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PORTSIDE  July 2012, Week 1

PORTSIDE July 2012, Week 1

Subject:

Mexico's Hidden Success Story

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Date:

Mon, 2 Jul 2012 00:35:31 -0400

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Mexico's Hidden Success Story
Country's Progress Calls for Broadening the Policy Dialogue
By Michael Werz
Center for American Progress
June 28, 2012
http://www.americanprogress.org/issues/2012/06/us_mexico.html

The United States is overlooking a real economic and
political success story in Mexico. Our southern neighbor
is going through a transformation of historic
dimensions, yet a large gap remains when it comes to
U.S. public perceptions of Mexico, which are too often
breathtakingly simplistic views of drugs and migration
combined with an un-American belief in building walls
and exclusion.

Mexican society has undergone a deep change during its
decade-long process of democratization. The country has
enjoyed strong macroeconomic growth, and this year its
GDP is growing faster than that of the United States.
But the crucial dimension of Mexico's hidden success
story is the rise of a middle class that is younger,
more educated, wealthier, healthier, and more able to
integrate women into the labor force than any previous
generation.

"Although widespread poverty still exists," write Luis
de la Calle and Luis Rubio in their seminal study,
Mexico: A Middle Class Society, "Mexico is no longer a
poor country." Within a few decades Mexican society
achieved what took over a century when European
industrialization created the first modern middle
classes in history.

Mexican voters will head to the polls this Sunday to
choose a new president. The election is expected to go
smoothly, without major confrontations or doubts about
the legitimacy of the results. It will mark the 12th
anniversary of a transparent democratic process south of
the border.

This success is part of the legacy of President Ernesto
Zedillo, who conceded defeat to the rising conservative
National Action Party over a decade ago, thereby ending
70 years of single-party rule. For decades the
Institutional Revolutionary Party, or PRI, had been a
symbol of corporatism and entrenchment, but the party
reinvented itself in recent years and its young
candidate, Enrique Peña Nieto, looks the likely winner
of Sunday's contest.

To deliver results to an increasingly demanding domestic
polity and its partners in the United States, the PRI
will need to immediately address and overcome widespread
concern and skepticism regarding their democratic
credentials, the party's capability of staying the
course of modernization, and their ability to implement
a smart, resolute policy to manage endemic drug
violence.

Below we review Mexico's economic progress and what it
means for Mexico's future, the United States, and the
incoming administrations in both countries. Mexico's new
economic opportunities

The economic growth of Brazil and the success
stabilizing Colombia usually occupy the most attention
in Washington, D.C. policy circles, with Mexico often
the forgotten neighbor. But the economic success south
of the border is not a coincidence and can no longer be
ignored.

This success is built upon the innovations and progress
in vibrant metropolitan areas such as Guadalajara and
Monterrey. Guadalajara, the capital of Jalisco province
and a metropolitan area with over 5 million inhabitants,
has been called with good reason the "Silicon Valley de
México." The Financial Times's Intelligence Magazine
ranked the Catholic stronghold as a "city of the
future," and the rapidly growing region is estimated to
have the second strongest economic potential in North
America behind Chicago.

The evidence of this potential is overwhelming,
especially in the high-tech corridor that occupies much
of the municipality of El Salto, located between
Guadalajara's international airport and the main highway
to Mexico City. Companies including General Electric,
Motorola, Hewlett-Packard, IBM, Intel, Hitachi, Siemens,
and Kodak maintain manufacturing and research centers in
the area. Indeed the market research firm BMI estimates
that IT spending in Mexico grew 11 percent in 2011,
mostly due to cloud computing, government services, and
massive infrastructure projects.

Not only is Mexico's share of high-tech exports
considerably higher than Brazil's, but the country is
also becoming a center for sophisticated car
manufacturing. German producer Audi's most ambitious
project, an all-new facility to produce about 150,000 Q5
SUVs a year, saw over 20 U.S. states submit bids.
Production is now due to start in 2016-in Mexico. Audi
will join its parent company Volkswagen in the Estados
Unidos Mexicanos, along with Honda, Nissan, and Mazda.

But Guadalajara is only one region in Mexico where the
myth of the maquiladora-that Mexico uses low-wage
manufacturing operations-meets reality. In Mexico City a
strong creative industry has sprung up, ranging from
software design to movie promotion and featuring both
major players and a host of small companies.

Economic expansion combined with a stable and robust
democracy has made Mexico a global commodity in itself,
as it becomes an increasingly attractive place to set up
a business or invest capital.

Mexico's recent development reflects a broader shift
that Eric Farnsworth, vice president of the Council of
the Americas, has aptly described as "The Latin American
Spring," a decade of democratization and economic growth
across the Southern Hemisphere. Farnsworth has argued
that time is running out for the United States to reap
the benefits of this transformation, because "Latin
America is on the move, pursuing partners in Asia,
Europe and Africa."

The emergence of Mexico's middle class due to its
economic expansion has also converted the country into a
sophisticated hub for high-value commodities, research,
and advanced manufacturing. And the country's
educational progress, emancipation of women, and modern
urban culture impact the way Mexican families plan and
conduct their lives-visible, for example, in the rapidly
shrinking size of families.

