Democracy Lab

Give Mexico a Chance

It wouldn’t actually be that hard to restore Mexico’s economic fortunes -- if the new president is willing to show some backbone.

Mexico's tepid economic performance in the last decade has been a major disappointment -- and is one reason why the PRI, the less-than-democratic political party that was ousted in 2000 after 71 years of rule, has just returned to power in the country's presidential election. The economy, whose prospects seemed so bright in the wake of the creation of the North American Free Trade Agreement and the reforms of the 1990s, has been drifting. And it has lost ground to the other big Latin American economy, Brazil. Between 1982 and 2010, Brazil's per capita income increased from 65 percent of that of Mexico to 80 percent.

Yet, just when everyone seemed ready to throw in the towel, the economy is showing signs of fulfilling its potential. Mexico grew by 4.0 percent in 2011, and the IMF is forecasting gains of 3.6 percent for 2012 -- hardly stellar for an emerging-market economy, but better than Brazil, with corresponding rates of 2.7 percent and 3.0 percent. What's more, Mexico has managed to grow in spite of the surge of drug-related violence in key industrial zones.

While this reversal of fortune vis-à-vis Brazil may simply reflect different positions in the business cycle (the two economies are rarely in phase), it does raise some intriguing questions. Is Mexico better situated to thrive in an uncertain global economic environment marked by the eurozone crisis and the slowdown of several major emerging economies, notably China? If so, what must President-elect Enrique Pena Nieto do to maintain the momentum?

It's tempting to attribute Brazil's economic successes and Mexico's lackluster performance to their respective approaches to economic policy. Mexico has worked doggedly to implement the neo-liberal Washington Consensus approach to macroeconomic management -- budget discipline, central bank independence, anti-inflationary monetary policy, and pro-market liberalization, including the development of a truly private banking system. In contrast, Brazil has mixed market neo-liberalism with an eclectic, proactive approach to economic policy; its "heterodox" features include a large, partially state-owned banking system with complex, discriminatory rules for credit allocation, and reliance on a witch's brew of state-led investment strategies aimed at eliminating infrastructure bottlenecks.

Mexico's adoption of the Washington Consensus policies, it should be remembered, was not entirely voluntary. Once the country tied its fortunes to NAFTA, a neo-liberal agenda emphasizing price and exchange rate stability was needed to take full advantage of opportunities in the relatively open U.S. market. And joining NAFTA did pay off in terms of a tsunami of exports, nearly 80 percent of which end up in the U.S. By contrast, Brazil is still a fairly closed economy that has been diversifying its dependence on trade with the developed economies by deal-making in emerging markets. The timing (at least until this year) has been impeccable, allowing Brazil to surf the wave of commodity demand from Asia.

Brazil has also fed the expectations of a rapidly growing middle class with plentiful consumer credit. The result has been visible gains in living standards (especially at the bottom end), but at the cost of greater volatility in prices, interest rates, and currency exchange rates. This has complicated economic management, and may (along with the country's low rates of savings and the decline in commodity export prices) leave policymakers with little room to dodge the next downturn.

While it is fashionable in some quarters to attribute Brazil's higher growth rates to the country's pragmatic approach to economic management and Mexico's adherence to the neo-liberal gospel, I believe Mexico's economic performance is largely a product of the demand for Mexican products by the U.S. The numbers certainly support this view: The IMF found a high correlation between Mexican exports and GDP, with changes in exports statistically accounting for 86 percent of the variations in the country's growth rate between 1996 and 2010.

Aaron Tornell (UCLA) and Gerardo Esquivel (El Colegio de Mexico) argued back in 1995 that Mexico's potential gains from the free trade agreement didn't end with lower tariffs in Mexico's biggest foreign market. They hoped that NAFTA would unleash domestic forces able to push a whole host of growth-facilitating reforms to completion. Successful exporters, they suggested, would have a big stake in making the rest of the economy more competitive because it would lower their costs. Hence they would be in the vanguard on issues ranging from education, to transportation, to anti-monopoly regulation.

