changing mexico

7/28/2019 Changing Mexico

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A CHA NG ING MEXICO

Andrew SeleeMexico has undergone major changes over the past two d ecades, as its political systemshifted from one dominated by a single official party to a highly competitive dem ocracy,and its economy opened up dramatically to global competition. These changes haveproduced significant dislocations in Mexican society, including high out-migration anda spiral of drug-trafficking related violence. However, signs are that Mexico has nowse t the foundations for future success. Average income has grown signiflcantly, violenceis plateauing, and out-migration has dropped dramatically. There are potential p itfallsahead, but the country's future looks far brighter today than it did a decade or two ago.If M exico continues to grow and deepen its democratic process, these changes will have aprofoun d effect on the United States, its neighbor to the north, as well.

The biggest storylines about Mexico in the past few years have been theoutflow of migrants to the United States and the rising violence betweendrug-trafficking organizations.' Both of these phenomena have been the result ofim po rtant transformations takin g place in the co untry as its economy and politicalstructures were transformed, almost overnight, from a closed economy and author-itarian political system, in the 1980s, to an increasingly modern democracy deeplyembedded in the global economy. These changes have not been easy, or alwayslinear, and they have generated enormous disruptions in existing institutions andin people's daily lives.

However, the main storylines over the next few years are likely to be quitedifferent than the ones we have seen in the past. Migration from Mexico to theUnited States has dropped to historically low levels since 2010, and this appearsto represent a structural shift in migration patterns rather than just a temporaryadjustment related to the economic downturn in the United States.^ Violence alsoreached a plateau and appears to be declining slightly.^ To be sure, violence will


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remain a major issue over the next few years, as Mexico wrestles with the challengeof building credible legal institutions. It is hard to tell yet what the fate of theseefforts will be. But, for reasons I will describe below, we are unlikely to see thesame rise in violence that took place over the past few years.

At th e same cime, Mexico's economy has tak en off in new ways, with sustainedgrowth over the past fifteen years and a gradually improving standard of livingamong Mexicans. Mexicans today earn on average roughly the same as people inRussia, Brazil, Turkey, and Malaysia, almost twice those in China, and six timesthose in India."* As a result, the ratio of CDP per capita between the United Statesand Mexico has improved dramatically from around 6 or 7 to 1 for most of the1990s to an average of almost 4.5 to 1 today.^ These figures still suggest a sub-stantial wage gap between the two neighbors, but they point to the fact that thisgap has been narrowing substantially over time. If current progress continuessomething that is far from certainit may be possible to talk about a gradual, ifincomplete, convergence between the two economies over the next few decades.

As with everything in Mexico, these changes come with caveats and questions.W hile arou nd half of the popu lation is probably in the m iddle class today, the oth erhalf remains mired in poverty. The economy is increasingly manufacturing basedand export oriented rather than being dependent on oil, as it was two decades ago,but the country has struggled with efforts to move up the value chain in produc-tion. Education is widespread and more readily accessible than ever before, but thequality of educational institutions lags. Democratic institutions have taken rootin ways that would have been unimaginable only two decades ago, but significantauthoritarian enclaves remain, and building effective and trustworthy police, pros-ecutors, and courts is one of the country's greatest challenges to stem the threatthat criminal impunity poses to people's lives.

However, even with these challenges ahead, Mexico's progress is surprisinglyrobust. And as the country moves forward economically and politically, thesechanges will have an enormous impact on the United States. Mexico's imprint inthe United States will have less to do with the shared challenges of unregulatedmigration and organized crime, as in the past, and far more to do with intensepatterns of trade, binational manufacturing processes, skilled migration, and themobility of capital. Mexico and the United Statesalong with Canadaare likelyto work more closely to navigate the shifting terrain of the global economy.A RISING E CONOMIC POWE R


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A Changing Mexicoof Mexicans liveand even the most rural villages sell Coca-Cola. What is moresurprising, however, is that today it is hard to go through a day in the UnitedStates without using Mexican products. Almost all cars that circulate in theUnited States have Mexican partsa tribute to the increasingly integrated auto-mobile market in North Americaand U.S. consumer goods from Blackberries totelevisions are often assembled in factories across the border.