The rise of the Mexican middle class is the single most
determining issue of the intertwined U.S.-Mexican
relationship. New middle-class Mexicans are a
modernizing force, demanding rule of law, quality
education, and a political voice; members of this group
will determine what Mexico does on the world stage, what
it produces, and what it consumes. Demographic
challenges for Mexico and the United States

Partly as a result of its economic success, Mexico has
one of the most rapidly declining fertility rates in the
world. In 1970 an average of 6.5 children were born to
every woman in Mexico; today the number is 2.05-below
replacement levels and still declining. (see chart)

This means that by as early as 2030 the number of young
Mexicans will begin to decline and the active workforce
will shrink. Mexico will hit its total population peak
in 2047 at 140 million, after which time even the
overall population is set to contract.

This sudden demographic transition has severe economic
implications for the United States, which will find its
economy seeking other sources for labor-a transformation
already visible this year as Asian immigration outpaced
Latino immigration for the first time.

Several trends point to a growing U.S. need for low-cost
labor. More than 75 million baby boomers will enter
normal retirement age in the United States in the coming
years, and declining native-born fertility rates will
approach replacement level. Since native-born workers
are becoming more educated every decade, the need for
unskilled labor will likely grow. Between 2010 and 2020,
occupations that require a high school diploma or less
are projected to make up two-thirds of new jobs created,
and "total employment is expected to increase by 14
percent from 2010 to 2020, with 20.5 million jobs to be
added by 2020."

But too many Americans have taken for granted that
immigration from and through Mexico will continue
indefinitely. Indeed, if the Mexican economy expands
more quickly than expected, U.S. manufacturers and
service providers will soon be tearing holes in the Rio
Grande fence themselves. The United States will be
exposed to a severe shortage of skilled and unskilled
labor that is already affecting the most industrialized
European countries today. The new PRI

The next Mexican government will have to manage the
country's long-term demographic and economic shifts
diligently and in close cooperation with the United
States. Although PRI presidential candidate Peña Nieto
has revealed little about his potential cabinet, he is
keenly aware of the lingering criticism given his
party's history. He has thus repeatedly denied that his
campaign is influenced by the "dinosaurs," or the old
PRI politicians who have ruled Mexico with a heavy hand
since the mid-20th century.

In fact, his campaign staff consists of young
politicians and economists that were not a part of the
old regime, and they have assiduously distanced the
candidate from the old guard. The campaign manager, Luis
Videgaray Castro, is a 43-year-old MIT graduate, and
many of his other upper-level advisors were educated
abroad, at the University of Pennsylvania, Harvard, and
Oxford University.

Ildefonso Guajardo has been touted as a potential
minister of the economy if the PRI wins the July
election. Guajardo is an U.S.-educated economist with
degrees from the University of Arizona and the
University of Pennsylvania. He has spent time working at
the International Monetary Fund and despite a career in
public service was not involved with the PRI during its
final years before their 2000 defeat.

Peña Nieto often argues that the greatest difference
between his group of senior advisors and the old guard
of the party is that his team entered politics during
the years of Mexican democracy. This generation (part of
the newly emerged middle classes), he argues, is
therefore wedded to the ideal of a free and fair Mexico.
It looks as if this new guard will have at least six
years-one presidential term-to prove their potential.

The PRI has self-confidently stated that, "For Mexico,
the elections on July 1st will be a crucial moment that
will set the tone for our future and define the U.S.-
Mexico relationship for generations to come." This is a
tall order and setting such high expectations carries
the risk that failure to overcome entrenched interests-
within the party and in the country at large-could lead
to disappointment. Time to change the conversation

Mexico and the United States are so intertwined that it
is a sad irony the relationship is so often reduced to
drug wars and anti-immigration laws. But neither fences
nor denial can reverse the nations' shared future.
Emilio Lozoya, the chief economic advisor to Peña Nieto,
argued this point recently in Washington, saying that
the U.S.-Mexican relationship must be "more than just
drugs and migrants."

Should he win, Peña Nieto's administration will have a
huge task ahead-including maneuvering a lengthy five-
month transition period. The transition period will be a
precarious time to set a new agenda, send signals to
Washington and the Western Hemisphere, and actively
engage in a broad conversation about the future of North
America. But it is made even more complicated by not
knowing what sort of partner the new president will find
to the north-the U.S. elections are scheduled a month
before the Mexican president takes office in Los Pinos
in December.

Mexican policymakers seem to understand these
challenges. But in the United States, what is commonly
presented as a full agenda for bilateral cooperation
with Mexico usually addresses only trade, drugs, and
migration. This focus must be broadened to include the
hidden part of the Mexican story. Ignoring critical
aspects of this complex relationship makes no sense.
Like it or not, Mexico is a large part of the future of
the United States-and vice versa.

Michael Werz is a Senior Fellow at the Center for
American Progress where his work as member of the
National Security team focuses on the nexus of climate
change, migration, and security and on emerging
democratic powers in Turkey, Mexico, Brazil and India.

For an overview of the elections see the Mexico
Institute's Elections Guide here.

___________________________________________

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on the left that will help them to interpret the world
and to change it.

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