Economy

Why Mexico's Economy Needs More Than Just A Balanced Budget

Policymakers have, for the most part, learned to avoid fiscal deficits. And yet, growth numbers (with the exception of certain states) have been stagnant at best.

A street vendor in Mexico
Luis Rubio

-Analysis-

MEXICO CITY — The big lesson from Mexico's crises from the 1970s to the "90s was that economic stability depends on balanced public finances. Every time there was disorder in the government's fiscal accounts — usually because of overspending that fueled public debt — the peso lost value and the public as a whole paid the price.

Most politicians of the period came to accept that you just can't play around with public finances. Indeed, economic stability is an essential precondition for the sustained and elevated growth that creates wealth, jobs and income. But what hasn't been recognized is that there's also been an odd contradiction in Mexico between fiscal responsibility and economic growth.

To different degrees, all of the administrations that have governed Mexico since the 1980s focused on creating conditions for high growth levels: by liberalizing imports, for example; opening the energy sector; and trying to improve the regulatory framework. And yet, the average growth rate continues to be a pathetic 2%.

The rate hides more than it reveals.

The rate hides more than it reveals, as some Mexican states — like Guanajuato, Querétaro and Aguascalientes — have enjoyed "Asian-style" growth rates, while others are stagnant at best. The overall lesson, nevertheless, is that for all their efforts, successive governments have failed to boost the country's economic performance, especially in those regions or entities, typically in southern Mexico, with an anti-developmental predisposition. The big question, then, is why?

My hypothesis is that two factors coincide to create this circumstance. On the one hand, in spite of so many reforms, the government has become an enormous drag in its role as regulator and purveyor of permits. Every day there are more regulations, red tape expands, administrative requirements multiply and inspectors prosper as never before.

Paying taxes is becoming increasingly complicated and for firms in general, the processes of paying taxes, meeting obligations or obtaining permits have become an enormous source of extortion from them. There are (practically) no politicians here without their "little sums' put aside for the next election campaign (in slipped into their own pockets), and who have not turned their positions into sources of extortion from anyone nearby trying to start a business, develop an investment or — God forbid — generate some wealth or jobs.

The other factor affecting the economy's poor performance is macroeconomic, and can be summed up in just one line: Fiscal stability has not coincided with economic growth. Specifically, the form the state has used to balance fiscal accounts has not favored either savings or investments. Instead of canceling useless, excessive or counterproductive projects and programs, the governments chose instead to kept extracting resources from society. In other words, instead of balancing the books by reducing spending, it has successfully boosted its revenues.

Rather than being a way to redistribute wealth within a context of vigorous economic growth, taxes have ultimately become a way of preserving the status quo and an impediment to significant growth. Add to that the dismal level of public investments and their low profitability, and the government becomes a drag on the economy, not a source of growth.

Taxes have become a way of preserving the status quo.

Behind this perversity, there's also the reality of our political system. Economic professionals — except those who have used, or abused, fiscal instruments and public taxes to further their political aspirations — have acted within the limits imposed by surrounding conditions. But the politicians, in contrast, exist for their own interests, and wield enough power to systematically preserve and feed these interests, regardless of the cost for the population. As such, the economic professionals — or technocrats as they used to be termed with disdain — can work to improve the economy only to the degree that political conditions allow it.

This is how bureaucratic and fiscal interests clash with economic development. While ordinary people have experienced less growth and worse development opportunities due to bureaucratic interests — and the extortion and corruption that is our daily fare — the state has imposed more and more complicated taxes just to function.

The incoming government, under president-elect Andrés Manuel López Obrador, promises a complete paradigm shift. Whether or how it fulfills that promise remains to be seen. But as a starting point, it would do well to address the issues outlined above and thus revisit the inefficient, tax-heavy, status-quo formula for balancing the budget.

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Thousands of Tunisians gathered in the capital of Tunis

Hannah Steinkopf-Frank, Bertrand Hauger and Anne-Sophie Goninet

👋 Laphi!*

Welcome to Monday, where post-Merkel Germany looks set shift to a center-left coalition, San Marino and Switzerland catch up with the rest of Europe on two key social issues, and a turtle slows things down at a Japan airport. Meanwhile, we take an international look at different ways to handle beloved, yet controversial, comic books and graphic novels characters.

[*Aymara, Bolivia]

🌎  7 THINGS TO KNOW RIGHT NOW

Social Democrats narrowly win German elections: Germany's center-left party claimed a narrow victory in the federal election, beating the CDU party of outgoing chancellor Angela Merkel by just over 1.5%, according to preliminary results. SPD leader Olaf Scholz has claimed a mandate to form a government with the Greens and Liberals, in what would be Germany's first three-way ruling coalition. Germany's capital city Berlin will also get its first female mayor.

