If Narendra Modi, India’s prime minister, seeks an example of a democratically elected leader embarked on radical reform, he could look to Enrique Peña Nieto. True, the latter is president of a far- smaller country, and a richer one – Mexico’s average standard of living is double India’s, although poor economic performance in recent decades has narrowed the gap substantially. The two countries’ leaders confront related challenges. Both need to generate market-oriented growth in economies that show a huge gulf between a high-productivity formal sector and a low-productivity informal one. Mr Peña Nieto has embarked on bold reforms. Is his the model to be followed?
In a recent study, the McKinsey Global Institute captures Mexico’s dualism nicely. “There is a modern Mexico, a high-speed, sophisticated economy”, it acknowledges. But there is also a “traditional Mexico, a land of sub-scale, low-speed technologically backward, unproductive enterprises, many of which operate outside the formal economy”. Development means integrating the two.
It is often forgotten that in the 1950s, 1960s and 1970s, Mexico’s economy was highly successful: gross domestic product per head rose at an annual average rate of 3.3 per cent. Then came the debt crisis of 1982 and a lost decade, a botched privatisation programme, the North American Free Trade Agreement of 1994, the financial crisis soon afterwards, macroeconomic stabilisation, a shift to multi-party democracy and the rise of Chinese competition. Throughout this period, growth was dismal: output per worker has grown at less than 1 per cent a year since 1980. Mexico’s GDP per head (measured at purchasing power parity) was 30 per cent of US levels in 2012, exactly the same as in 1990.