaped the benefits of higher corn prices just like American farmers. During this same period America

    5) The wage difference between the US and Mexico is the main factor in illegal immigration. Mexico has a GDP per capita that is roughly 1/4 of the US. In countries such as Guatamela with GDP per capita around $3,200 the difference in magnitude is much higher. You couple the wage difference with other factors such as opportunity, free social services, better education, and general safety, etc; and you see why millions of migrant workers have crossed the US border.

  • thibaud

    Fair enough on the changed corn market, An. My information’s apparently out of date. Thanks for the correction.

    Art – I’m merely suggesting that if our host wishes to reduce our biggest problems to an overriding theme, that regulatory capture would be a lot more accurate than his preferred “BSM” meme.

  • Art Deco

    “Regulatory capture” is a form of rent-seeking behavior, and can be a response by the economic sectors in question rather than an aggression by them. What he refers to as the ‘blue social model’ also incorporates a great deal of rent seeking and politically determined incomes, the beneficiaries being:

    1. Public employees generally, through their unions.

    2. The educational apparat at all levels.

    3. The social work apparat of all sorts.

    4. The mental health trade.

    5. Commercial agriculture (also a Republican client)

    6. Different components of the real estate sector (a Republican client as well).

    7. Politicians of a certain sort, who act as brokers of government benefits.

    If the term ‘blue social model’ bothers you, why not call it ‘chuckschumerism’ (a term which could also incorporate special favors for casino banking)?

  • thibaud

    Speaking of regulatory capture, TBTF Banks edition: Barclays is now going to pay a half-billion dollar fine for interest rate manipulation.

    So much for the quaint “BSm” theory that our TBTF banks are being strangled by excess regulation.

    For the curious, back on this side of the pond we now have Richard Fisher of the Dallas Fed getting on board the growing bipartisan movement to finally break up our TBTF banks. Here’s Simon Johnson, from May 12:

  • Art Deco

    I am really not seeing your point. The article (written by a journalist with no background in finance quoting another journalist with no background in finance but considerable background in sensationalizing) contends that the Bank of England persuaded Barclay’s to do something dishonest in a crisis situation. None of these contentions are established facts nor has any benefit to Barclay’s been enumerated.

    That aside, you are left with this:

    1. Regulatory agencies have small budgets, and the largest are devoted to health and safety standards, not commerce or finance.

    2. Economic benefits to particular parties from manipulated regulatory schemes are difficult to enumerate.

    The benefits which come from public expenditure and tax preferences are much easier to see.

  • thibaud

    You surprise me, Art. The latest on the LIBOR scandal per the WSJ: “Authorities on three continents have launched investigations into more than a dozen banks for a range of potential violations….” The Journal quotes a regulatory expert and London lawyer: “This is a major regulatory failing… It’s frankly ridicuous that there wasn’t [a rule requiring banks to submit accurate info to the FSA].”

    Also, I’m not sure where you’re coming from when you, OTOH, criticize my emphasis on regulatory capture as overly sweeping and reductionist, and then, in the next breath, praise that mother of all reductionist theories, the blob known as the BSm.

    Especially curious is your resort to Lenin-speak (“apparat”) to express your displeasure with our educational system. Like Mead, you seem to have the strange idea that what our extremely decentralized public school system needs is … more decentralization.

    Also not sure why social workers merit the term “apparat” – I’ve never met a social services komissar, myself; I didn’t know that it was a massive, top-down federal bureaucracy….

    The point is that Mead’s BSm is incoherent. The small-bore attack on bureaucrats and red tape is completely banal, good-government stuff that Mead’s fellow Southern centrist, Al Gore, championed while he was Vice President in the 1990s. No one has a problem with this. But Gore never presumed to dress up this effort to trim, rationalize, streamline etc with hifalutin labels such as a “social model.”

  • giant_bug

    “There shall be no pact or truce”.

    It’s always interesting when politicians deny something that no one accused them of.

    Kind of makes you wonder why he brought that up.

  • An

    Not a problem. I welcome your comments as they offer a unique perspective on things.

    @WRM Mexico should be the poster child of all Latin America. It’s proximity to the United States and Latin America offers Mexico a unique advantage. Most European and Asian companies would like to turn to Mexico as their hub for both North and South America.

    Resourcing to the United States could benefit Central America immensely. Mexico and the Central American states would act as manufacturers for critical “inputs” that are still too costly due to high US labor costs. But for the Central American states to take advantage of this, basic education levels need to rise. You need a high school education, but reading and writing at the 8th grade level is necessary. Mexico is on the cusp but Guatemala, El Salvado, etc are far behind.

  • thibaud

    An, I’m too lazy to google it now but IIRC Mr. Mead was on record as suggesting not long ago that Americans look to retire to Mexico and other (stable, non-berserker) Latin destinations as a way of, if I remember right, balancing our surplus of elderly pensioners and their surplus of young workers.

    Intriguing idea, provided that there spring up Sna Miguel de Allende-style local retirement destinations bolstered by solid local institutions in areas of public safety, decent health care, rule of law etc.

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