Middlebrook, Kevin J., and Eduardo Zepeda, eds. Confronting Development: Assessing Mexico's Economic and Social Policy Challenges. Stanford/San Diego: Stanford University Press/Center for U.S.-Mexican Studies, University of California. Tables, Figures, Notes, Index, 648 Pp.; Hardcover $70, Paperback $27.95.
If one wishes to diagnose the Mexican economy today, this book is a superb place to start. This lengthy edited volume offers a remarkable wealth of data and analysis. The introduction is (unsurprisingly) expert; I have already added it to my course syllabi at both the graduate and undergraduate levels. Although the editors might have been a tad more ruthless--a few of the chapters at the end could probably have been cut or shortened substantially--even the weakest contributions are worth the read. The result is an exceedingly strong and coherent collection that should be valuable to economists and noneconomists alike.
As one of the first in-depth country studies of a newly liberalized economy in Latin America, Confronting Development offers a comprehensive diagnosis of Mexico's challenges. Unfortunately for Mexicans, that diagnosis is not auspicious. To borrow a metaphor offered by Clark Reynolds at the end of the volume, Mexico's economy is like an airplane flying with only one engine. That engine--exports--is powerful enough to keep the country from crashing but not powerful enough to lift the whole country. Unless the motor of domestic demand turns over as well, Mexico's economy will never really take off. Mexico's current economic system fails to generate even a fraction of the one million new jobs that Mexicans seek each year, and it does not seem to promise rapid growth in the future. Indeed, one unstated but inescapable conclusion from Confronting Development is that Mexico is hardly "catching up" to its free-trade partners in North America; [End Page 177] if anything, it will be fortunate to maintain the current disparity in living standards.
Beyond this general diagnosis lie several more specific points of consensus. First, and perhaps most important, Confronting Development highlights the terrible weaknesses of the Mexican financial system. Undercapitalized, inefficient, mistrusted, and biased in favor of large enterprises, this system remains a serious barrier to broad-based economic growth. Even bleaker, if possible, is the portrait of the agricultural sector painted by contributor Hubert C. de Grammont. In this sector, de Grammont shows, virtually all exports besides coffee are grown on 2 percent of cultivable land. As he puts it:
A few thousand large agroindustries (exporting fruits, vegetables, and some livestock) have found considerable success; meanwhile, a significant proportion of commercial producers (in the main, those producing grains, meat, and milk for the domestic market) are bankrupt. The peasant maize economy is battered by free trade, but it will not disappear because there is a dearth of alternative employment....Good agricultural lands go uncultivated because farmers cannot compete with imports from the United States, while poor peasants deplete natural resources on lands poorly suited to agriculture. (pp. 376-77)
Mexican agriculture thus presents in bold relief the larger dichotomy in the Mexican economy, requiring new policies to recapitalize some smaller producers and provide new opportunities for others.
A third problem that surfaces at some points in the volume is the collusive nature of business-government relations. This shows up most prominently in the discussion of Mexico's bank bailout package, as Celso Garrido competently demonstrates. But even beyond this particularly dramatic instance, Mexico often remains a country where--as economist Rogelio Ramírez de la O once put it--profits are privatized and losses socialized.
Underlying many of Mexico's problems is the need for more government revenue, and various contributors to Confronting Development highlight this problem. Budget reductions have been responsible for rather striking cuts in government investment, which, in turn, have dampened domestic demand and weakened certain sectors of the economy. Tax collection as a percentage of gross domestic product actually fell during the 1990s (according to Alejandro Nadal, p. 62), a trend that underscores how inadequate has been the focus on the revenue side of Mexico's budget. The problem is especially acute with regard to social spending. As Ana Cristina Laurell points out, Mexico could potentially afford close-to-universal health care coverage and more extensive antipoverty programs; all it would really need to do is raise taxes by about 5 percent of GDP. [End Page 178]
Beyond these important points of consensus in the volume, certain areas of tension exist that could possibly have been teased out more explicitly in a concluding chapter. Perhaps most important, I could not tell whether the authors saw NAFTA as a net benefit for Mexico. My assumption is that they did, given the role of U.S. emergency loans in Mexico's post-1995 recovery and the importance of exports for Mexican economic performance. On the other hand, NAFTA also seems to be associated with substantial pain in several sectors (such as agriculture), and this pain gets more attention in Confronting Development than do any associated benefits. (One exception may be Gustavo Garza's chapter, which demonstrates that regional disparities in Mexico have grown only slowly if at all.)
A second, and related, problem: I came away from the volume uncertain about the longterm competitiveness of Mexico's export-oriented industrial sector and the extent to which it is actually generating broad-based growth. On the one hand, Jorge Máttar, Juan Carlos Moreno-Brid, and Wilson Peres report rapidly increasing levels of technological sophistication, which now rival those found in the G7 and the Asian Tigers; likewise, Gary Gereffi offers evidence of substantial movement up the value-added chain in specific industries. On the other hand, the drawbacks of export-led growth and the prospect of increasing competition from Asia are staple concerns in other chapters, as they are in Mexico's popular press.