In addition to this, many of the best-known brands in the United Statesare actually now owned by Mexican companies.^ These include Entenmann'scookies, Sara Lee cakes, Thomas' Original English Muffins, Oroweat Breads, andStroehmann's Dutch Treats, all owned by the Mexico City-based bread behemothGrupo Bimbo, which now supplies almost a third of the U.S. bakery market.^Borden Milk and several other popular dairy brands are made by Lala, a collectiveof dairy farmers in Torren, Mexico, who now supply nearly one-fifth of the dairyproducts in the United States. Bar-S, owned by Monterrey-based Grupo Alfa,produces roughly a fifth of all hot dogs and processed meats sold in the UnitedStates.^ Perhaps less surprisingly, Mexico's largest producer of cornmeal for torti-llas, Gruma, has become America's largest supplier of corn and wheat tortillas andwraps for sandwiches.

But it is not only at the lunch table where Mexican companies have madeinroads. A single large Mexican company, Cemex, is also the largest cement sup-plier in the United States, literally helping provide the foundations of the U.S.housing market. Carlos Slim Helu, a Mexican telecommunications magnate andreportedly the world's richest man, owns TracFone, which has become the leadingpre-paid cell phone company in the United States, and he has minority invest-ments in Saks Fifth Avenue and the New York Times. And, of course, there is noshortage of Mexican beer in American refrigerators, ranging from the higher-endDos Equis to the less expensive Corona and Tecate.

What is extraordinary about the quiet and unheralded extension of Mexicancompanies into the U.S. and international markets is that few of these companieshad much presence north of the border five or ten years ago. Large Mexican com-panies were insular and inward-looking, much like Mexico itself, and only in thepast decade have they begun to take their place in the global marketplace. The vasteconomic opening that took place in Mexico as a result of the country's entrancefirst into the General Agreement on Tariffs and Trade (GATT) in 1986 and thenthe implementation of the North American Free Trade Agreement (NAFTA) in1994 initially served to bring foreign investment to Mexico and to boost trade with


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The presence of Mexican-owned companies in the United States and else-where, combined with the explosion in Mexican manufactured goods in U.S.homes, is only one symptom of a larger shift in the Mexican economy. In the1970s and 1980s, Mexico's manufacturing base was also largely inwardly oriented,with oil comprising the largest share and, in many years, a majority of exportearnings.^ With Mexico's entrance into CATT and laterI n 2 L I i t t l 6 o v e r NAFTA, the country's economic base began to change

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A Changing Mexicoemerge more vibrant and competitive. This process also provided incentives forMexican politicians to pursue a more responsible macroeconomic managementof the economy, at least after 1995, which has kept inflation low and minimizedeconomic shocks (with the notable exception of the economic shock from the U.S.recession in 2009).'^ As a result, the Mexican economy has grown more slowly thansome other economies in Latin America, but it has done so in a sustained way overalmost two decades with low inflation and dropping interest rates.IMPROVING QUALITY OF LIFE

Long-term growth in the Mexican economy has produced a gradual but signifi-cant increase in living standards for the vast majority of Mexicans over the pasttwo decades, even if not everyone has benefited equally. Since 1997, Mexico hasaveraged almost 3 percent growth per year, a modest but steady increase, and as aresult, GDP per capita has more than doubled from $4,981 to $10,514 in currentprices.'^ Growth has been far less spectacular in Mexico than in some other coun-tries of the region, but it has been largely sustained year after year. As noted above,this has also allowed a gradual narrowing of the income gap between the UnitedStates and Mexicofar short of the kind of income convergence some proponentsof economic integration predicted but still quite significant in terms of people'slivelihood.Increasingly, Mexico is becoming a middle-class society with almost half of thepopulation fitting the definition according to some analysts who look at savings,assets, and consumption patterns.'^ Luis de la Calle and Luis Rubio have arguedthat the number of cars owned by Mexicans has increased five times since 1980,meat consumption per person has nearly doubled since 1990, and the number ofcredit cards has quadrupled since 2002.'^

