Nostalgia productivity and economic growth.

Author:Franco, Arturo

What is Mexico doing to recover its golden age growth rates? Are those the right strategies?

Fifteen years after graduating from MIT, Mexico's Finance Minister Luis Videgaray Caso was invited to speak at an event hosted by his alma mater in Mexico City. A member of the relatively compact, elite-educated, politically savvy technocracy that has overseen the country's economy for half-a-century Videgaray was surely pleased by the recognition. Yet, to the favored new steward of Mexico's fiscal stability; this homecoming keynote did not come at a good time. The Finance Ministry had just cur the country's growth outlook for 2013 from 3.5 percent to an uninspiring 3.1 percent following sluggish first quarter results. In fact. Mexico had the weakest economic performance since the end of 2009.

When asked about the reasons behind the abrupt change in expectations, Videgaray took the long view. "For over 30 years, growth in Mexico has been driven mainly by the workforce, and capital and productivity have been, and are still, the obstacle; that is, we would be better off today if Mexico had the productivity levels the country had in 1980," he said in the participants of the MIT Emerging Technologies Conference. "We have failed in terms of economic growth," he concluded. This is a bold statement, particularly coming from the current linchpin of the country's right-leaning technocrats. Still, there is much more to these remarks than just an acknowledgement of bad results: there is a certain sense of nostalgia for the country that was, and the country that could have been.

In a way reminiscent of the present time, in the early 1990s, Mexico managed to convincingly position itself as one of the world's most promising emerging economies. Developed country status seemed achievable and the country brimmed with hope around its vast economic potential. Yet as Videgaray reminds us, Mexico's economic performance for the last few decades has been disappointing. Having achieved average growth rates of close to 7 percent during the 1960s and 1970s, the country has settled recently for rates closer to 2 percent. GDP per capita has seen zero growth over this same period. Consequently, during a period in which countries such as India and Chile almost doubled the size of their economies, Mexico's expanded by less than one-fifth.

The conventional explanation for this lackluster growth is that the country is constrained by a series of flaws that continue to pull down its...

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