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Economy

From Mexico, No Regrets After 20 Years Of NAFTA

NAFTA has brought about practically everything that is positive about the Mexican economy. Unfortunately, good governance and stability remain elusive.

Stephen Harper, Enrique Pena Nieto and Barack Obama at the 7th North American Leaders Summit in Toluca, Mexico, on Feb. 19
Stephen Harper, Enrique Pena Nieto and Barack Obama at the 7th North American Leaders Summit in Toluca, Mexico, on Feb. 19
Luis Rubio*

-Analysis-

MEXICO CITY — It seems Mexicans have seen it all in the 200 years since their independence from Spain — periods of darkness and light, growth, crises, peace and extreme violence. We have had our grandiose dreams, most of which have yielded us paltry results. Our distrust of government is neither new nor accidental.

There are many reasons for the disappointing results so far, but two stand out: lack of continuity and lack of realism. The continuity problem arises every six years, when a new president takes office and effectively returns things to square one. No plan in Mexico has survived a six-year presidency. Each government has its own logic and projects, and cares little for objectively evualuating existing programs.

The lack of realism among the leadership emerges from numerous “creative and innovative” ideas every new government team seems to have. Some of them make sense, but others seem to rely on the misplaced confidence that the government, having all the power, can do anything. Beyond that, our governments and legislators have been inclined to push through ambitious plans without implementing the changes that the execution of those plans required. So we are saturated with good intentions that very seldom translate into concrete developments for Mexico or improvements for its people.

The result is that there is no governing system citizens can trust. Everything depends on the current president and his six-year plans, whose priorities never seem to include creating a system that governs for all, with equanimity. Which does not earn them citizen loyalty, but instead provokes enduring expectations, fears and uncertainty.

The reforms of the 1980s and 1990s were no different. A central transformative concept was thwarted by many contradictions. Some sectors became competitive, others didn't. Privatization followed the logic of maximizing fiscal revenues rather than transforming industrial structures. There was liberalization, but the regime’s favorites continued to enjoy their privileges. There was deregulation, but subsidies remained. There goes another grand plan to change the universe.

Then things changed in 1994

But there was one exception, which has changed the country for the better. The North American Free Trade Agreement (NAFTA), signed 20 years ago, in 1994, was intended to confer permanence to reforms that had been undertaken to date. Even with their deficiencies, those reforms would create an opportunity to transform reality, but only if they were maintained in the long term. NAFTA’s key role was to give certainty to reforms, and it became a cornerstone of the key modernizing project at the time: investment.

Crucially, NAFTA revealed the inviability of existing institutions in providing the guarantees investors required. NAFTA is essentially a means of “borrowing” U.S. institutions to benefit Mexico.

The treaty was designed to preserve achievements but not to advance as needed. So in yet another of the transformative project’s numerous contradictions, NAFTA did provide guarantees, but it also allowed the reform process to be abandoned at a most important moment. Everything stopped when Mexican society and its economy should have begun to improve productive structures, education, the nature of government and regulation to raise productivity. It was urgent to see through a comprehensive transition so that a closed and protected economy could gradually become open and competitive. What we saw, however, was the creation and maintenance of a dual economy, with one part competitive and another a burden impeding growth.

NAFTA contributed to changing many industrial sectors, opened up opportunities for the growth of companies and new enterprise, increased economic productivity, and attained its primary objective of investment.

Whatever one’s position on NAFTA, nobody can doubt its enormous impact and central role in bringing about practically all that is positive about the Mexican economy. What NAFTA cannot do is substitute the essential functions of government. And that’s Mexico’s greatest deficit, and the key to truly realizing its huge potential.

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