Economic Growth and Industrial Policy in Mexico
Cuauhtémoc Calderón and Isaac Sánchez
SLOW GROWTH, (UN) EMPLOYMENT AND INSUFFICIENT GROWTH IN MANUFACTURING ( ...continuation )

The data shows that Mexico has experienced a marked process of stagnation for more than a quarter of a century, or to be more precise, low growth rates which translate into insufficient capacity to generate jobs, before increasing demand as a result of an increasing population. This lack of momentum has led to a low state of wellbeing for millions of Mexicans.18

The economic results obtained during the last twenty years highlight this catastrophe. From 1982 to 2010 total gdp rose on average 2.1% annually and gdp per capita 0.46%. Between 1982 and 2008, 354,306 jobs were created on average annually in the informal sector of the economy. The growth rate of manufacturing gdp from 1982 to 2009 was 1.88% on average annually. Finally, precarious employment rose from more than 13 million people to a little more than 19 million.19

INDUSTRIAL POLICY IN MEXICO?20
The Principles of the Washington Consensus and industrial policy in Mexico

Since the middle of the 1980s the Mexican economy has operated under a liberal orthodox model, whose economic policies strengthened in the 1990’s with the principles of the Washington Consensus.21 This economic model is supported on two fundamental pillars: short term anti-inflationary macroeconomic stability and indiscriminate liberalization of international trade and capital flows.

As a result of signing the North American Free Trade Agreement (nafta), the maquila export industry (mei) and intra-industry trade received a substantial boost, which ended with the onset of the U.S. recession of 2000-2001. The indiscriminate opening up and boost to intra-industry trade led to the fragmentation of supply chains and less growth in the country. With the recession, the mei and exports began to stall, which highlights the vulnerability of the export sector and Mexico’s great dependency on the North American economy.22

18 According to figures from the Consejo Nacional de Evaluación de la Política Social or Coneval (National Council for the Evaluation of Social Development Policy) in 2010 there were 52 million poor people in Mexico, of which 11.7 were considered destitute. The figure show an increase compared to 2008, when there were 48.8 million poor people. It is important to mention that more than 38 million people were vulnerable in 2010 on account of their income and social deprivation. Only 21.8 million Mexicans were considered not poor.

19 Within the framework of the current economic model, the high rates of unemployment and underemployment are interpreted as resulting from rigidities or lack of initiatives to adapt to changes in the international economy. Flexibility is the goal and deregulation the traditional prescription in this supply focus. The factors questioned cover different variables. Salaries are above their equilibrium price, affecting the employment rate, while the reduction in differentials limits mobility and incentives to acquire new capacities. The fall in mobility determined by the lack of incentives and by legal restrictions impedes structural adjustment, raises the costs of work and reduces efficiency. Finally, the regulations introduced to protect stability and worker income are also interpreted as elements of rigidity for they drive up costs and make up reserve salaries, under which there are no incentives to accept employment. (Tokman, 1991: 185)

20 Two texts that help explain the importance of industrial policy are Saboniené (2010) and unctad (2007). The first discusses the contradictions of industrial policy in the context of economic integration and the arguments in favour and against it being used as an instrument to achieve greater economic growth. The second presents arguments in favour of industrial policy and defines its domains.

21 The Washington Consensus was originally developed by John Williamson in November 1989 in “What Washington Means by Policy Reform,” and its general principles are the following: (1) Fiscal discipline; (2) Reordering expenditure, i.e. it should focus on where it is most profitable; (3) Tax reform: widening the bases of taxation and reducing the highest taxes; (4) Liberalizing types of interest; (5) Flexible and competitive exchange rate; (6) Liberalization of international trade; (7) Liberalizing capital flows (short and long term); (8) Privatization; (9) Deregulation of the markets; (10) Protecting private property; and (11) Privatizing health and education public services.

22 According to María and Campos et al. (2009) the Mexican manufacturing export model has the following flaws: (1) disintegrated supply chains; (2) displaced national capital in the most dynamic sectors by fdi; (3) Market concentration and slow responding smes; (4) insufficient funding; (5) slow responding infrastructure and the cost of technology; and (6) inadequate telecommunications infrastructure.