The growth of the middle class has been facilitated by three factors. The firstis the long-term, if gradual, growth in real wages. The second is the entrance ofmore and more women into the labor market since the 1970s, which has increasedoverall household income. Lastly is the drop in the prices of consumer goods withthe dropping of trade barriers, which has made cars, refrigerators, and DVD playersaccessible to families that never could have hoped to acquire these goods before."

One of the manifestations of this change is the emergence of three low-costairline carriers in Mexico since 2005.2 Eor years, two carriers dominated thedomestic airline market in Mexico, charging international competitive prices forair travel. However, since 2005, three bargain carriers, comparable in many ways to


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first class buses when they have a little extra cash in their pocket, something oncereserved for the country's upper-middle class and truly the wealthy.

As more Mexicans become middle class, extreme poverty has also declinednoticeably, and inequality has decreased. Some of this decline is the result ofgood social policy, especially the Oportunidades program, which provides cash

transfers to poor families with young children, as longAs more as the children remain in school and get regular medical

h p r o m P check-ups. Almost aquarter of all Mexican families. ^t^^ 1 receive payments through Oportunidades, which helps

' lift the poorest families from extreme poverty, even ifp o v e r t y t does Uttle to create productive employment. Some

a l s o d e c l i n e d ^ ^^ reduction of extreme poverty also has to doi/^ooKKr o-n/-l ^'^''-'^ '-^^ effect ofremittances, which have bufferediceiy a.riQ . , , , ., , , . r .

. . - . economic shocks and provided needed runas to veryT. y **^*^^ poor families, especially in regions with a long history

decreased. of out-migration in Mexico. And, of course, some of thechange has to do with productivity gains, as Mexico

has increased average years of schooling. -*WEAK INSTITUTIONS AND RED FLAGS

While there ismuch to be optimistic about in Mexico, there are also significantwarning signs that worry Mexicans about their future. Although many Mexicanshave become middle class, many others remain poor. Indeed, even while extremepoverty has declined, overall poverty figures have remained surprisingly constant,and the 2009 economic downturn undermined much of the progress that hadbeen made in previous years in reducing poverty. While some states in the centerand north of Mexico, including Baja California, Nuevo Leon, and Queretaro, plusthe Federal District of Mexico City, have less than 36 percent poverty and verylittle extreme poverty, the three poorest states in the southChiapas, Guerrero,and Oaxacacontinue to have poverty rates from two-thirds to three-quarters ofthe population and over one third to almost one half living in extreme poverty^''The drop in out-migration suggests that Mexicans, v/ho in other years might havemoved north, now see opportunities for their future in their own country. Butthere is no guarantee that this will continue if poverty itself does not decline inthe near future.

Social and economic policy could do much more tolessen the effects of


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A Changing Mexicohave large plots over those with more modest holdings.^^ Education spending hasgrown far more equitable and progressive, but the quality of education remainsuneven, and career ladders for teachers remain overwhelmingly tied to patronagerather than to professional criteria.^^ However, recent legislation in Mexico,including a major constitutional reform at the beginning of 2013, may finally beginto create common standards for the hiring and promo-tion of teachers across the country.^^ P e r h a p S t h e

There are also several structural factors in the g r e a t e s tMexican economy that arouse concern. The govern- .ment's weak fiscal revenues, which remain under 20 LllclLpercent of GDP and depend on oil revenues for r o u g h l y e x p r e S S ia third of this, are lower than those of any other OEGD the futUrecountry and most countries in Latin America.^' This i r i, , .. . . ,, , , rule or law msuggests that the Mexican state is actually much weakerthan commonly believed, and that it has far less capacity tne COUntry.to implement effective regulation and social policy.Given the fiscal dependence on oil sales, the dropping production of Mexico'snational energy company, Pemex, to the point where Mexico may become a netoil importer, suggests concerns about the sustainability of its energy industry andits fiscal structure.^" Fortunately, there are signs that policymakers in Mexico arelooking at measures to change the fiscal stru ctu re and to reinvest in oil production,although there is as yet no consensus on how to do this.

