Mexico has false expectations of economic reform

Freedom Newspapers

The tragedy of Mexico is that its bright and energetic people have such a dysfunctional government. Even the administration of President Vicente Fox, whose National Action Party victory in 2000 ended 71 years of sometimes brutal rule by the Institutional Revolutionary Party, has found it difficult to make changes, especially on the economy.

His one indisputable achievement has been to advance a multi-party system in Mexico. But his state of the union address last week, given before the Mexican Congress, was disrupted by protesters and jeers from congressmen.

“Before he could start his speech,” reported The Associated Press, “Fox had to wait as congressional members shouted insults and held up signs reading: ‘Another lie!’ He was disrupted repeatedly by hecklers. … Some 200,000 non-emergency health-care workers walked off the job last Wednesday and thousands of other union members, from teachers to telephone workers, tried to encircle Congress in an unsuccessful attempt to keep Fox from giving his speech.”

Fortunately, he was able to begin. “A democracy that brings results ensures its permanence,” he said. “Governments are temporary. States owe their permanence to the soundness of their principles and values, to the strength of their institutions and to the maturity of their citizens.”

That’s true enough. But with four years gone already in his six-year term, his administration just hasn’t brought results.
As we have noted before, his problem is that he hasn’t fulfilled his promise to get the economy moving. “He didn’t use the tremendous political capital he had early on in his administration to do the necessary reforms,” Ian Vasquez, director of the Project on Global Economic Liberty at the Cato Institute, said. “Instead, he’s built up over the past several years a false expectation of economic reform.”

Part of his nation’s tragedy is that his epochal displacement of the long-ruling PRI coincided with the economic slump of the United States. “Mexico’s economy is integrated with that of the United States,” Vasquez noted.

If Fox had been elected in 1994, the late-1990s U.S. economic boom might have carried him and his reforms along with it.

But Fox has committed his own foolishness in advocating tax increases in a country burdened by PRI-era high taxes. Mexico’s top income tax rate of 33 percent begins at just $20,000 of income, compared to the much higher $312,000 for the U.S. top rate of 35 percent.

Such punitive tax rates especially hurt those starting new businesses and creating jobs. Just when an entrepreneur starts making a little money — just $20,000! — the government grabs a third of it — money that could have been used to grow the business and create jobs.

What now? “It’s probably too late for him to do major reforms, but one never knows what political developments will arise,” Vasquez said. One thing’s for sure, so long as Fox refuses to even advance major cuts in tax rates, they’re not going to be enacted.

At least he revived party competition in his country.
In the next presidential election in two years, that means there could be some real competition. We encourage all Mexican parties to advocate major cuts in tax rates — then enact them.