But most of those reforms were blocked by entrenched interests, many of them remnants of the corporatist economic system created in the 1930s by the PRI. The result has been a two-speed economy, based on a dynamic export sector that must shoulder the burden of an unproductive domestic economy.

The newly elected Pena Nieto has promised reforms that could restore the vibrant growth of the 1950s and 1960s. These include a range of economists' greatest hits -- everything from broadening the tax base,to permitting competition for Pemex, the notoriously inefficient, union-dominated national oil company. However, in light of the realities that (a) the PRI does not have an absolute majority in Congress, and (b) the PRI's old guard is hardly keen for reform, this will be a daunting task.

Happily, major initiatives may not be necessary to sustain the growth momentum a while longer. The country's economic regulators, who have considerable independence, have been playing a much more active role in fighting monopoly power, even taking on telecom oligarch Carlos Slim, the world's richest man (though with limited success). By no coincidence, last year Mexico jumped eight places on the World Economic Forum's Competitiveness Index, to 58th in the world.

But regulatory initiatives alone can only go so far. Luckily, other forces that don't require the approval of the legislature are also pushing the economy in the right direction. First, Mexico is gaining an edge in the U.S. market thanks in large part to the declining competitiveness of China, where wages are rising faster than productivity and the currency has been appreciating against the dollar. Second, U.S. manufacturing has become leaner and more flexible, making it more competitive in global markets. And these manufacturers are likely to carry Mexican firms, which are deeply integrated as suppliers of manufactured components, along for the ride. Third, Mexico's preferential access to the U.S. market serves as a magnet for direct investment by multinationals that are increasingly focused on shortening their supply chains -- a process known in biz-school-speak as "near-shoring."

Mexico's neo-liberal agenda, overreliance on the U.S. market, inability to match China's costs in third markets, and crony capitalist environment have been seen as liabilities that condemned the economy to sub-par growth. The crony capitalism isn't going away anytime soon. But other "burdens" are looking more and more like assets.

Meanwhile, President Pena Nieto will be trying to chip away at the barnacles slowing the economy. And while it's hard to believe that he will get far in plans to reduce drug-related violence -- proximity to the U.S. market is not always an advantage -- the payoff in terms of investment and economic efficiency would be enormous. With a little luck (OK, a lot of luck and even more determination), he could restore the luster lost by the PRI through decades of corruption and thuggish rule.

Ronaldo Schemidt/AFP/GettyImages


Woman Up

Why Hillary Clinton needs to stand up for the women of Egypt.

Hillary Clinton is doing something this weekend that no U.S. secretary of state has ever done: meeting with a democratically elected president of Egypt. The free and fair election that brought Mohamed Morsi to office was a milestone in Egypt's transition to democracy, and Clinton's meeting is an important symbolic gesture to acknowledge his legitimacy as Egypt's new leader.

But the meeting should be about more than just symbolism. While Morsi has pledged to respect the rights of all Egyptians and name a woman to be one of his vice presidents, there is good reason to question his commitment to equality and pluralism. As a senior Muslim Brotherhood official (he recently resigned to assume the presidency), he represented the group's older, more conservative wing, helping draft a 2007 platform that called for a council of Islamic scholars to vet legislation for its compatibility with Islamic law and held that a woman could not be president of Egypt. More recently, during the presidential campaign, he used the slogan, "The Quran is our constitution."

Clinton is in a unique position to press the president to demonstrate his support for the rights of all Egyptians -- including women -- given her longtime leadership on behalf of the rights of women and girls. From her seminal speech at the 1995 Beijing Women's Conference, where she famously declared that "women's rights are human rights," to her recent efforts to promote women's participation in peace and security efforts, she has been a persistent and eloquent champion of women's rights at home and abroad. Clinton can cement this legacy when she meets with Morsi by standing up for Egyptian women.

