Government needs to push reform in Mexico

Prosperity is advancing in Mexico – but only to the most wealthy and those working in government-linked industries, according to a study released this week by the World Bank. It found great inequalities in wealth stemming from “concentrated wealth in the business sector; and unions in protected sectors, the heritage of corporatist institutional arrangements.”

Corporatism is the system, most commonly associated with Mussolini’s Italy in the 1920s and 1930s, in which government, business and labor collude to control the economy and stifle competition and economic liberty.

From 2000-04, the World Bank found, the average worker’s income increased just 4 percent. But protected workers saw much greater increases, a 28 percent increase for workers in the government-run petroleum industry and a 50 percent increase in the monopoly telecommunications industry. The top 0.01 percent of earners, the very wealthy, saw incomes rise 212 percent in that period.

“They’re right,” Esmael Adibi, director of the Center for Economic Research at Chapman University, said of the World Bank report. “The structural reform of the Mexican government did not go far enough” in the past decade.

The biggest outfall is on the aspiring individual who wants to better himself or herself through starting a small business or growing an enterprise. When the biggest rewards are in the protected sectors, and government policies impede business formation, why risk starting one? And, Adibi pointed out that overall political instability also has led to difficulties in investing in common, unprotected businesses in Mexico. This includes the controversy over the recent close presidential election and the riots in Oaxaca. He said such uncertainty encourages people to invest their money in other, more stable countries, rather than in home businesses.

Of course, the solution to Mexico’s wealth distribution problem is not to seize the money of the wealthy, which only would cause more instability and uncertainty about property and ownership. Rather, the solution, Adibi said, is that “Mexicans need more economic freedom, lower taxes and stronger property rights. But they haven’t moved in that direction.”

Given such economic malfunctioning, it’s no wonder so many Mexicans flee to a country with lower taxes and long-established property rights, the United States. Conversely, America’s own debate over immigration would be tempered if Mexicans could make decent pay in their home country.

What both Mexicans and Americans need is a stable, prosperous, capitalist Mexico. It should be a Mexico that frees its economy so that anyone, not just the wealthy, is free to keep the fruits of his or her own labor instead of having profits taxed away or property rights abridged.

Although Americans need to be careful, and bullying by the U.S. government obviously should be avoided, it is time for more direct encouragement of reforms by the Mexican government. New President-elect Felipe Calderon has pledged to fulfill the promise of expanded economic liberty that his predecessor, Vicente Fox, mostly failed to achieve. But now perhaps the World Bank study can be used as a prod to real reform.