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Mexico: The Great Transformation

How did Mexico transform its economy to become one of the most dynamic in Latin America?

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Takeaways


  • In a few years, Mexico went from being a classic oil-exporting economy to becoming one of the largest exporters of manufactured products in the world.
  • In this country of multiple concurrent temporalities, the past, present and future rub elbows and confront each other.
  • Mexico still suffers from important ills related to disparities in income, to poverty and to failures in tax collection, as do all countries.
  • The degree of opening of the Mexican economy, calculated by the income from imports added to the income from exports, as a percentage of GDP went from 27% in 1994 to more than 60% in 2004.

One of the most lucid essays written about Mexico is not a product of the wise statistical ruminations of a sociologist, the balanced suppositions of a political scientist or the technical regressions of an economist — but rather of the thoughts of a poet who also was one of the great essayists of his country and of his century: the Nobel Laureate Octavio Paz.

In his 1970 after word to a new edition of his book “The Labyrinth of Solitude”, Paz describes the extent to which the modern political matrix of his country resides in its will, reiterated every six years, to erase the legacy of the previous government.

Like the Aztec emperors, who with an ever-greater pyramid covered the earlier pyramids built by their predecessors, Mexico’s presidents during the 20th century have insisted on laying waste to the near past.

In spite of belonging to the same partisan dynasty, for decades each new president tried to differentiate his new reign from his immediate predecessor in successive autonomous gestures in order to consolidate his authority not only over the State but also over the party.

For a limited term of six years (a sexenio), the Mexican president was the absolute political authority and did not tolerate any eclipse of his shining power. Mexico’s modern times are composed of mixed temporalities, the present being the confluence of hidden pasts and frustrated futures — a series of subverted Edens that Mexicans simultaneously wish to recover and to forget.

In this country of multiple concurrent temporalities, the past, present and future rub elbows and confront each other. The avenues of Mexico’s urbane and peaceful capital are named Insurgentes and Reforma, typically referenced to the Mexican Revolution.

The futurist skyscrapers border on the shantytowns, and pre-Columbian pyramids are next to Baroque cathedrals and high-tech corporate headquarters.

NAFTA, which went into effect in 1994, tied Mexico to the United States, granting it an anchor of exogenous credibility similar to what Spain gained with its link to the European Union.

The most visible part of this transformation was commercial, since the economy experienced an unprecedented increase in its non-oil exports.

In a few years, Mexico went from being a classic oil-exporting economy to becoming one of the largest exporters of manufactured products in the world. At the beginning of the 1980s, oil exports represented more than two-thirds of Mexico’s exports — in 2005, slightly more than one-tenth.

In the meantime, Mexico’s exports of manufactured products experienced gigantic growth. According to the estimates of José Antonio Ocampo, Mexican exports of manufactured products of medium or high technology — meaning goods with significant added value — reached nearly 55% of the nation’s total exports in 2000.

To put this into perspective, for Chile, the regional economic champion, these kinds of exports barely represented 6.5%. The degree of opening of the Mexican economy, calculated by the income from imports added to the income from exports as a percentage of GDP, went from 27% in 1994 to more than 60% in 2004.

The economy, too, became more competitive, increasing its participation in world trade. In 1984, Mexican exports represented 1.4% of the world’s exports. Twenty years later, they exceed 2.6% of the world’s exports.

Mexico’s commercial transformation is unprecedented in Latin America. It exceeds even that of Chile, the regional champion with respect to dynamism and participation in international trade, if we take into account that the amount of Chile’s exports of raw material is clearly superior to that of Mexico.

Many Latin American countries depend on the exporting of certain raw materials, Mexico being the great exception.

In the periods 1986-1988 and 1999-2001, the proportion of raw materials in the region’s total trade, while falling from 74% to 45%, continued to be high. The recent increase in demand from China — which benefits the soybean-exporting countries Argentina and Brazil and the copper-exporting countries Chile and Peru — may maintain or increase this dependence.

The relatively reduced dependence on the exporting of raw materials has been accompanied by an increase in the exporting of manufactured products from 26% to 55% during the periods mentioned above.

But this accomplishment is explained, to a great extent, by the Mexican trajectory, which displays one of the lowest dependency indexes on one or more exported products in the region, with a notable reduction in concentration by product in its exports.

In other words, Mexico’s good performance has skewed the overall results for Latin America. Most of the region’s countries need to diversify their export base further. Of course, Mexico suffers from important ills related to disparities in income, poverty and failures in tax collection, as do all countries.

The less attractive face of the Mexican miracle continues to be the social aspect — the absence of investment addressing needs in education and health. This challenge will have to be addressed by improving the tax-collection system so that it will be possible to increase spending on second-generation social reforms.

Its dependence on the United States certainly exposes the Mexican economy to the counter-shocks of the American business cycle, but a link of this type also constitutes an unequaled opportunity. Mexico is the only developing country that borders the world’s most important economy.

This border is a magnet, because the United States attracts Mexico’s products as well as its citizens, and with these “exports” Mexico’s entire GDP is pushed higher. It is also a guarantee, because Mexico’s link to the United States functions as an insurance against all risks.

Editor’s Note: Copyright 2007 MIT Press. Reprinted with the permission of the author and the publisher.

This is the second excerpt of a two-part series. Read Part I here.

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