Switzerland says yes to same-sex marriage: Nearly two-thirds of Swiss voters approved the proposal to legalize same-sex marriage in a referendum, making it one of the last countries in Western Europe to do so.

San Marino voters back legal abortion: More than 77% voted in support of legalizing abortion up to 12 weeks of pregnancy in San Marino in a historic referendum for the predominantly Catholic tiny city-state, which was one of the last places in Europe that still criminalized abortion.

COVID update: Australian authorities announced they will gradually reopen lockdowned Sydney, with a system that will give vaccinated citizens more freedom than the unvaccinated. Meanwhile, Thailand will waive its mandatory quarantine requirement in Bangkok and several other regions for vaccinated travellers in November. In Brazil, a fourth member of President Jair Bolsonaro's delegation to the United Nations has tested positive to COVID-19.

Power shortages in China spread: Tight coal supplies and toughening emissions standards have led to power shortages in northeastern China, forcing numerous factories including many supplying Apple and Tesla to halt production.

Strong earthquake hits Crete, at least one killed: An earthquake of magnitude 6 struck the Greek island of Crete, with reports that at least one person was killed and several injured after buildings collapsed.

Turtle causes delays at Tokyo airport: A wandering turtle forced the Tokyo Narita airport to close its runway for twelve minutes, delaying five planes, including an All Nippon Airways plane featuring ... a sea turtle-themed fuselage.

🗞️  FRONT PAGE

"Neck and neck," titles German daily Augsburger Allgemeine about the tight results of the federal election, which according to preliminary results, is set to be won by the center-left party SPD led by Olaf Sholz by just over 1.5%. It was the country's tightest race in years, and will likely lead to long, complicated negotiations to form a coalition government.


💬  LEXICON

Magal

On Sunday, hundreds of thousands of Muslim pilgrims from Senegal, but also from elsewhere in Africa, Europe, and the United States, converged to the great Mosque of Touba, as part of the Grand Magal. The annual pilgrimage, a Wolof word meaning celebration, marks the date French colonial authorities exiled spiritual leader and founder of the Senegalese Mouride Brotherhood Sheikh Amadou Bamba.

📰  STORY OF THE DAY

Cancel Tintin? Spotting racist imagery in comics around the world

From the anti-Semitic children's books of Nazi Germany to the many racist caricatures of Asian, African or Indigenous people in the 20th century, comics have long contained prejudiced, sexist and xenophobic stereotypes. These publications have been rightfully criticized but some are pushing back, saying that this kind of unwarranted "canceling" threatens freedom of expression. Here are examples from three countries around the world about how people are handling the debate and sketching the future of comics.

🔥📚 The Adventures of Tintin and The Adventures of Asterix both emerged in French-speaking Europe during the 20th century and quickly developed global audiences. But the comic books have also been called out for controversial depictions of certain groups, including North American Indigenous peoples. And as Radio-Canada recently reported, one group of French-speaking schools in Ontario found the texts so offensive that they decided to go ahead and burn the books. The report, not surprisingly, stirred up a pretty fiery debate on the issues of free speech and what some refer to as "cancel culture."

🤠 In a more progressive model for rethinking cartoons with long — and complicated — legacies, Lucky Luke in France is taking a different direction. Telling the story of a cowboy in the Wild West, the series is notably lacking in terms of diversity. But in 2020, well-known French cartoonists Julien Berjeaut (known as Jul) and Hervé Darmenton (known as Achdé) took on the challenge of a more inclusive Lucky Luke. With its 81st album, Un Cow-Boy Dans Le Coton (A Cowboy in High Cotton), they changed the perspective to focus on recently freed Black slaves.

🇯🇵 Outside of France and Belgium, Japan arguably has the largest market for graphic novels, or manga, which first developed in the late 19th century. And like their European counterparts, certain manga titles have been accused of using racist tropes. One example is the character Mr. Popo, a genie from the popular Dragon Ball series who has been cited for having offensive features. In the meantime, more and more mangaka (creators of manga) are expanding beyond these traditional representations, including in their depictions of women, who are over-sexualized in many mangas.


➡️ Read more on Worldcrunch.com

📣 VERBATIM

"Still now, I am terrified."

— In mid-August, Afghan news anchor Beheshta Arghand interviewed Mawlawi Abdulhaq Hemad, a high-ranking Taliban representative, for TOLOnews. A historic moment for the female presenter, just days after the Islamic fundamentalist group took over Afghanistan. Now exiled in Albania, Arghand tells the BBC in a moving testimony why she had to flee to Albania and how she, like many in her country, has lost everything.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin, Clémence Guimier & Bertrand Hauger


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