While the Muslim Brotherhood's policies are clearly discriminatory toward women, the problems facing Egyptian women long predate the organization's rise to power. Under former Egyptian President Hosni Mubarak, women were grossly underrepresented in parliament and senior government positions, and security officials subjected female detainees to sexual assaults in the form of "virginity tests," which have continued under the military regime that replaced him. A court ruling banned the practice in December 2011, but in an important test case in March, a military court acquitted an army doctor accused of performing "virginity tests" on women apprehended during the 2011 protests in Tahrir Square.

Women, meanwhile, were at the forefront of the Egyptian uprising. According to a recent Gallup poll, 30 percent of participants in the revolution were women, and more women (82 percent) than men (75 percent) supported its aims. But progress for women, like progress overall, has been elusive during this period of transition and military rule.

The Cairo-based Nazra for Feminist Studies, for instance, has documented many recent incidents of violence against women, and posted testimonies from women who were sexually assaulted in and around Tahir Square. The attacks, says Nazra, are "calculated and organized so as to scare women away from the public sphere, to punish women for their participation, and to keep them at home."

In the recently disbanded parliament -- which Morsi attempted to reconvene, triggering a showdown with the Supreme Council of the Armed Forces -- only eight of the 508 members were women. Put another way, women made up less than two percent of parliament in a country whose population is almost 50 percent female. During its brief existence, the male and Islamist-dominated body took up proposals to decrease the marriage age for girls from 16 to 14 and revoke a woman's right to divorce her husband.

The Egyptian law granting women the right to file for divorce, enacted in 2000, was championed by former first lady Suzanne Mubarak, who was seen with some justification as a women's rights advocate. Yet she hurt the cause as much as she helped it as her campaigns were associated with a despised regime, one that denied fundamental rights to Egyptians, including women. Egypt's women need new champions in government who possess real power.

My organization, Human Rights First, asked Mozn Hassan, Nazra's founder and executive director, what issues Clinton ought to raise with Morsi. "Representation for women in [the] next parliament is important," she told us, "in addition to fair representation for women in the new cabinet." She urged the secretary of state to press Morsi to make good on his promise to select a woman as one of his vice presidents and to appoint women to other important positions.

Hassan also encouraged Clinton to mention violence against women and secure Morsi's commitment to take concrete steps -- such as a pledge to fight for investigations into charges of sexual assault and prosecutions of those responsible -- to combat this growing problem. She should also urge Morsi to support the codification of women's equality in the new constitution, which is being drafted, by embracing language that tracks with the international human rights treaties that Egypt has already signed.

Some have claimed that only secular, wealthy Egyptian women -- not the religious, working-class majority -- support women's equality. But Egyptian feminist Dina Wahba has argued that this oft-cited dichotomy is false. A recent Gallup poll supports her view, revealing that religious Egyptian women are no less likely than their secular counterparts to support equality. Overall, 86 percent of Egyptian women believe they should have the same legal rights as men. Eighty-nine percent say girls should have equal access to education, 89 percent believe women should be able to work outside the home, and 86 percent say women should be able to initiate divorce.

By championing women's rights, then, Clinton will be taking a position that is broadly popular with Egyptian women, even as many women -- and men -- remain leery of American involvement in their country's affairs. They're well aware that the United States supported and armed the Mubarak regime for three decades and continues to send aid to the Egyptian military despite its resistance to democratic reform.

Many Egyptians are skeptical not just of American motives, but also of Clinton herself. In 2009, when many future revolutionaries were fighting for democratic reforms, she made a point of publicly embracing Mubarak and his wife as family friends. And when the revolution erupted in 2011, her initial assessment that "the Egyptian government is stable and is looking for ways to respond to the legitimate needs and interests of the Egyptian people" angered democracy activists.

Clinton could overcome skepticism in Egypt by living up to her well-earned reputation as a champion of women's rights and by fulfilling her inspiring vision of "putting people at the center" of U.S. foreign policy. As she said in April, in reference to activists fighting for freedom around the world, "America needs to be on their side."

Jeff J Mitchell/Getty Images