Part of the reason for these tensions, I suspect, is that Confronting Development offers one of the most balanced assessments of market-oriented reform in the literature. For instance, the contributors share a "general sense that economic liberalization in Mexico, as in Latin America more generally, has failed to produce the anticipated gains in economic growth rates, employment levels and job quality, and overall opportunities for social welfare" (p. 40). Julio Boltvinik's essay on poverty in particular speaks insightfully to how living standards have and have not changed. Many of the contributors also acknowledge, however, that there may be little alternative to macroeconomic orthodoxy in a context of high international capital mobility and the potential for inertial inflation.
Even most of the specific policy critiques fall within the broad bounds of a liberal economic model in which enterprises are overwhelmingly privately owned, subsidies to producers are limited, barriers to international trade and capital mobility are minimal, and budget deficits are kept under control. Few, if any, of the authors seem to favor anything like the old import-substituting industrialization model of development, much less the outlandish borrowing of President José López Portillo (1976-82). Indeed, one often one gets the sense that Mexican policymakers may actually be doing the best they can with the hand they have been dealt. The simple reality that the budget deficits proposed by the "leftist" Party of the Democratic Revolution and the "neoliberal" National Action Party routinely [End Page 179] differ by less than 1 percent of gross domestic product suggests that alternatives for macroeconomic policy are quite limited.
That said, one of the strengths of Confronting Development is its compelling critique of current economic policies. For instance, several contributors argue that macroeconomic policy may well be too strict, strangling growth and inadvertently favoring Mexican multinationals (which can earn credit in the international markets) over small and medium-sized firms. Mexico, Nadal and others argue, should relax its fiscal discipline and lower interest rates somewhat in an effort to expand the domestic market and encourage growth. Other contributors (Boltvinik, Laurell, Diana Alarcón, and others) advocate an expansion of government spending on infrastructure and basic services, presumably financed by a progressive tax system. As Gereffi, Gustavo Vega, Luz María de la Mora, de Grammont, and others note, moreover, simplistic neoliberal solutions for the agricultural sector and for certain domestic industries are unlikely to succeed. The state may thus have a role to play in helping producers of furniture, maize, tobacco, women's apparel, and air conditioning filters to achieve higher standards of quality and competitiveness. In these cases, neostructuralist policies certainly seem more appealing than neoliberal ones. Despite the constraints that Mexico faces, then, it does seem to have room to move economic and social policy in a more promising direction.
Confronting Development is already a massive project, and I hesitate to suggest that the editors should have covered even more ground. But it is a favorable measure of the quality of this volume that, after 600 pages, I found myself wanting more.
In this context, one modest disappointment for me was that none of the essays explicitly addresses the value of educational spending. Although the chapter by Lorenza Villa Lever and Roberto Rodríguez Gómez helpfully inventories some of the problems with middle and higher education, it does not ask the more fundamental question about where scarce resources should be invested. This question, of course, is probably too big to answer in what is already a weighty volume. It merits comment nevertheless, because education has been such a priority for the Vicente Fox administration and because politicians across the partisan spectrum have supported a large-scale expansion of education spending. Indeed, spending on education is often offered as the panacea for multiple ills: low productivity growth, poverty, inequality, lack of social mobility, political disengagement, the weakness of civil society, and so on.
Ironically, the policy consensus in Mexico has emerged at a time when the academic consensus over the value of education (at least among economists) is breaking down. In a context of widespread poverty, an extra dollar spent on education may actually do less to develop cognitive abilities than a dollar spent on prenatal health care or child nutrition. Likewise, [End Page 180] investment in infrastructure may do more than education to alleviate rural poverty, enhance social mobility, and foster broad-based development. Even if the theoretical returns on education are high, the educated may leave for the United States, taking their skills with them. In this context, Francisco Labastida's education slogan in the 2000 presidential race-- "English and computer training"--takes on a less auspicious meaning.
Is education the solution to Mexico's developmental ills? Are the Fox administration's ambitious plans for educational reform the best use of government funds? Perhaps the answers will have to wait for the sequel to Confronting Development, if Middlebrook and Zepeda can be persuaded to write it. (My email correspondence with the former, alas, gives me doubts.)
Beyond education, I might mention three other potential topics for a Confronting Development, part 2. First, the editors might consider soliciting a contribution on antimonopoly regulation, corporate governance, and related rule-of-law issues that affect market operations. Although several contributors acknowledge that the persistence of crony capitalism remains an obstacle to Mexican development, specific policy measures are not explicitly discussed. Second, the bank bailout package (IPAB, formerly known as FOBAPROA) might well merit its own chapter. To be sure, some of the contributions, such as Nadal's and Garrido's, speak to this topic, but there is no single, complete treatment of it. Third, I found myself yearning for a treatment of Mexico's energy sector, the manifold deficiencies of which have turned the nation into a net importer of natural gas. Revitalization of this sector is crucial not simply because Mexican citizens seek cheaper electricity, but also because energy is a crucial input in many industries. If energy prices increase, Mexican producers may be priced out of key export markets.
These "gaps" in Confronting Development, of course, are not
really gaps at all. They are merely interesting issues that readers
who want a fuller tutorial on Mexican economic development will have to
explore elsewhere. Those who do so will have come away from this book
already well versed in the challenges that Mexico's economy faces in
the twenty-first century.
Massachusetts Institute of Technology
