Joel Kurtzman has a rather needlessly
aggressive attack on those inefficient Mexcians on the op-ed page of today’s
WSJ. I’d normally ignore such rhetoric if it came from the likes of Mary
O’Grady, but Kurtzman hails from the rather more progressive Milken
Institute, which is worrying.
Kurtzman starts off by dusting off some old campaign rhetoric from then-presidential
candidate Vicente Fox in 2000, when Fox said he wanted to create
6 million jobs.
Between 2000 and 2006, the period when he was in office, Mexico created only
1.4 million jobs. Though accurate figures are difficult to arrive at, the
Government Accountability Office estimates that during each year of Mr. Fox’s
presidency between 400,000 and 700,000 illegal immigrants arrived in the U.S.
from Mexico. The number of illegal immigrants from Mexico was roughly equal
to the number of jobs Mr. Fox did not create.
Even ignoring from the fact that the math doesn’t quite add up, this is silly
in the extreme. If we start judging politicians by their campaign promises,
there have been much more egregious failures in the US than there have been
in Mexico. But then things get even sillier:
Mexicans with drive, ambition and a willingness to take risks sneak across
the border to the U.S. But they don’t just come for jobs. They also come for
the capital. When these immigrants arrive they don’t just sell their labor,
many start small businesses in the food, construction, maintenance and landscaping
trades. When those businesses are launched, illegal Mexican immigrants hire
other illegal Mexican immigrants. A great deal of Mexico’s job creation takes
place inside the U.S.
Does Kurtzman really believe that it’s easier for an illegal Mexican immigrant
to raise capital to start a business in the US than it would be for the same
person to do the same thing in Mexico? In fact, credit in Mexico is growing
very fast, at all levels of income spectrum – admittedly from a low base.
The banks have an enormous amount of liquidity, and with the government sticking
to a tight fiscal policy, can’t just lend it to the Hacienda any more –
they’re desperate for borrowers.
The really annoying thing about Kurtzman’s essay is that he gives only numbers,
without mentioning growth rates:
Banking, which is conservative and risk-averse, dominates Mexico’s financial
system, accounting for about 55% of all financial assets, compared with just
24% of all financial assets in the U.S… For a country its size, Mexico’s
stock and bond markets are hugely underdeveloped when measured as a percentage
Household credit is also scarce in Mexico and amounts to only about 5% of
GDP, versus 65% in the U.S…
Whereas the U.S. has $8.2 trillion outstanding in residential mortgages, Mexico,
with a population a third the size of U.S., has just $47 billion outstanding.
Kurtzman implies that these figures are low because they’re falling, or at
least not rising. That’s not the case at all. Mexico’s mortgage market has taken
off very successfully from essentially zero over the past few years, as a result
of government policies designed to achieve just that. Household credit is rising,
the stock market is soaring, and the local bond market, which was all but nonexistent
a few years ago, now boasts a highly liquid yield curve extending all the way
out to 30 years.
And in fact in Mexico it’s the local pension funds which are far more conservative
and risk-averse than the banks.
Mexico is a developing country, with a lot of growth ahead of it. It’s only
a matter of time before Mexico sees an IPO boom like the one that Brazil has
had over the past couple of years. Mexico’s financial system is not "antiquated",
as Kurtzman would have it, and insofar as it can be improved it’s not because
Mexicans live in fear of America "taking over" if it were liberalized.
Kurtzman completely ignores the main reason why Mexican financial markets aren’t
more developed – the tequila crisis of 1994-5, which basically caused
the collapse of the country’s entire financial system. At this point, Mexico
has more than recovered from the crisis, and the banks are finally in a position
to start lending a lot of money. But it’s a bit much to start attacking Mexico
in such strident terms for not having done more by now.