Perhaps the greatest concern that Mexicans express is about the future of ruleof law in the country. There is probably no single greater drag on the economyand on democracythan the weakness of legal in stitution s. One manifestation ofthis is, of course, the rising crime rate in the past few years, driven by the suddenincrease in violence between organized crime groups tied to drug trafficking.From 2003 to 2011 the murder rate climbed from under ten to almost twenty-fourmurders per 100,000 inhabitants per year before dropping slightly in 2012.^' Thereare several reasons why organized crime violence rose in this particular period,which have to do with shifts in the international trans-shipment corridors forcocaine, the weakening of the Colombian organizations that had controlled muchof the cocaine trade, the rise in popularity of synthetic drugs, and the U.S . govern-ment's efforts to limit trafficking across the shared border with Mexico.^^ However,there is no doubt that the lack of credible police, prosecutors, and courts in Mexico


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Rule of law extends far beyond policing, though. Mexican government institu-tions remain rife with corruption, especially at the state and local levels.^'* A seriesof reforms to allow citizens access to information about public decision making,which has taken place over the past decade, have been helpful in generating grea teraccountability. But there are significant areas of public sector decision makingthat remain out of view, including important information about state finances.Moreover, it remains hard to sanction corruption, even when it is easier today tofind o ut abo ut it. ^ As political scientists M auricio M erino and Jo na than Fox haveeach argued, this is one of the central challenges in Mexico today: finding thelink between greater transparency, which is advancing, and greater accountability,which has moved forward much more slowly.^^A B R I G H T F U T U R E ?

If we take Acemoglu and R obinson's argum ent ab out the links between democ-racy and development as a starting point, there are good reasons both to believein Mexico's future economic prospects and to worry about the pitfalls along theway. Mexico has certainly moved forward as a democratic nation over the pasttwo decades, and the growing plurality of competition over public power hascoincided with steady and consistent growth. Moreover, greater political open-ness was accompanied by a significant reorientation of the economy to positionMexico more effectively within the global marketplace. In the short term, thesechanges generated immense adjustment challenges and probably led to the rise inout-migration as some Mexicans found themselves facing economic uncertainty.Th e advent of democracy also mea nt an end to the au thoritarian controls that con-tained criminal activity. Yet this did not automatically produce the institutions forrule of law that were required, and this almost certainly contributed to the risingcrime rates in the new millennium. In short, Mexico has gone through a period ofintense adjustment over the past two decades that has been painful in the shortterm , bu t hopefully fruitful in the long term .

There are many ways that Mexico's growing prosperity could go off the railsin the future. The intensification of public corruption and the penetration oforganized crime into public institutions are two possible ways. Another would bethe failure of attempts to remove the structural blockages in Mexico's economyand political systemthat is, the needed reforms to the criminal justice system,fiscal finances, energy, and education. However, the most likely scenario is thatthe growing affluence of many sectors of Mexican society, the gradual reduction


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A C hanging Mexicothe tools to hold their leaders accountable for their decisions. Only time will tellif that is enough, but the results of the past few years suggest reasons for cautiousoptimism. ^

