Welcome to the Mexican Paradox.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico is nothing if not a land of bewildering contrasts. Economically speaking, the country is a regional powerhouse. On the one hand, it boasts one of the richest “official” billionaires on the planet; on the other, some of the worst income inequality rates in the Western hemisphere. It places 20th on the list of countries with the most millionaires but it’s also home to the 15th largest population of poor people on the planet.
A new study released this week reveals that the wealthiest Mexicans, equivalent to 1% of the population, own roughly the same amount of wealth as 95% of the people further down the wealth scale.
The study, titled “The Distribution and Inequality of Financial and Non-Financial Assets in Mexico” and published by Miguel Ángel del Castillo Negrete of the Autonomous Technological Institute of Mexico, documents how after two-and-a-half decades of rampant financial and trade liberalization in Mexico, the lion’s share of the economic benefits have flowed to a tiny minority.
“Few countries have embraced economic liberalization, deregulation, and privatization as enthusiastically as Mexico,” Ricardo Fuentes-Nieva, director of Oxfam Mexico, told BBC World Service. “But some groups benefited disproportionately and they are now the richest.”
In 2014 Mexico was home to as many as 200,000 US-dollar millionaires and 804 people with personal fortunes of over $50 million. Many of these people owe their vast wealth to the rampant privatization of the country’s resources unleashed in the early 1990s by then President Carlos Salinas de Gortari, who also signed Mexico up to NAFTA in 1994.
Just as happened in Yeltsin’s Russia, the “liberalization” of Mexico’s markets gave rise to a new caste of oligarchs. Many state companies were sold off, but instead of promoting competition, the new owners, with the help of the government, applied quasi-monopolistic models.
There’s no better example of this than the country’s (and once the world’s) richest man, Carlos Slim, who essentially bought up Mexico’s entire cellphone market in the 1990s. A close associate of Salinas, Slim was able to pay for Telmex out of the company’s future profits.
It was Mexican consumers who ended up paying the real price. According to a study by the OECD, between 2005 and 2009 Mexican consumers were overcharged $6.5 billion a year for landline usage. The total loss to the Mexican economy of Slim’s dominance in telecommunications is estimated at $129 billion over a five-year period, due to excess charges and poor investment in infrastructure.
Granted, in 2014 Slim was forced by changes in Mexico’s telecommunications legislation to divest a large part of his holdings (worth some $10 billion) in América Movíl, but a fresh court ruling a few days ago watered down the telecoms overhaul. As a result, Slim’s company will once again be able to charge rivals a fee for any calls that end up in its network, prompting fears that renewed competition will suffer and consumer prices for telecom services will resurge.
Slim is not the only Mexican billionaire whose fortune was built from the ashes of once state-owned assets. More than half of the 11 Mexican tycoons featured on Forbes’ 2012 Rich List (who between them controlled a total wealth of $130 billion) are or once were owners of former state-run enterprises. They include owners or important shareholders of mines (German Larrea and Alberto Bailleres), telecoms companies (Carlos Slim, Ricardo Salinas Pliego, and Emilio Azcárraga) and banks (Roberto González Barrera, Alfredo Harp Helú, and Roberto Hernández Ramírez).
At the other end of the income scale, 55.5 million people are poor — 2.3 million more than five years ago. That’s after five years of unbroken, ableit moderate, economic growth. One out of every five Mexicans suffers from hunger — a situation that is now being exacerbated by inflation, which spiked by 6.4% in July, the fastest rate since 2008.
But it’s in the financial sector where the inequality is most pronounced. According to the new study, just 23,000 people in a country of 127 million own 80% of the shares on Mexico’s benchmark BMV index. Those shares have grown at a much faster clip than the country’s economy or workers’ wages. As a result, the wealth of the richest 1% grew at an annual rate of 7.9% between 2003 and 2014 while Mexico’s GDP grew on average each year by 2.6%. During the same 11-year period, period the median wage increased by just 4%.
The government has tried to alleviate poverty through a variety of costly public programs (financed, of course, by the tax-paying middle classes). According to the deputy secretary of Planning and Evaluation at the Department of Social Development (Sedesol), the government invests 12% of its budget on anti-poverty measures. Yet poverty continues to grow.
All the while, Mexico’s deeply corrupt government, for obvious reasons, does nothing to address the main cause of inequality — the money used by Mexico’s super wealthy and foreign corporations, such as Brazil’s Obedrecht or Spain’s OHL, to buy up politicians and senior civil servants in order to maintain their stranglehold over the direction of government policy and regulation. As Fuentes-Nieva told the BBC, “the decisions have been taken by an elite, for an elite, and supervised by an elite.” If recent scandals are any indication, it’s a model that’s unlikely to change any time soon. By Don Quijones.
After several months of predominantly positive developments, including the governing Institutional Revolutionary Party’s electoral victory in its key state, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard & Poor’s. But there are some hiccups. Read… Two of Mexico’s Biggest Bugbears Surge Again
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