Mexico: The Winds of Revolt

The Mexican economy is a sea of relative tranquility in a convulsed world. Economic activity grew about 3% y/y in second quarter, exceeding most forecasts. The budget surplus was $8.5 billion during the same period, and Mexico is slowly diversifying its exports away from its North American partner. Mexican industry is booming, despite the downturn north of the border. Higher shipping costs are reducing competitive pressures from Asia, and the problems in Detroit are breathing new life into the Maquila sector. North American automobile manufacturers are moving more of their operations to Mexico in order to avoid higher medical and environmental costs. Therefore, the economy appears sound. However, a closer look at the situation reveals several social impasses that need to be resolved if Mexico is ever going to move up the development ladder. Unfortunately, the only way to overcome these obstacles could be with revolutionary change.

The 10^th year of the last two centuries marked revolutionary episodes in Mexico. In 1810, Mexico was the richest and most important colony of the Spanish Viceroyalties. However, the creoles were frustrated with Spain’s mercantilistic system. They were not able to trade with other nations. The colony was prevented from exporting its silver to the lucrative Asian market. At the same time, it had to buy all of its manufactured goods from Spanish merchants—thus inflating costs. Attempts to convince the crown to reform the mercantilistic system were dismissed. However, Napoleon’s invasion and occupation of Spain was the perfect opportunity to shake off the imperial yoke. A century later, Mexico again found itself with a booming economy, but with serious social pressures. The Mexican economy was under the command of a group of technocrats, known as Los Scientificos, who implemented reforms to attract foreign investment. The investment initiatives soon put most of the productive sectors under the control of foreign companies and investors. They dominated the sugar and agricultural regions in the south, frustrating a large part of the indigenous peasant community. Multinationals controlled the mining, oil, transportation and communication sectors—shunting aside local elites. They obstructed attempts by labor unions to organize. Efforts to petition the government to provide more opportunities for peasants, local business leaders and labor unions were ignored. Therefore, revolutionary fervor spread across Mexico, and the country was soon under a hail of gunpowder and lead. Today, the Mexican economy appears sound, but it is under the firm grip of the victors of the revolution. Much of the agricultural land is held by indigenous farming communes. Output and productivity levels are low. Essential services are under the monopolistic command of local business leaders, who retard competition and efficiency. At the same time, the death grip of the labor unions over the energy and electricity sectors are preventing investment and modernization. These narrow interest groups are preventing the development of the Mexican economy. Repeated attempts to introduce reforms were thwarted, thus fanning the fires of social unrest

Today, cracks are visible on the Mexican veneer. Violence is raging, as frustration from the lack of economic opportunities forces people to resort to narcotrafficking and kidnapping as a way to survive. So-called revolutionary groups are reappearing, blowing up pipelines and extorting businesses. In less than two years, Pemex will squeeze the last remaining oil out of Cantarell. This will be a body blow to the government’s fiscal accounts. The monopoly rents generated in telecommunications, media and cement may have produced some of the wealthiest men on the planet, but it saddled the economy with enormous costs and bottlenecks. The unwillingness of the victors of the Mexican Revolution to give quarter means that they will probably have to be dislodged by force. Unfortunately, the clock is running out. With less than two years to go until the 10^th year of the new millennium, history suggests that another bloody revolution may be somewhere on the horizon.