Article created by The Center for Economic and Policy Research.
A brilliant documentary by Rachel Boynton, released this year, chronicles the adventures of one of America's most influential public relations firms as it applies the most advanced polling, advertising, and focus group techniques to the 2002 presidential elections in Bolivia. The company, Greenberg Quinlan Rosner, has the daunting task of winning the election for Gonzalo Sanchez de Lozada, a former president who speaks Spanish with an American accent and is not well-liked.
The firm decides that the only way “Goni,” as he is called, can succeed is to convince the voters that if his opponent wins, the country will suffer a devastating economic meltdown. "Our brand," explains an operative of the firm, "is crisis"- thus giving the film its title.
This has become the default strategy for incumbent political parties in Latin America, as one government after another faces opponents from the left. Next up is Mexico, where the ruling National Action Party (PAN) faces a strong challenge from former Mexico City major Andres Manuel Lopez Obrador of the Democratic Revolutionary Party (PRD) on July 2. Lopez Obrador is a popular-some would say populist-left-of-center leader whose main campaign slogan is "for the good of everyone, the poor first."
It's pretty clear that Mexico needs to reconsider its economic policies. Over the 25 years since 1980, income per person in Mexico has grown by just 17 percent. To see how bad this is, one need only look at the 20 years from 1960-1980, when the country's per capita income grew by 99 percent. If the Mexican economy had simply continued to grow at its pre-1980 rate, average income in Mexico would be at the level of Spain today. There would be far fewer Mexicans looking to emigrate illegally to the United States.
Mexico's pre-1980 growth was good but nothing spectacular for a developing country; South Korea grew more than twice as fast and Taiwan at nearly three times Mexico's rate over the same period. So the country’s past growth performance is a reasonable benchmark by which to compare the unprecedented growth failure of the last quarter-century. Many have hailed Mexico's post NAFTA growth as a success, but even this was only about a third of its pre-1980 performance.
However, most people do not understand what economic growth is or why it is so important. For comparison, imagine a discussion about baseball where hardly anyone understood batting averages, and those who understood them did not distinguish between good and bad averages, labeling a .175 average "outstanding."
As a result, the focus of criticism is on Mexico's poverty, which is mainly a result of the growth failure. In 2004, nearly half the country lived below the official poverty line of about $4.00 per day.
Will a left government cause an economic crisis in Mexico? It is worth recalling that the same was said about President Lula da Silva when he ran for office on behalf of the leftist Workers’ Party in Brazil four years ago, but the crisis never materialized. It is often maintained that this was because Lula did everything that the financial markets wanted. But across the border in Argentina, President Nestor Kirchner did what the financial markets didn't want, and the economy has been booming at about 9 percent annually for more than three years.
Latin America's left governments are doing pretty well, regardless of whether Washington or anyone else approves of their policies. Venezuela is tied with Argentina as the fastest-growing economy in the hemisphere. And Evo Morales has only been president of Bolivia for half a year, but the government's increased revenues from natural gas have helped to fund its reform program, and its re-nationalization of the industry has not caused an economic or political crisis.
Mexico will likely face problems as the big imbalances in the U.S. economy; the housing bubble, trade deficit, and unsustainably low long-term interest rates – are corrected. Our last recession in 2001 cause a downturn in Mexico's economy, and the next one will probably do the same. But Mexico's current economic policies, which tend to sacrifice growth and employment in the fight against inflation, may be the wrong recipe for recovery. Mexico may need a Franklin D. Roosevelt at the helm in the next few years, rather than a Herbert Hoover.