Part of Mexico’s appeal to investors is tied into what I think may be the country’s key weakness: inequality. You see, at the lowest-end, labor remains cheap. The Economist points out that in 2003, Mexican pay was three times China’s rates; now it is only 20 percent higher. So Mexican manufacturing is poised for a boom. And while in the past few years Mexico banked on its proximity to the U.S. (lower transport costs) and trade deals like NAFTA to compete with China, it will now be able to manufacture and price products at an advantage.
The big question, of course, is whether the export dollars will trickle down. But making this happen will require significant market reforms. In his recent bookBreakout Nations: In Pursuit of the Next Economic Miracles, Morgan Stanley’s Ruchir Sharma points out how the top 10 Mexican families account for more than a third of the country’s stock market value – an almost unheard of number. “Private cartels produce about 40 percent of the goods that Mexicans consume and charge prices that are 30 percent higher than international averages,” he writes. “Phones, services, soft drinks, and many foodstuffs cost more in Mexico than in the United States.”One thing is clear – Mexico is not the war-torn wasteland it is often made out to be. Its people have a glorious history, and a hopeful future. This isn’t to say that Mexico is destined to be the next investment hotspot – that’s far too simplistic a way of looking at this. Instead, the numbers suggest the truth is somewhere in between. Mexico has enormous capacity to surprise on the economic stage. But to really shine, it needs to work on developing a vibrant – and bigger – middle class.
In his 2008 international bestseller The Post-American World, Fareed Zakaria wrote, “The future is already here.” If there were any doubts as to the veracity of that claim, the whirlwind events of the last three years have settled them.Even Zakaria’s most forward-looking projections haven’t been able to keep pace with the acceleration of the “rise of the rest,” the indelible phrase he coined in 2008 to describe the economic and political ascendance of emerging powers such as Brazil, China, and India.