This is the third in a
series of four blog posts from my recent study trip to Mexico, with the
Stanford GSB. Here’re some facts and tid-bits on the trip which provide a bit
of an overall flavor:
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The people: 35 Stanford GSBers and their partners, hailing from 14 different
countries –backgrounds as diverse and unique as Air Force Officers, Social
Entrepreneurs, Finance Ministerial Analysts, Film Makers, Start-up Starters, Seismologists,
Sports Analysts, Chemistry Teachers, Family Businessmen … and of course …
bankers & consultants
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The places: 3 different cities over 10 days, including Oaxaca, Monterrey and Mexico
City – each with a very different and unique character
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The experiences: Discussing Mexico’s challenges in meetings with business and public
sector leaders; watching Mexican soap operas being filmed, including meeting
the most charismatic man in the world (not to be confused with the most
interesting man in the world, whom we also met); exploring ancient monuments;
eating good food and drinking giant margaritas; and of course, shouting and
cheering like mariachis.
The media can make or break countries like Mexico, Pakistan
and India. From positive self-fulfilling prophecies to vicious cycles fueling
and reinforcing negative perceptions, the media can sometimes be a tremendous
help, and sometimes an inescapable curse. While it is obvious where India and
Pakistan lie in those buckets, Mexico is surprisingly hard to bucket. Here’s the
two sides of the spin …
Let’s start with the positives. The recent re-election of
the PRI (The Institutional Revolutionary Party), the Left leaning party which
has governed Mexico for much of Mexico’s modern history, has led to a series of
tangible reforms which significantly change Mexico’s fundamentals and prospects
(at least in my own humble opinion, and as far as I believe, in the opinion of
most development experts – there are obviously some political constituents who
will disagree with us, and I may of course be suffering from that “in-group
bias” which they keep telling us we might be suffering from in many of our
Organizational Behavior classes). The PRI has taken on the Teachers’ Unions,
historically an important political constituency for them, but one which is
blamed for holding hostage Mexico’s less than high quality educational system.
This is clearly a huge step in the right direction, and if we believe that
“Total Factor Productivity” (TFP), that old friend from Development Economics,
is responsible for much of the differences in income across countries, then
improving education is clearly the right step in improving Mexico’s prospects.
Although it is hard to neatly account for all the components of TFP, clearly
education is a big one – just intuitively, a better educated population is likely
to be a more productive one.
In addition to this, the PRI has legislated to make
broadband-access “a universal right” within Mexico. While this might sound
symbolic, and even vacuous, it’s a very clear first step in dismantling the
telecommunications monopoly of Carlos Slim Helu. With telecommunications being
a key input factor in the information and service economy, having pricey
telecommunications services, because of a regulated monopoly, is a huge burden
on business and development. The new Government clearly understands this, and
the legislation actively begins to politicize the problem, which is an
important first step towards addressing it.
Then there were trends which benefit Mexico, not so much for
Mexico’s own fundamental progress, but rather due to external factors.
Discovery of cheap North American shale gas is a huge and highly legitimate
one. Also, one trend we kept hearing about was China’s labor costs exceeding
Mexico’s within the next couple of years, arguably making Mexico more
competitive than China. While this argument likely under-adjusts for
productivity drivers, and attributes the majority of these changes to
demographics; conveniently ignores countries like Vietnam, India and Indonesia,
which still have much lower labor costs than both Mexico or China; and also ignores
away some of the other levers and dynamics of investment decisions at the firm
level, such as “Ease of doing business”, it is clearly being cited as an
important trend. We kept seeing charts where by 2016, Mexico’s exports to the
US will be greater than China’s. But this is a forecast, and as the joke goes –
some twenty-something year old analyst at the Economist Intelligence Unit (EIU)
made it up; some businessmen believed it and invested on the basis of it; and
the same old EIU Analyst, now in his thirties, was elevated to the status of
Nostra-Damus, and prophesized the end of the world. But sarcastic jokes aside,
self-fulfilling prophecies exist. Ultimately, while forecasts such as those
produced by the EIU might seem useful, we ought to be wary of their real value.
But clearly there is something to be said for optimism and
the role of “animal spirits” in promoting growth. As Guillermo, one of our trip
leaders shared with us – through-out Mexico’s modern history, Mexico has always
felt like it has underperformed. Not only did the early wars and the
territorial losses impact the national psyche or self-confidence, since then
Mexican’s have felt like laggards in many fields from football (some of you might
call it soccer) to economic development. But now there is renewed hope and
optimism in Mexico. Everyone in Mexico feels that it is finally their time to
shine. There is something clearly beneficial and heart-warming in this development
– one must appreciate the positive impact of self-fulfilling prophecies.
Look how cheery & optimistic our Mexican trip leaders are - they did an incredible job
Now for the old negative problem – Mexico’s drug wars. I
personally believe that it is an impossible problem to solve. So long as drugs
will be illicit, and there will be demand in the US, the drug problem will
persist. It’s not a cancer which can be eradicated with law enforcement or
brute military power. It’s a perpetual problem rooted in incentives, economics
and human nature. In many ways, I see parallels with Pakistan, and the fallout
of the war in terror being fought in Afghanistan and primarily by the US. Our
cities have been turned into war zones, when we do not believe that we have
much to do with the root causes, and believe further that the US is doing very
little to address the root causes.
You might disagree with me, and there are many shades of
grey. But what is most interesting about Mexico’s issue is that not a single
business or public sector leader within Mexico cited the drug war as an issue
at all – it was never brought up in open ended talks; we as a group didn’t ask
any questions about it – perhaps we felt safe through-out our trip, and didn’t
feel like it even impacted us as gringos from across the border, where all we
hear about Mexico is centered around the drug wars. One leader, the Chairman of
the FEMSA brewery, did bring it up, but in a different context. We took this
particular meeting in a rather sterile “Business Club” – a large event and
conferencing space, in a posh part of Monterrey. He was disappointed that the
GSB, which has a tradition of visiting his brewery, and sampling beers fresh
off the production line on these annual study trips, was unable to do so this
particular year, because the GSB’s security advisors deemed that the brewery
part of Monterrey was too risky to visit. In fact, it was clear from his tone
and expression that he thought that the security assessment was plain ridiculous.
Again, different opinions and risk tolerances are different – but this is certainly
something to ponder over. Are the security assessments of two sets of
individuals, both of whom are arguably experts in this area, clearly different?
Or have the negative perceptions, biased by a sensationalist media, created
such an intolerance for risk, that one party has to take a very different
stance than the other?
The chairman of FEMSA, along with his beer
I believe that all media perceptions, either positive or
negative are ultimately rooted in some real fundamentals, but then fueled out
of control. And it is also important to realize that the media just caters to
what the Plebs want, which is difficult if not impossible to change. So if we
are to truly create change, we have to begin to change fundamentals. But as
Plebs ourselves, perhaps we also hold a responsibility to consider carefully
what we choose to subscribe to in the media.
Such a nuanced and complicated
conclusion is exhausting, so enough on the media … next post is on Mexico’s
monopolies.
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