“It [Mexico] can continue down the path toward becoming a top-ten world economy, a strong democracy with a middle-class society, and a confident global player. Or it can be consumed by its challenges — violence, crime, crumbling infrastructure, a weak educational system, economic roadblocks, and persistent corruption. Either way, Mexico’s future will affect the United States.” – Shannon K. O’Neil
Econintersect: Senior Fellow for Latin America Studies at the Council on Foreign Relations has a very rosy view of the future for Mexico. O’Neil has published a series of articles that discuss the changes south of the [U.S.] border that bode well for economic progress in that country. The articles draw content from her new book due out 22 April 2013.
Economic reforms initiated by newly elected Mexican president Enrique Pena Nieto have the objective of breaking up the vast monopolies in the country such as in telecommunications (Telmex and Telcel) and media (Televisa and TV Azteca). Mexico has been stepping up action to control the drug cartels and has started action against corruption in unions with the arrest of the head of the teachers’ union, Elba Esther Gordillo, charged with massive embezzlement. Mexico’s teachers’ union is the biggest in Latin America, according to The Guardian.
O’Neil also cites the opening up of energy development to companies with high levels of expertise and technology not available under the control of the bureaucratic state-run monopoly Pemex. This will create new production from deep-water drilling in the Gulf, from shale oil and shale gas and to potentially other fields where Mexico doesn’t really have a developed expertise.
Tax reform to increase revenue will be a key factor to compensate for the loss of revenue that has been coming from energy and will be lost as energy production is moved to more efficient hands, according to O’Neil.
The industries cited above just scratch the surface. From an O’Neil article for Fortune and CNN Money:
A lack of competition pervades the Mexican economy, as one or a few companies dominate sectors as diverse as glass, cement, flour, soft drinks, sugar, and tortilla flour, not to mention the state’s control of energy and electricity. This hits consumers’ bottom lines — an OECD study estimates that it increases the costs of basic goods for households by some 40%. It hurts Mexico’s working and middle classes the most, as they must spend a larger proportion of what they earn on these goods and services. It also hits the burgeoning manufacturing sector, which has to pay more for raw materials and basic inputs.
Changes in Mexico that increase competition and bring down costs will also benefit the U.S., says O’Neil. In fact, she has written a book about the relationship between the two countries, Two Nations Indivisible: Mexico, the United States, and the Road Ahead.
Click on image of the book to read more (and to order) at Amazon.com.
In the book O’Neil develops the theme of intricate interdependence between the U.S. and Mexico. She highlights the closely tied together supply and parts chains that weave back and forth across the border. She says:
For every product that is imported from Mexico in the US, on average 40% of it would actually have been made in the US. It has become a very symbiotic relationship, and it has become an integrated economy in many ways and in many sectors, and particularly in manufacturing. There, we see almost seamless integration in some companies, where production happens on both sides of the border. What it means is these economies, companies and industries are now not only intimately tied, but permanently tied at this point.
- Economic Change on Mexico’s Horizon (Shannon O’Neil interview by Brianna Lee, Council on Foreign Relations, 25 March 2013)
- Mexico and the United States, Two Nations Indivisible (Shannon K. O’Neil, Council on Foreign Relations, 18 March 2013)
- SHANNON O’NEIL: Mexico and the US, two nations indivisible (Emerging Markets, 17 March 2013)
- Mexico’s Road to Economic Sanity (Shannon K. O’Neil, Council on Foreign Relations, 15 March 2013)
- Mexico’s Road to Econiomic Sanity (Shannon K. O’Neil, Fortune, CNN Money, 15 March 2013)
- Mexico Makes It (Shannon K. O’Neil, Foreign Affairs, March/April 2013)
- Elba Esther Gordillo’s downfall in Mexico is political, and personal (Luis Hernandez Navarro, The Guardian, 28 February 2013)
- Two Nations Indivisible (GEI News, 27 March 2013)