Volume 43, Number 170,
July-September 2012
Economic Competition in Mexico:
A Much Needed Debate
Rogelio Huerta
COMPETITION AND CHANGES IN PRODUCTIVITY ( ...continuation )

The findings from this research could have been very simply elucidated, without the need for the sophisticated technology used in the measurements. Any country that drastically reduces import tariffs that protected the domestic market, as Mexico did, will automatically see a reduction in costs for imported goods and as a result, an increase in the product value/input costs relationship. In other words, an increase in productivity. When the cost of intermediate inputs is reduced because tariffs are reduced or eliminated, the added value automatically increases and this, divided among the number of workers or among the total cost of factors, will increase if the latter remains constant. But moreover, as happened in Mexico in the years following opening up (1986), the number of employed workers fell. In other words, unemployment rose, and the effect on productivity indicators are even greater when the numerator falls. It should be made clear that increases in productivity levels during this period (1986-1990) in Mexico’s manufacturing industry were not a result of the massive introduction of a modern technology or innovations in the technical production process (with a few exceptions). Rather, more than anything, the increases were due to modifications in the work process that resulted in unemployment for thousands of workers (de la Garza Toledo, 1998). Thus, the measure of productivity (or the index of its measure) increased in Mexico for two reasons: because costs of imported inputs were reduced when tariffs were lowered and because workers were unemployed. This occurred immediately following the opening up to foreign markets. The result of commercial liberalization in Mexico’s manufacturing industry was a reduction in company sales, a reduction in employment levels, and a reduction in costs due to access to cheaper imported goods.

For this reason, one of Iscan’s conclusions is that the hypothesis does not hold in the long term. “On the other hand, the tariffs level does not seem to be a significant determining factor in long-term production growth (...) sectors with larger tariffs reduction have also increased their productivity levels” (Iscan, 1998: 143). And yes, the short-term hypothesis does hold true for sectors where the tariffs were higher.

In summary, opening of the market, which implies tariffs reduction and the elimination of foreign trade quotas in Mexico, brought with it as a consequence an increase in competition intensity that also caused an unemployed work force. With this effect, any productivity indicator would be expected to rise in the short term, whereas if it were the result of the introduction of more advanced technology, we would see long-term productivity growth beyond the period immediately following the opening.

Now, even though Iscan does not explicitly mention the increase in competition intensity as a result of opening to foreign markets, it can be assumed that a greater number of foreign products, as a result of reduced tariffs, act as a mechanism to increase the number of businesses and products competing for the domestic market. This phenomenon of a greater number of businesses and products in a given market should bring about, if these were perfect competition markets, a price reduction for goods manufactured in Mexico. But this did not happen. What did happen was that the price-cost profit margin grew more slowly, in such a way that prices in Mexico tended to rise at the same rate as prices in the United States. Inflation tended to be the same, and there was not price deflation.

REGULATION OF COMPETITION AND ECONOMIC PERFORMANCE

In the next section of Estrada’s article, Pro-Competition Policies and Economic Performance, the effects of economic regulatory laws on the economy is discussed. In this section, as should be expected given this author’s point of view, the pro-competition policies, according to him, have the largest and most surprising effects. “They increase investment and multifactorial productivity (...) employment (...) per capita income (...) real salaries (...) and the rate and adopting of better technology (...) Also (...) growth increases (...) the most efficient private companies expand (...) there is multifactorial production (...) and the standard of living (...) Finally (...) competition laws explain an average reduction of 5% for non-merchantable goods” (Estrada, 2010: 128-129). In other words, laws that regulate and foster competition theoretically would allow for higher levels of employment, per capita income, real salaries, investment, productivity, efficiency and living standards, and that is why pro-competition policies should be supported. But as though that were not enough, regarding this essay, he says that competition laws reduce the prices of non-merchantable goods.

According to Estrada, Rodríguez’s research demonstrates that competition laws approved in various countries led to price reductions in these regions. However, this reference is not clear. Rodríguez’s work concludes that:

the variable that matters for the presence of a competition law is negative and statistically significant at a level of 95%, indicating the competition policy counts for a reduced average of 5% in the relative price of non-merchantable goods, limiting the Balassa-Samuelson effect, which states that an increase in productivity in a country increases the price of non-merchantable goods relative to merchantable goods (Rodríguez, 2006: 170).

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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