Reviving Competition in Mexico’s Economy
Comment
SharePrint
In trying to explain why Mexico isn’t growing quickly, or “why it isn’t rich” as Gordon Hanson puts it in a great paper, there is much talk about economic concentration — the monopolies and oligopolies that dominate the economy. They spread beyond just telecommunications and media – the most obvious and maligned sectors. In cement, one company alone controls almost 90% of the market. In bread, tortillas, soft drinks, hospitals, and glass production just one company controls at least 70% of the market. This doesn’t even consider those areas still under state control, such as energy and electricity.
This wasn’t always the case. Looking back at the 1960s and 1970s — when the Mexican economy was much more closed and the state more involved — its markets were arguably more open, at least in terms of competition. At least four major firms competed in even the most concentrated sectors (granted, those not consigned to state-owned monopolies).
This internal competition was at least in part behind the rising competitiveness of Mexico’s economy – as measured by total factor productivity (TFP). Mexico’s TFP, a measure of an economy’s long-term technological dynamism, rose steadily through the 1960s and 70s, comparing favorably to the United States and the so-called Asian tigers. It began to fall in the early 1980s (in conjunction with its debt crisis and economic opening). It hasn’t recovered since.
Mexico's Total Factor Productivity (relative to U.S. TFP) compared to Latin America and Asian Tigers (Source: Augusto de la Torre and Ana Cusolito, "Competition and Economic Growth," The World Bank, 2009)
The fact is that while Mexico’s economy opened to the world, vital sectors within it closed themselves off from competition. This isn’t to say that Mexico should try to return to protected markets – that would just make matters worse. But it does suggest that the dominance of just one or two firms across so many areas of the economy hasn’t always been a part of its past – and agreeing with the consensus out there, it shouldn’t be part of its future. It also suggests that Mexico isn’t a “lost cause,” destined to stagnate. It has had strong periods of growth and technological dynamism in the recent past – and could well have that again.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations
Are you going to answer Cemex remarks made on Twitter? It would be the only right thing to do
I agree with most of what is said in the article; however, I think it still lacks a bit of credibility. Your analysis is too general, while the mexican economy is very complex. First of all you’re saying that one company alone, regarding the cement business, controls over 90% of the market, while the real fact is it controls around 50% and there are other big cement companies in the country that are seen as tough competitors; besides, this particular company, CEMEX, is a socially responsible enterprise and has been recognized several times for having programs looking to improve the quality of life of the mexican inhabitants.
I agree with you on most of the facts, especially regarding the media industry. Personally, I have faced abuses and complete despotism regarding the telephone and television monopolies that have eliminated all competition possible and thus, having enormous repercussions on us costumers, such as the price rising or the absolutely disastrous services. Despite all this, I have seen that there are still companies which care for the improvement of the country and its people per se, even though they control a big part of the mexican market and have had an amazing growth over the past few years. Companies like BIMBO or CEMEX have shown an interest in aiding lower classes through organizations, programs and job opportunities and for that, they have my total respect and admiration. For this, I agree that Mexico isn’t a “lost cause”, for there are still people that control a big part of the market that are willing to be socially responsible. However, I am not in favor of monopolies and I am glad that nowadays it has been a major concern and an everyday topic of discussion in the mexican papers. Something has to be done. Cheers.
The information on the concentration within many sectors of the Mexican economy is taken from analysis done by U.S. Embassy officials, released by Wikileaks. You can find it here: http://www.wikileaks.ch/cable/2006/11/06MEXICO6413.html
You should double check your source’s information before accusing a company of hurting the quality of life of millions. 90% vs 50% is a huge difference.
In regards to Mr. Fernandez’s comments above. Corporate largess, no matter how beneficial to the public, is by no means an indicator of how efficient or productive they are. Raw data as well as something to compare it with is what’s needed to determine what’s efficient or productive. What’s she’s saying is that given historical precedent these companies are in a classic situation in which to become stagnant. It’s not a question of socially right or wrong. It’s a question of what’s best for society overall. Competition generally is.
Plz excuse my ignorance, but how does one look up CEMEX’s remarks on Twitter?
Tx
You can go to twitter and look up @LZambrano. There you can see his posts