Mexico Manufacturing Moving Forward

What Mexico needs to do to maximize its potential as an international manufacturing location: three structural reforms

“If Mexico can summon the political will, it has the potential to become a global manufacturing location that is on par with South Korea by implementing three basic strategy changes.”

The aforementioned is the view of an expert on Asia: Gordon Hanson, director of the Center on Emerging and Pacific Economies at University of California, San Diego, and author of a recent academic paper, “Why Isn’t Mexico Rich?”

That question was recently addressed by Hanson, who, in the company of Santiago Levy Algazi, a former Mexican treasury official and now vice-president, Sectors and Knowledge, Inter-American Development Bank, presented his analyses last Thursday, May 3 at a conference entitled Mexico Moving Forward 2012. The day-long conference was held at UCSD’s Center for U.S. – Mexican Studies in La Jolla, and was webcast live.

The changes in strategy changes suggested by Hanson include the following:

First, grant greater access to financing and credit for smaller - and medium-sized manufacturers in Mexico; second, embrace digital technology entirely; and, finally, improve an already-ascending average education-level.

The Mexican manufacturing sector’s ability to grow at all from the mid-1990’s to the present, even as China roared ahead worldwide, is a testament to the solidity of Mexico’s financial and social programs, Hanson said. “The country has a lot of arrows in its quiver.”

Mexico can trace the origins of its strong economy to economic policies implemented after a sovereign default, currency collapse and dramatic contraction in the gross national product in the mid-1990s. After that negative experience, ”three successive technocratic government…with PhD economists trained at U.S. universities managed economic policy” created the foundations of low inflation, fiscal discipline, reducing external debt and increasing trade as share of GDP.

One possible explanation as to why Mexico didn’t grow at the same clip as countries such as Brazil: Mexico “has the bad luck of exporting goods that China sells, rather than the goods that China buys, meaning that China’s expansion has put downward pressure on Mexico’s terms of trade.”

The reasons Mexico did not as well did not have to do with currency exchange, he said, but with the structural changes that he analyzes.

Those changes, said Hanson, are “easy changes -- not easy to do, but easy to define. Will Mexico have the have the political cooperation or will it fall on civil society to do this?” he asked. “The good news is that the country has lots of options.”

In addition to sessions on how Mexico could prosper by following East Asia’s model, other workshops included in the conference’s topics were sustainable development, micro-loans and other self-help projects.

Speakers included Margarita Barney Almeida - Founder and Executive President, GRUPEDSAC; Victor Legorreta - Partner, Legorreta + Legorreta; Francesco Piazzesi - Founder and Director, Échale a Tu Casa; Carlos Danel - Executive Vice-President and co-founder, Banco Compartamos; Gabriel Lagos - Sustainability Coordinator, Casas GEO; Joel Suárez Aldana - CEO, GRUMA; Gabriela Enrigue González - Founder, Prospera; Beatriz Magaloni , Director, Poverty and Governance Program at the Center for Democracy, Rule of Law and Development, Stanford University; and Mónica Tapia, Founder and Executive Director, Alternativas and Capacidades.

Many of these presentations will be put on line at a later time, and will be accessible from Center’s with additional information from the 2012 Mexico Moving Forward conference.