🚀 go-pugleaf

fbonsignore@beethoven.com (Fabrizio J. Bonsignore) wrote in message news:<768f7623.0410070553.346b0d71@posting.google.com>...
> Latinamerican countries follow all 'recipes' of academia and yet fail
> to achieve sustained development. Could it be that people actually
> *behave* differently from the way people behave in countries that have
> achieved development?
> 
> Man is supposed to act economically as a self interested (quasi)
> rational entity following his own satisfaction without regarding that
> of others. But waht if people actually take others into account when
> performing economic activities?
> 
> My experience trying to make a living in Mexico taught me that the
> norm is precisely to take into account the welfare of others, but in a
> *negative* way. Competition is normally seen as a zero sum game, I win
> what you loose, but I've seen many times behaviour of the type "we
> both loose", even when there were known options where both of the
> parties would win. More often than not, the party choosing the
> loose-loose option would have been the party winning the least in the
> win-win option (though sometimes that wouls be true considering nit
> the actual payoffs only but total earnings after several games). This
> behaviour I call envy.
> 

The macroeconomic effects of envy. I see. Well, allow me to put forth
an alternative explanation for Mexico's development path (can't speak
for the rest of Latam).

First, some facts. Mexico is the 13th largest economy in the world. It
has a PPP adjusted GDP per capita of about $9000 USD/year, which puts
it in the middle income range of nations. In general terms, Mexico
cannot be considered a truly poor country, even though there ARE
millions of poor people.
Mexico became industrialized in the XXth century. It went from a
predominantly agricultural economy to an industrialized one.
After the 1910-1917 Revolution against Porifio Diaz the dictator (who
nevertheless brought Mexico from the XIXth to the XXth century
economically speaking), a party dictatorship was installed: the PRI.
The PRI was not democratic, but DID manage to initially get the
economy right. From 1940 to 1960 it went through an accelerated growth
period, called the Mexican Miracle:

"Between 1940 and 1960 production increased 320%, and between 1960 and
1980, 270%.
This meant that the Mexican economy had grown an average of 6% per
year between 1940 and 1980. It also meant that the economy had
produced 870% more goods and services in 1980 than it had in 1940.
Population at the same time had only grown 370% between 1940 and 1980.
The structure of the economy also had changed. In 1940 agriculture
represented around 10% of the national production, but by 1970 this
number had dropped to 5%. Manufacturing, on the other hand, increased
from 19% to 23%. The population also increased from 19.6 million in
1940, to 67 million in 1977, to more than 70 million in 1980.
In 1940 only 20 percent of the population lived in cities. By 1977
almost 50% lived in urban areas. And in the 1980's 60-70% lived in
cities. Thus, together with the industrialization process, the country
experienced in forty years spectacular change in rates of urbanization
and demographic growth."
http://www.emayzine.com/lectures/mex9.html

So everything was good and fine. I still remember my grandparents
talking about those golden years. Mexico's problems started in the
1970s: Yom Kippur War, Arab Oil embargo, oil goes through the roof.
Stupidly, the PRI presidents of that period, Echeverria and specially
Lopez Portillo, think that the oil price is going to be high for ever,
and decide to go into debt, with the idea of paying the debt with oil
sales. At first things are great: the government is swimming in money,
and they indulge un huge public spending and all sorts of social
programs. But then the oil price collapses, and Mexico is stuck with a
HUGE foreign debt. The government starts to print money and move up
and down interest rates and all sorts of stupid macroeconomic
maneuvering, only sinking the country even further. Inflation is
enormous, interest rates soar, there is little investment, and high
unemployment. A true crisis. During the 80s the malaise continues. The
government continues its "import sustitution" policy to "protect"
national manufacturers and allow them to "grow". The only thing this
caused was few product variety at high prices, furthering the pain and
poverty.
Finally, in 1986 we started to see light at the end of the tunnel:
Mexico enteres GATT. We lowered our tariffs, and imports started to
flow in. Competition started to destroy inefficient Mexican companies,
and those who survived became competitive. Now we had plenty of good
products at good prices. GDP growth gave a moderate jump. Not huge,
but anything was good at that time.
The next big event was president Salinas. Salinas was able to control
the out of control macroeconomic variables; it reduced inflation and
interest rates to almost normal levels, and negotiated NAFTA, of
course. In 1994, NAFTA came into effect. GDP growth accelerated.
Things looked pretty good: macroeconomics under control,
microeconomics picking up thanks to international trade. But then came
the Zapatista uprising, and the assasination of presidential candidate
Colossio and also Ruiz Massieu. This and a series of other events
caused a run on the peso and the well known 1995 peso crisis. This
crisis was VERY sharp; when you check the statistics you can see GDP
go down drastically, and unemployment shoot up fast. But we quickly
recovered.
In 2000, Vicente Fox became the first democratically elected leader
EVER. Fox's term has been hard, and the economy has remained stagnant
mainly because of the US recession. We are now starting to recover as
the US recovers; 2005 growth is projected to be 4%. Mexico is going
right now through the "creative destruction" phase that free markets
cause. Productivity is increasing, but it is not a painless process.

The big question always is: why is there so many poor people in
Mexico? After all, 40 million people live below the poverty line.
What happens is that we truly have two Mexicos: the modern, urbanized
Mexico, and the poor, peasant Mexico. After the 1917 revolution, the
Mexican government distributed land to all the peasants in an act of
social justice. The intention was good, but the economic effects where
bad. Instead of having arable land of economic size, we found
ourselves with millions of tiny parcels owned by communities, not by
individuals. First, being so small, it was anti-economical to use
modern farm equipment on them. Second, they suffered the "tragedy of
the commons" phenomenon: since everbody and nobody was the owner,
nobody wanted to work and maintain the land. The only thing the
Reforma Agraria brought was a perpetuation of poverty through lack of
agricultural productivity. Amazingly, the Reforma Agraria was
officially ended only about a dozen years ago. So the end result is
that you still have millions of people owning tiny plots of land,
trying to make a living out of them. Mexico has something like 100,000
villages with population of 1000 or less. They have no access to
government services, nor job markets, not even PRODUCT markets. They
have no schooling either. So poverty perpetuates itself in those tiny
villages.
And this takes us to illegal immigration. Most of the people who
migrate to the US come from this agricultural medium. A Mexican
peasant has the following options
a) Stay in the village
b) Move to the Big City and get a job
c) Move to the US with the help of friends and relatives who live
there already

Option "a" would suck. Option "b" is selected by a certain percentage.
You CAN find a job in the city; there's plenty of jobs. But if you
have no education, you won't make much. Option "c" is the best one.
They can cross the border easily, live with friends and family, make
10 times more. And that's basically what is happening.
Americans see millions of poor Mexicans migrating to the US, so they
come to the conclusion that Mexico has severe economic problems. This
conclusion is wrong. Mexico's economy is more or less ok. But when a
more-or-less-ok economy is glued to HUGE economy, you will logically
see the less productive people migrate to the HUGE economy. As simple
as that.

One final commentary. In the big scheme of things, the story of
capitalism and democracy has just begun. The US got a head start, so
it doing better than the rest. But the fact is, we are in the first
innings of the game. You must remember that in the XVIIIth century,
the US was just this backward British colony, and the UK reigned
supreme. Things change fast in a few centuries.

I can only hope my theory of the development of Mexico can compete
with your Envy Macroeconomics Theory :)


Cada quien habla de la feria de acuerdo a como le fue, mi querido
Fabrizio. Parece que a ti no te fue muy bien en Mexico. Pero pues que
raro, porque a mi me va muy bien :)