Mexico could be Denmark, economically speaking

Por Tyler Cowen

I am optimistic about Mexico. There it is, I said it. I realize that many people see Mexico as a dangerous and corrupt territory, but the most basic facts are the most important, especially for investors and economists: Mexico has one of the highest per capita income among emerging economies, it is based in many vibrant cultures, and it is located right next to America.

If my enthusiasm is not enough to make you optimistic about MexicoListen to the many Central Americans who say that Mexico is becoming a lot like the United States, particularly in terms of over-marketing. This criticism is itself proof of progress, even though the debate about Mexico in the United States tends to focus on the differences between the two countries. The broader perspective is more revealing.

Now, about crime and corruption: according to some estimates, 20% of the Mexican territory is controlled by drug gangs, and the country has a high homicide rate. These problems will not go away completely, even if they are only a reflection of the demand for drugs from your neighbor to the north.

However, they could become more manageable. As Mexico get richer, the central and state governments will be able to establish greater control over their territory. And while the United States cannot usefully control much of what happens in Mexico, its financial support for the Mexican government provides stability.

The government of Mexico it is also notoriously corrupt, and currently led by populists and especially irresponsible ones. But that could also improve with increased state capacity. Mexico now has a middle class that votes and expects something in return for the taxes it pays.

In the meantime, there are reasons at this point to be optimistic about Mexico. One is that economic globalization has slowed down a bit and, in some areas, has even been reversed. To the extent that Americans do not trust Chinese supply chains, the Mexican economy will regain some of the slack. Mexico is also the natural provider of lower wages for North American industry (its main problem in this regard is that its wages are not so low now, but that is also a reflection of its progress).

On the other hand, if tourism in Asia and Europe continues to be difficult or inconvenient, Americans will choose to visit more Mexico and will get used to spending their vacations in places other than Cancun. Some of those habits may last.

MexicoLike much of Latin America, it also has a burgeoning startup scene, especially in e-commerce and fintech. Mexico City could end up as the tech capital of Latin America. That would help with one of Mexico’s chronic economic problems, which is that small businesses decide to stay small to escape regulations and taxes.

Successful tech startups, by contrast, can scale more easily and face fewer regulations on average than manufacturing companies.

Another reason to be optimistic about MexicoRecent data shows that Latino immigrants in the United States are remarkably well integrated. Many of them have Mexican heritage and can be a source of business capital and partnerships for Mexico proper. They also provide a constant reminder that prosperity is possible for everyone, not just Americans of Anglo-Saxon descent.

In the last 40 years I have been traveling to Mexico and every time I visit the country it seems to be better. Prosperity appears to have a broader base, reducing the degree of de facto segregation based on race and skin color.

Unlike much of the world, Mexico It does not face national security problems due to the possibility of invading or attacking rivals. That advantage could become increasingly relevant as Mexico’s competitors grapple with problems from China, Russia, or other sources.

Many investors and economists have been excessively pessimistic about Mexico because it has not grown at the rate of China. At this point, it would be best to admit that it probably never will. However, many of the world’s most successful countries, like Denmark, never had big growth spurts like China did. Instead, they achieved a steady growth rate with some major drops.

Mexico, with its strong connections to the United States, is well positioned to achieve that kind of growth stability for decades to come. Unlike the 1980s, the Mexican central bank is run by well-educated technocrats. Even during the pandemic, which hit the Mexican economy hard, credit ratings remained acceptable.

“Mexico is the next DenmarkIt sounds like another one of my deliberately contrary statements. However, implausible as it may seem, it is a claim that could finally come true.