NOTES' See, for example, the m ajor policy repo rts writ ten on U.S.-Me.\ico relations in the first years ofthe millennium, "New Horizons in U.S.-Mexico Relations: Recommendations for Policymakers"(Washington, DC: Center for Strategic and International Studies, 2001); the "United States andMexico: Towards a Strategic Partnership" (Washington, DC: Woodrow Wilson Center, 2009).^ Mex icans continue to represent the largest share of legal imm igrants in the United States, but unau-thorized immigration from Mexico reached a peak in 2007 and then dropped dramatically, reachingreplacement levels or less in 2010-2012. In other words, there appears to be net zero unauthorizedimmigration from Mexico since 2010 (with as many people leaving as arriving), even while there hasbeen a slight uptick in unauthorized immigration from Central America over the past year or two. SeeJeffrey Passel, D'Vera Cohn, and Ana Conzalez-Barrera, "Net Migration from Mexico Palls to Zero -and Perhaps Less" (report. Pew Research Hispanic Center, Washington, DC: April 2012), and JeffreyPassel and D'Vera Cohn , "Un auth orized Imm igrants: 11.1 Million in 2011" (repor t. Pew ResearchHispanic Center, Washington, DC: December 2012).^ Drug-related homicides rose significantly from 2 00 3 to 2010 and th en only slightly in 2011 beforedropping noticeably in 2012. See David A. Shirk, "The Drug War in Mexico: U.S.-Mexico SecurityChallenges in 2013 and Beyond" (presentation. University of San Diego, Trans-Border Institute, SanDiego, CA: January 2013). Homicide rates follow a similar pattern, with significant rises from 2003to 2010 a nd a small increase in 2011. Th e official dat a for 2012 have no t yet been released as of thiswriting, but the Mexican government has provided preliminary data indicating that homicides weredown significantly in the first semester of 2012. For previous periods, see the consultable databaseon homicides at www.inegi.gob.mx and INECI, "En 2011 se registraron 27 mil 199 homicidios" (pressrelease no. 310/12, INEGI, Mexico: 20 August 2012). For preliminary 2012 figures, see "Homicidiosen Mxico disminuyen un 9%: CNSP," Animal Politico, 4 August 2012.' ' World Bank, "GDP Per Capita (Cu rrent US$)," World Economic Indicators, database available at data.worldbank.org.' The ratio of CD P per capita between th e United States and Mexico has varied over time, but itrevolved around 7:1 (and in some years even more) in the 1990s and appears to have settled around4.7:1 in the period from 2008 to 2012. For historical tables, see Andrew Selee, Christopher Wilson,and Katie Putnam, "The United States and Mexico: More Than Neighbors" (Washington, DC:Woodrow Wilson Center, 2010), 29. Figures updated by the author using data from World BankIndicators for "GDP Per Capita."* This discussion is based on: Selee, Wilson, and Putnam, 39; Christopher Wilson, "WorkingTogether: Economic Ties between the United States and Mexico" (Washington, D C: Woodrow W ilsonCenter, 2011), 24-27; Andrew Selee, "Intimate Strangers: the United States and Mexico" (unpublishedmanuscript).^ Ibid.8 Ibid.^ Nora Lustig, "Mexico: The Remaking of an Economy" (Washington, DC: Brookings InstitutionPress, 1998), 23 .'" Figures on trad e comp osition from: Subsec retaria de Com ercio Exterior, "Principales produc tosexportados por Mexico al mundo," http://200.77.231.38/sic_php/pages/estadisticas/mexicojun2011/TTpp x_e.html. Con sultable statistics can be accessed through the Economic Secretariat's online data-base "Informacin Estadistica y Arancelaria."


