A Promising Future (With Big Obstacles to Fruition)

Several factors that contributed to the success of the Asian tigers may not be possible to reproduce. For instance, the savings rates they achieved may not be attainable or even desirable for most emerging nations. Nevertheless, Mexico can learn from the experience of the Asian tigers. The Asian tigers provided several conditions conducive to the accumulation of physical resources. In most cases, they committed early on to monetary and fiscal discipline and provided predictable macroeconomic conditions for investors. They also provided fairly efficient, stable institutions, such as well-functioning legal systems. As for human capital, they made a major effort to supply basic education and health services during early stages of their catch-up period. Mexico has a long way to go in all of these areas.

Since its 1994 financial crisis, Mexico has made progress in macroeconomic discipline, bringing inflation down to its lowest level in 30 years and fiscal deficits to below 1 percent of GDP. But the government continues to depend on unpredictable oil sales for more than a third of its revenues. The government has been able to trim spending recently, but in the long run, a credible commitment to fiscal and monetary discipline demands that Mexico reduce its dependence on oil revenues. Although tax rates are not low by international standards, many individuals and corporations avoid income taxes altogether, making the tax base small. In Mexico, the informal sector accounts for an amazing 50 percent of employment. As a result, Mexico's tax-to-GDP ratio is markedly below China's and the United States'. In fact, it's low even by Latin American standards.

Ill-functioning institutions add to the unpredictability of Mexico's business environment. The biggest problem is that property rights are not effectively enforced because of an inefficient legal system. According to recent estimates, collecting on a bad check takes five times longer in Mexico than in the United States. Resolving more complicated contractual disputes can take several years.

This poor legal environment has many negative consequences. Maybe the most detrimental for growth, and a key reason investment has stagnated, is the impact on the financial sector. Mexican banks are very hesitant to lend in an environment where contracts are not properly enforced. Mexico's financial sector is very small and, if anything, getting smaller. In a World Bank survey, over half of Mexican firms described their access to financing as severely limited, compared with 15 percent of U.S. firms. In Singapore, only 10 percent of
firms reported that they face the same situation.

To make matters worse, even when they can secure financing, Mexican entrepreneurs face burdensome regulations and a notoriously inefficient bureaucracy. For example, it takes more than 65 days on average to register a firm in Mexico, compared with four days in the United States.

With regard to education, Mexico's poor performance is not due to low spending but rather its failure to emphasize basic education. South Korea made an early commitment to basic education, and in 1970, two-thirds of the country's educational spending was allocated to preprimary and primary education. As recently as 1992, only a third of Mexico's education budget was allocated to preprimary and primary education. This share has increased to one half in recent years, but it will take a generation for these efforts to begin paying off.
At the end of the day, Mexico’s progress in the past quarter century has certainly not lived up to expectations. Nonetheless, the example of the Asian tigers provides a clear path forward. Mexico needs to move past easy neo-liberal dogma toward a comprehensive concentration on developing its unique strengths. While there remains a great deal of work to be done, the potential payback is enormous.

The Labor Market Effects of Immigration

Immigration in the world today is largely an economic phenomenon. Despite the numerous differences in the structure and function of governments throughout the western world, the world's people are overwhelmingly migrating to the United States, Canada, and Western Europe at the expense of Mexico, Central and South America, Eastern Europe, Asia, and Africa. Indeed, looking at world immigration flows on a purely national basis paints a picture of migrants that move unerringly straight toward the largest concentration of wealth in their immediate proximity. The United States is the destination for well over 95% of Mexican migrants and Western Europe has a similar monopoly on Eastern Europeans.

Given the obvious economic incentives for the immigrants themselves to go wherever their lives will be most quickly improved, the only worthwhile area of study is on the populations already in the destination country and those remaining behind.

For those communities that send a significant portion of their population abroad, immigration is a mixed blessing. The local economy is likely to swell dramatically with remittances from abroad, but the workforce will be decimated by the loss of many of the best workers who receive the greatest potential benefit from moving away. So-called "brain drain" is a very real possibility, but wildly overpopulated countries like China or India are likely to receive competing benefits that overwhelm that force.

Communities that welcome numerous migrants, either explicitly willingly or not, are likely to feel a palpable sense of anger toward those migrants when they add to the labor market and drive down prevailing wages. But immigrants don't join the workforce solely as a source of cheap labor. If the immigrants have any degree of higher education, they are significantly more likely than the native population to start their own small businesses. In a modern service economy, of the type that dominates many of the world's immigration magnets, small businesses that employ fewer than 100 workers are actually one of the greatest sources of job creation. While most immigrants will not likely immediately start a new business upon their arrival, over the course of their lifetimes they are more likely than the general population to choose this path.

The ultimate labor market influence of immigration is likely to be a steep decline in the value of the goods and services that immigrants can produce, and a concomitant rise in the living standards of everyone else in society that is only a consumer of those goods and services.

The Technology Factory

The brainchild of Jorge Sabato, an Argentine physicist, the "technology factory" is the result of research and development conducted with maximal cooperation between education, industry, and the scientific community. While the idea was perhaps most effectively used by the South Koreans, Sabato's insight suggested that tight coordination between industry and academia can create sustainable development.

Seeing the research process as an industrial input with predictable spinoffs and externalities is a truly modern phenomenon. The notion of a planned "discovery date" would have seemed laughable to the Greeks and Romans, yet the technology press today is full of fantasical products that are "just around the corner". The most seminal example of predictable innovation is no doubt Moore's Law. Really just an observation that the number of transistors on a cutting edge microchip seems to double at a high, yet predictable rate, Moore's Law demonstrates the height of our predictable future. The truly amazing thing about Moore's Law is that the observation has held with only minor changes for decades. The average user of computer technology has no real idea of the complex inner workings of their machines, yet the outputs of the infamous "black box" continue to shoot out faster every year without fail.

The technology factory is the logical outgrowth of the modern need to systemize the search for knowledge. Each puzzle yields results that are individually unpredictable but taken together form an unmistakable pattern. Knowing that a certain level of resources applied to a broad area of research with yield predictable results is not particularly valuable when facing individual experiments, yet decision-makers depend on this knowledge to make decisions that ultimately influence the level of technology available to us all.

Necessary Ingredients for National Competitiveness

National governments have an undeniable effect on the global competitiveness of the industries that take root in their countries. In the absence of a predictably stable legislative environment, industry cannot make the long-term gambles necessary to grow the economy.

Infrastructure investments of both the traditional and technological varieties will need to either be undertaken by the government itself or within a larger understanding of non-interference from the government in order to ensure that the underlying structure of the national economy is strong enough to support economic growth.

Without a financial environment that promotes private savings and domestic investment, no country's citizens will plow their resources back into the country. They will either spend everything they earn on short-lived consumer goods or send their resources abroad. While there is nothing wrong with international capital flows per se, any country that routinely sends its resources abroad is making a firm bet that someone else's economy is a better place to do business.

Education, particularly secondary and tertiary education, as well as lifelong training, is needed to provide businesses with a labor force that can take full advantage of technological progress.

Ultimately, each nation's citizens have a unique value system that each nation will seek to preserve. Paying attention to the fragile balance between economies of proximity and the wider globe in order to ensure wealth creation is absolutely critical.