By Tim Padgett
Argentine President Cristina Fernández did Mexican President Felipe Calderón a big favor when, on April 16, she expropriated the Argentine holdings of Spanish oil giant Repsol. The move shocked global capitalists and made Mexico, Latin America’s second-largest economy ahead of Argentina, look all the more attractive as a destination for foreign investment (even though Mexico’s own oil industry is entirely state owned). Even better news for Calderon was that Fernández’s confiscation came just in time for his host address the next day to the World Economic Forum’s Latin America meeting in Puerto Vallarta. “We must defeat protectionist temptations,” said Calderón, whose words stroked the Forum’s international business leaders as softly as the Pacific breezes outside the convention center. “We need more foreign investment, not less.”
It was a rare golden moment for Calderón, who since taking office in 2006 has been mired in a fight with Mexico’s powerful drug cartels. Amid that bloody conflict, which has dominated headlines about Mexico, he’s heard regular criticism about his nation ceding its regional leadership to emerging South American powerhouses like Chile, Argentina and especially Brazil, Latin America’s largest economy. The April 16-18 WEF conference, where more than 70 countries were represented, provided Calderon ample opportunity to trumpet Mexico’s economic advantages over Brazil – including its No. 53 spot in the World Bank’s 2012 ease-of-doing-business rankings compared to Brazil’s No. 126 position.
Needed: More Education
One key statistic Calderón read off was Mexico’s $222 billion in manufacturing exports, Latin America’s leader, and the fact that the country is enrolling more engineering students than any other place in the region. That was especially welcome data for the Forum crowd. Like so many analysts, they worry that Latin America – despite its watershed economic boom and the encouraging growth of its middle class – has become too reliant on commodity exports and is straggling in areas like education, which are crucial to improving the region’s paltry high-tech capacity and its’ still epic inequality. “When you look at the higher education infrastructure that other emerging countries like India and China have now, it’s just not as developed in Latin America,” says Sally Blount, dean of the Kellogg School of Management at Northwestern University and a WEF Latin America co-chair. “You have to promote intellectual capital.”
Which is why U.S. executives like Mark Stanley, Latin America director for Sony Computer Entertainment and its flagship product, PlayStation, flocked to Blount’s talk on how to better prepare the region’s business leaders. “I need more than just good salespeople in Latin America today,” says Stanley. “I need good digital heads who know how to develop a long-term relationship with customers as the technology keeps changing.” It’s part of what WEF leaders like founder and chairman Klaus Schwab call “talentism,” a belief that in the 21st century, micro- and macro-economic strength depends more on human capital than on material capital. “In countries like Latin America’s, you have a high level of job openings and still an equally high level of unemployment,” Jeffrey Joerres, CEO of ManpowerGroup USA and a WEF Latin America co-chair, said at Puerto Vallarta. “What trumps capital is the ability of talent to maximize it.”
But if Calderón is doing a lot right in this regard, why does his conservative party (he cannot seek re-election) look set to lose Mexico’s presidential election in July – and why does the country’s economic performance still seem to get lukewarm applause compared to Brazil’s? Part of it is just Calderón’s prickly p.r. ineptitude. But indicators that he didn’t discuss at Puerto Vallarta are telling as well. Also addressing the WEF gathering was Mexico’s leading presidential candidate, the centrist Enrique Peña Nieto, who insisted that poverty, unemployment and insecurity are all up since Calderón’s party took power in 2000 – and economic growth, which has averaged little more than 2% during that time and about 1.5% during Calderón’s first five years, is down.
That of course has to be put in the context of presidential campaign politicking and factors beyond Calderon’s control, like the calamitous U.S. recession next door. But as Jonathon Heath, a research fellow at Mexico’s National Statistics & Geography Institute (INEGI), writes in Latin Trade this month, “the average economic growth of [Calderón’s] six years [will be] among Latin America’s worst even without taking into account” the recession’s worst year, 2008. And Heath, as well as some of the speakers at the Puerto Vallarta conference, point out urgent structural reforms that Calderón and Mexico’s fledgling democracy haven’t accomplished yet. One is rule of law, as the drug war reminds us. But another is reducing entrenched monopolies, and not just the inefficient state-run oil monopoly, Pemex.
In Mexico, private businesses can still hold market shares as high as 95% in sectors ranging from tortillas to telecommunications. That chokes off the potential of small- and medium-size enterprises (SMEs) that employ more than half the workforce. At one WEF session this week, Alvaro Rodríguez Arregui, co-founder of the Mexican investment firm IGNIA, asked why, if large companies in Mexico are growing twice as fast as those in Brazil, Brazil nonetheless has had twice Mexico’s economic growth in recent years (though Brazil’s dropped significantly last year). One answer, he suggested, was that countries add a percentage point of growth for every 100 SMEs that grow into larger companies – a fact Brazil has embraced and Mexico hasn’t. “We do not,” Rodríguez said, “have a level playing field in Mexico.”
Inequality remains another millstone. Calderón insists that the reason fewer Mexican migrant workers are heading over the U.S. border these days is that the Mexican middle class is expanding. That’s partly true, but the other factors are reduced labor demand and increased anti-immigration measures in the U.S., as well as horrific drug violence on the border. Calderón’s definition of middle class is also “exaggerated,” says Efrain Sánchez, 35, a Puerto Vallarta construction worker who’s getting married next month but fears he might never reach la clase media. Two-thirds of Mexicans still earn less than $14 a day; the poverty rate is still 45%; access to bank credit is still scant; and 80% of students who reach secondary school, according to a new documentary, De Panzazo!, can’t multiply.
Still, the WEF conference gave Mexico an admittedly deserved chance to remind the world that despite its drug war crisis – another key reason Calderón’s party is well behind in the presidential election polls – its economy has shown a laudable resilience, especially in sectors like tourism that might have easily suffered from the country’s violent image of late. With the Argentine controversy hanging over the gathering, Schwab praised Calderón’s “consistent strategic thinking.” The only problem, to quote Calderón, is that Mexico needs more of it.