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Romney Is Wrong About Mexico

The asymmetry that exists between Mexico and the United States is rooted in geography, natural resources, trade relations, population dynamics and governance.

Commentators have pointed out the fallacies of Mitt Romney’s assertion that culture is the key variable that explains the economic disparity between Israel and Palestine. But little has been said about the United States and Mexico, which Romney also cited as differing in economic development because of cultural contrasts. Romney’s message was that the culture of Israel is superior to that of Palestine, and that the culture of the United States is superior to that of Mexico.

Romney is mistaken. At best, culture is a sideshow in economic development. What matters most are the contexts that determine the fate of nations.

The asymmetry that exists between Mexico and the United States, or between poor and wealthy countries generally, is firmly rooted in the following foundational factors: geography, natural resources, trade relations, population dynamics and governance.

Geography is a central – and extremely powerful force. The United States is rich primarily because it sits on the best space on the planet. Mexico is not as fortunate. After Mexico lost its northern territories to the United States in the 19th century, Mexicans were left with a much smaller space – one dominated by mountains, jungles and deserts. Difficult geography fragmented Mexico’s population. Unhealthy and economically unattractive coasts impelled most Mexicans to settle in interior areas, frequently in remote locations. Problematic topography made transportation very difficult and very expensive. The scarcity of navigable rivers and good harbors seriously hindered both domestic and world trade.

Natural resources are also significant. While Mexico has a fine mineral endowment, it pales in comparison to what the United States possesses. For most of its history, Mexico’s economy has relied heavily on basic products. But, as many studies have shown, resource-dependent countries cannot hope to build prosperity on raw materials alone. Strong autonomous industrial and trade sectors are essential, and here Mexico has been deficient. While manufacturing now plays a larger role in Mexico’s economy than in the past, industry in Mexico is largely based on low-wage assembly labor and is controlled by foreign corporations. Mexico also has always had serious agricultural problems because of exceedingly scarce arable land. Lately, because too much farmland is used for production of export crops, Mexico has become food-dependent, especially on the United States.

Trade relations matter as well. As is typical among developing countries, Mexico’s external trade has been dominated by raw materials and labor-intensive manufactures. That is not a good place to be. Countries that export technology and other industrial goods, such as the United States, have always had the upper hand in global trade. In Mexico, geographic hurdles and other related factors have inhibited the development of a strong domestic industrial sector independent of foreign corporations. Lately, free trade has allowed the United States to flood Mexico with many consumer items, in the process driving numerous Mexican industries out of business.

Contraband has also been a big problem. Prior to the free trade era, enormous amounts of US illicit products flowed into Mexico and undermined domestically produced goods. Today, Chinese smuggled goods are doing the same thing.

Population dynamics constitute another reason for Mexico’s problems. Because of unfavorable geography, the country’s population has always been acutely unevenly distributed and national integration has been a major challenge. In the 1970s, rapid population growth became a compelling issue because the economy could not keep up with rising human needs. Mexico had to do something – and it did. The government reversed a longstanding pro-high-fertility policy and implemented a successful national birth-control program. Fertility rates plummeted from almost 7 children per family in the 1970s to 2.3 by the late 2000s. This caused population growth to slow down significantly. Lingering demographic momentum, however, still made it difficult for the economy to absorb many new workers entering the labor force.

The final factor is governance. It is well known that Mexico suffers from inefficient institutions and corruption. Other nations, however, have similar problems, including the United States. More importantly, governments are not the all-powerful entities they are assumed to be when it comes to economic development. Other foundational forces have much greater impact. In democratic countries, governments mostly regulate the climate in which economic activity takes place. Good governments do a better job in that sphere than bad governments, but ultimately, a good or a bad government is the product of geography, natural resources, trade relations and population dynamics. If favorable, these latter foundational forces engender healthy economic development, and that in turn produces strong government and good institutions. Unfavorable foundational forces take a nation in the opposite direction.

The bottom line is that Mexico is poorer than the United States because its foundational factors are far less favorable than those of the United States. Since culture is a readily observable entity, it is understandable why so many people see it as the key player in economic development. The real reasons for a nation’s level of prosperity, however, lie beneath the surface, and that’s where one must look.