Crony capitalism

by Macario Schettino.

In the 20th century, the Mexican economy - like the rest of Latin America - chose a policy known as Import Substitution Industrialization. The goal was to produce in Mexico what would be consumed domestically, and to achieve that, tariffs were imposed on imported goods. In theory, infant industries would be able to survive, become competitive, and tariffs could then be eliminated. The opposite happened: tariffs had to be increased because domestic industry never became competitive. Eventually, the economy was completely closed off and suffered its worst peacetime crisis in 1982.

In 1986, an attempt was made to reverse course. Mexico joined the GATT, implemented an anti-inflationary plan, renegotiated its external debt, and even signed a trade agreement with the United States and Canada. After a deep but brief crisis, the benefits of NAFTA became evident. In the final years of the 20th century, Mexico grew at rates it hadn’t seen in decades.

In 2001, China joined the WTO (GATT’s successor), and the dot-com recession hit the United States. This derailed the Mexican economy, which was unable to resume strong growth, instead remaining at an average annual rate of around 2%. During those years, many studies - by Mexican and foreign academics, agencies, and institutions - tried to identify the reasons why Mexico could not grow faster.