Home' Trinidad and Tobago Guardian : September 24th 2015 Contents BG18 REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 24 • 2015
"In establishing the rule of law, the first five cen-
turies are always the hardest."
For much of the past two decades, that quip by
former Prime Minister Gordon Brown of Britain has
seemed not only dour, but wrong. Buoyed by China,
by trade growth and by capital inflows, by talk of
new middle classes and the bottom billion, it was
easy to forget old truths about how hard it is for
poor countries to become rich. A breezy assumption
took hold: Emerging markets would surely follow
the likes of South Korea and Taiwan on the path
That view of development has crumbled of late,
along with emerging markets' growth rates. China,
the locomotive to which many still are hitched, is
slowing. Brazil, Russia and South Africa are in reverse
gear. Their currencies drop with every fall in com-
modity prices, and no doubt will weaken further if
the Federal Reserve raises American interest rates
in a meeting due to end after this story went to
press. Trade is growing more slowly than global
GDP, a trend that seems unlikely to reverse soon.
All of this makes the trajectory taken by the East
Asian tigers seem ever more exceptional.
A more realistic model of development is Mexico,
a country that has parlayed its considerable advan-
tages into patches of modernity but notably has
failed to eradicate poverty nationwide. Some of its
disappointments can be laid at the door of specific
policies, but they also reflect the difficulties faced
by countries throughout the emerging world.
Mexico has a great deal going for it at the moment.
Its economy is tied to America's rather than China's:
It sells more exports to the world's largest consumer
market in a week than it does to China in a year.
Once dependent on oil, it has Latin America's largest
and most sophisticated industrial base, exporting
more cars than any country except Germany, Japan
and South Korea.
For two decades its macroeconomic management
has been impeccably orthodox. Recently, it has
thrown open its oil industry to private investment
and has tackled private monopolies. A vibrant Mex-
ican middle class prospers along an industrial corridor
running from the American border down to Mexico
City. Its political system is essentially stable.
However, despite decades of reforms, at times
halfhearted and at times full-throttle, Mexico has
failed to bridge the gap between a globalised minority
and a majority that lives in what President Enrique
Pena Nieto admits is "backwardness and poverty."
Since 1994, when Mexico joined the North American
Free Trade Agreement, income per head has grown
by an annual average of barely one per cent. About
half the population remains stuck in poverty, and
another quarter risks slipping back into penury.
Lawlessness, corruption and conflicts of interest
prevail among the police, courts and politicians who
are supposed to care for the marginalised.
Mexico's duality suggests that getting macroeco-
nomic policy right is necessary to success, but not
sufficient. The difficulties it still faces are a cautionary
The first lesson, and easiest to learn, is the cen-
trality of urbanisation. Cities offer people oppor-
tunities to prosper that cannot be found in the
countryside: About 120,000 people in Asia are
migrating to cities every day, for example. Unless
cities provide transportation, power, sanitation and
security, however, they will fail to fulfill their eco-
Violent, drug-related crime stalks Mexico's scruffy
barrios, where city-dwellers live. In South Africa
the lack of public transportation obliges slum-
dwellers to take expensive minibus-taxis to work.
Cities in Pakistan and the Philippines are plagued
Slums ought to be every moderniser's priority.
They are where most people live, and where jobs,
schools and technology are closest to hand.
The second lesson is the importance of infra-
structure, and not only in the cities. Many of the
foundations of the modern Mexican economy were
laid a century ago, in the form of roads and railways
tying its industrial heartland to its ports and the
northern border. That leaves swathes of the country
unconnected. Centralisation breeds anomalies: beach
resorts often buy their seafood in Mexico City's
wholesale market, hundreds of miles from the coast.
Linking parts of a country is not easy, however.
It takes both investors willing to bear risk and also
politicians prepared to take on the status quo. In
India, for example, plans for big infrastructure proj-
ects have been frustrated by squabbles over land
and a dearth of long-term financing.
A third lesson from Mexico is the need to bring
the informal economy into the light. Small, unreg-
istered companies provide employment to most of
the labor force, but are shunned by banks and are
anxious to remain below the taxman's radar. That
saps the domestic economy.
In the past decade and a half, while the produc-
tivity of the biggest Mexican companies has grown
by 5.8 per cent a year, that of the smallest has
plunged by 6.5 per cent a year. This problem is as
prevalent in Mexico's changarros, where tacos sizzle
alongside every bus stop, as it is in the shops and
stalls of India, where only two per cent of food and
grocery retailing is in the formal sector.
Electronic invoicing, which creates digital trails
for the taxman, and mobile banking, which brings
poor people out of the cash economy, both offer
The ubiquity of informal firms also points to a
final lesson, however: the corrosive effects of a
general lack of trust. Without enforceable laws and
contracts, public services that make taxes seem
worth paying and a political establishment that
serves the national interest, the only institution that
most people can rely on is the family.
As Brown hinted, it can take generations to build
institutions that enable people to trust arm's-length
transactions. It is not impossible, however, witness
the confidence now invested in Brazil's and Mexico's
central banks, or in South Africa's tax authorities.
Even the boldest reformer could not rapidly resolve
all these problems. This is the less cheering message
of the two Mexicos: For all but a handful of countries,
the road to prosperity is hard and long. Mexico's
successes also demonstrate that it does exist. though.
Even if the gains must be measured in decades,
perseverance eventually brings rewards.
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
Millions of workers will
lose their jobs this year
because of the recession
that has hit Latin Amer-
ica's biggest nation, a
Brazilian industry federa-
tion said Wednesday.
The Rio de Janeiro State
Federation of Industries
Wednesday said a job
market analysis it recently
conducted shows that
between 1.2 million and
1.6 million jobs will be lost
in 2015; the worst contrac-
tion in 17 years.
Previously, the worst
figures had been registered
in 1998 when Brazil lost
nearly 580,000 formal
"We don't see any signs
of improvement in the
short term," federation
economist Marcelo de
Avila told the Folha de S
The government's Insti-
tute for Applied Economic
Research said earlier this
month that more one mil-
lion formally registered
workers could lose their
jobs by year's end.
In late August, the gov-
ernment statistics bureau
IBGE said Brazil's gross
domestic product con-
tracted for the second con-
secutive quarter, sending
the Brazilian economy into
a technical recession.
The bureau said the
economy shrank 1.9 per
cent in the second quarter
compared with the previ-
ous three months. Gross
domestic product in the
first quarter contracted 0.7
Brazil's economy has
been hit by a drop in inter-
prices, sluggish global eco-
nomic growth, rising infla-
tion and high interest rates.
"We calculate that
between 1.5 million and
two million workers in the
formal and informal job
markets will lose their jobs
because of recession,"
economist Gesner Oliveira,
president of Sao Paulo
consulting firm GO Asso-
ciados said in a Wednesday
"Given that the econo-
my is not expected to
resume growing until 2017,
the job market will con-
tinue to weaken next year,"
He said the construction
and manufacturing indus-
tries were the ones where
workers will suffer the
The two Mexicos
will lose jobs
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