Thursday, October 29, 2009

The Age of Reform

Adding to what Zuckermann had to say about the poisonousness of the word "privatizations" last week, Rogelio Ramírez de la O says Salinas spoiled the concept of structural economic reform for a generation:
In effect, the first generations of globalization reforms dealing with globalizations came from Carlos Salinas. But for them to continue, they had to be well done, generating greater growth and employment and, with that, grassroots public support.

And there's the problem. Salinas' reforms weren't those of Margaret Thatcher in England, but those of Boris Yeltsin in Russia. Instead of creating competitive markets and equal rules for everyone, they merely transfered state businesses to big private groups. The state protected these groups, lowered their taxed allowed them to charge monopolistic prices. And eventually it allowed them to accumulate so much power that they came to capture regulatory agencies, judges, or even Congress itself so as to preserve their dominance in the markets.

That's why, although Mexico scored privileged access to the American market, the largest in the world, and increased foreign investment and exports, the economy only grew 2.5 percent annually between 1983 and 2009. As a result, it couldn't create new opportunities, causing more than a million and a half workers in search of employment to emigrate each year.

That's the objective reason for the lack of enthusiasm and therefore support for reforms. The very term "structural reforms" is now held in contempt.
He goes on to talk about Mexico's bank privatizations, which by and large placed the keys of the nation's financial institutions not in the hands of experienced bankers, but connected and ambitious businessmen. The consequences, of course, were less than ideal.

I think there's a lot of truth to the above, but the idea of "reform" doesn't seem to be the key issue. After all, five important reforms were passed under Calderón. At least three (oil, electoral, and fiscal) either didn't fully address the problem or created new ones, but that was more of a matter of faulty design or a lack of political will rather than a society-wide rejection of reform in the abstract, which their very passage demonstrates.

It's also notable that AMLO's former economic advisor would openly praise England's most famous conservative of the modern era. That speaks well of Ramírez de la O's intellectual honesty, for one, but I think it also demonstrates that many of the problems facing Latin America, such as ossified companies and protected industries limiting growth and fostering immigration, aren't really right-left problems, but rather matters of competency and best practices. Javier Santiso makes that point in much greater depth in this very helpful book.

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