Mexico, Grow

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The most important date for the future of immigration in the U.S. is July 2. Not July 2 in the U.S. On that day, a Sunday, those right-wingers driving the debate in Congress will be enjoying their “Independence Day District Work Period,” aka recess. It is July 2 in Mexico that matters, where it’s election day.

If Mexican voters choose the market-oriented Felipe Calderon as president, he may lead Mexico’s congress to change laws so that more Mexicans want to build careers at home. If they opt for Andres Obrador, who is left-leaning, then more Mexican citizens will head north, whether we build a wall or not.

By most measures, Mexico’s economy is doing fine. Mexican unemployment is about 4 %. Oil cash widened the profits of Mexico’s national oil company, Pemex, and filled the coffers of its government. Mexican gross domestic product has expanded by an average of 3.7% in the past 10 years. Since the North American Free Trade Agreement there’s been a general political faith on both sides of the border that Mexico’s economy will gain ground on the U.S.

But that is political faith, not economic reality, for Mexico isn’t pulling abreast. The key comparison here is growth per capita, not just growth. In the past decade, Mexican GDP per capita grew 2.2% a year, about the same as the U.S.’s. As Tim Kearney, a Bear Stearns Cos. senior economist, notes, “they should grow faster than us to catch up and they haven’t moved in narrowing the gap.”

Asia plays a role in this disappointment. Mexico never expected competitors from far away to become so important so fast.

The principal problem, however, is the failure of domestic reform. Telmex, the old national phone company, is owned by one man, Carlos Slim. The government still owns Pemex. Taxes are high. Mexican authorities play politics with their currency. The Mexican culture tells the entrepreneur “no” too often. When younger Mexicans look at their lives, neither pay nor prospects offer inspiration.

As Mr. Kearney’s colleague, chief economist, David Malpass, says, “if Mexico had China’s economic direction of sound money, relief of rural taxes, and explicit policy of rural income growth and development, it would grow 8% a year, relieving immigration” pressure.

It is therefore disconcerting to hear President Vicente Fox blame the U.S. so often for immigration tension, or to hear him tell a radio network: “President Fox and Mexicans will neither accept more humiliations, nor more abuse, nor more violations of human rights and workers’ rights.”

Fox’s ringing of a false alarm is a diversion in the same way that, say, Congressman Dana Rohrabacher, a Republican of California, rings a distracting alarm when he blames the U.S. business community for wanting cheap labor. Fox really should be berating himself and his own congress for failing to pass free-market laws.

Calderon offers hope. He has called for a flat tax with “an internationally competitive rate.” He has also pushed deregulation, as well as pension reform. Though he has waffled lately – why isn’t he demanding Pemex privatization? – he is better than Lopez Obrador, who is downright retrograde. Lopez Obrador advocates protectionism and spending on schools, research, on the power industry. The fact that the race is tight suggests that Mexicans understand the growth argument.

Some fear that victory by Mr. Obrador would lead Mexico to mimic Hugo Chavez, the anti-American Venezuelan leader. But another comparison may be more apt. It is that of Mexico with Puerto Rico, whose citizens enter the U.S. freely.

Puerto Rican travel rules are a Mexican dream, but the territory is hardly a model of development for emerging-markets nations. In a paper presented this week at the Brookings Institution in Washington, economist Steven Davis of the University of Chicago notes that only one-in-four Puerto Rican jobs are in private-sector businesses that operate without a state subsidy, regulatory advantage or intrusion from bureaucracy.

That contrasts with one-in-two entrepreneurial jobs in the U.S. Puerto Ricans therefore move to the U.S. As Mr. Davis points out, migration from Puerto Rico to the U.S. in the second half of the 1990s was about 485,000 out of a population of 3.8 million. In other words, something close to the Mexican ratio.

What Puerto Rico demonstrates, Mr. Davis says, is that “free migration would not ensure a strong Mexican economy or the convergence of Mexican and U.S. per capita income levels.”

Normally, we assume that open shared borders force change in the more backward country. In the long run, that is usually true.

What the Puerto Rican example suggests is that in the short run open borders can provide nations with an excuse not to change. Mexicans hate the notion of being compared to Puerto Rico, but by not reforming Mexico runs the risk of Puerto Rico-izing itself.

The solution – bolder reform – has to come from within, though there is plenty of blame on both sides of the border. U.S. lawmakers do Puerto Rico no favors when they abet local government meddlers by doing things like backing a minimum wage for the territory. Formalizing Mexican guest workers through a new American law is likewise wrongheaded, for it allows any Mexican leader to postpone reform.

What about American righties? If they can’t stop themselves from yelling, at least they can change their line. Instead of shouting “Mexican, go home,” they could shout “Mexico, Grow!”

Miss Shlaes is a Bloomberg News columnist.

The New York Sun

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