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Andrew Selee'"* Daron Acemoglu and James A. Robinson , Why Nations Fail: TIte Origins of Power, Prosperity, aPoverty {New York: Crown Business, 2012).''' On the histo ry of Mexican econom ic develop men t, see Juan Carlos Mo reno-Brid and Jaime Ros,Development and Crovith in the Mexican Economy: A Historical Perspective (New York: Oxford UnivePress, 2009); Daniel Levy, Katherine Bruhn, and Emilio Zebadiia, Mexico: The Struggle for DemocraticDevelopment (Berkeley: University of California Press, 2006); Lustig.'^ Andre\v Selee and Jacqueline Peschard, "Intro duc tion," in Mexico's Democratic Challenges: PolitiCovernment, and Society, ed. Andre\v Selee and Jacqueline Peschard (Palo Alto: Stanford UniversityPress: 2010)." Au thor's calcula tions based on World B ank, World Economic Indicators . The average grow th inCD P per capita per year is 2.9 percent from 1997 to 201 2.'^ Luis de la Calle and Luis Rubio, "Mexico: A M iddle Class Society; Poor No More, Developed N otYet" {online report, Woodrow Wilson Center, Washington, DC: 2012), www.wilsoncenter.org/sites/defauIt/files/Mexico%20A%20Middle%20Class%20Society.pdf.'S Ibid., 49, 58 , 64.'9 Ibid." Selee, "In tim ate Strange rs."^' Th e numb er of passengers on domestic flights in Mexico jumped 50 percent from 200 0 to 200 8;De la Calle and Rubio, 64. Ge rard o Esquive!,, Nora Lustig, and )ohn Sco tt, "A Decade of Falling Ine quality : M arket Forcesor State Action?" (discussion paper, UNDP, New York: January 2010); Luis F. Lpez-Calva andNora Lustig, Declining Inequality in Latin Am erica: A Decade of Progress? (Washington, DC: BrookinInstitution Press, 2010).^^ Esquivel, Lustig, and S cott.; Average years of schooling increased betw een 1990 and 2 00 6 from6.46 years to 8.27, according to De la Calle and Rubio, 43.^'^ The most widely accepted measurements of poverty are those by Mexico's National Council forthe Evaluation of Social Development Policy, cited here for 2010. The measurements can be accessedat http://www.coneval.gob.mx/cmsconeval/rw/pages/medicion/index.es.do.^^ Esquivel, Lustig, and Sco tt; John Scott, "Redistributive C onstra ints Under High Ineq uality: TheCase of Mexico" {working paper. United Nations Development Program: Regional Bureau for LatinAmerica and the Caribbean, July 2009).^^ Jonathan Fox and Libby Haight, eds., "Subsidizing Inequality: Mexican Corn Policy sinceNAFTA" (Washington, DC: Woodrow Wilson Center, 2010).^^ Esquivel, Lustig, and S cott, 193.^^ E. Eduardo C astillo , "Mexican Presiden t Signs Biggest Education Reform in Seven Decades,"Associated Press, 25 February 203 .^^ Org anisatio n for Econom ic Co*operation and Dev elopmen t, Revenue Statistics in Latin America{Paris: OECD, ECLAC, CIAT: 2012).^^ Du ncan W ood, "A New Beginning for Mexican Oil: principles and recom me ndatio ns for a reformin Mexico's national interest" (online report, W oodrow W ilson C enter, Washingto n, D C: 2012), www.wilsoncenter.org/sites/defau!t/files/\vood_new_beginn ing_mexico.pdf.^' UN Office for Drugs and Crime, Intentional homicide, count and rate per 100 ,000 population(1995 - 2011), available at http://www.unod c.org/unodc/en/data-and-analysis/homicide.html; for pro-jected 2012 statistics, se e Animal Politico; Shirk {2013).^^ For a full d iscussion , see Eric L. Olson , David A. Shirk, and And rew Selee, "Shared Respo nsibility:U.S.-Mexico Policy Options for Confronting Organized Crime" (online publication, Trans-BorderInstitute San Diego, CA and Woodrow Wilson Center Washington, DC: 2010), http://www.wilson-


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A Changing Mexico35 Ibid.

Jonathan Fox, Accountability Politics: Power and Voice in Rural Mexico (Oxford: Oxford UniversityPress, 2008); Mauricio Merino, La transicin votada: Critica a la interpretacin del cambio poltico en Mxico(Mexico City: Fondo de Cultura Econmica, 2003).


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