Friday, February 03, 2006

Why is Mexico poor?

This week's issue of Time magazine features a cover story on illegal immigration that I read yesterday. The article basically examines the issue through the lens of a group of Mexican workers, most from the same small town of Tuxpan, that have come to the Hamptons in ever increasing numbers to work as gardeners, construction workers, mechanics, etc. While it raises a number of interesting points, this is the part that got me thinking the most:
A QUICK GLANCE AT THE ECONOMY OF A SMALL Mexican town like Tuxpan makes it clear why undocumented workers continue to head north. Tuxpan's heyday was in the 1950s and '60s, when it gained fame throughout Mexico for its gladiolus. But overproduction slowly poisoned the soil, leaving Tuxpan in a slow decline. In the past decade, flowers have made a comeback, but the salary for working in the greenhouses or out in the field still averages only $10 a day. At the same time, the cost of living is comparatively high in Tuxpan. As in much of small-town Mexico, the large influx of cash from the U.S. has thrown the economy out of balance. According to Pew Hispanic Center estimates, almost half the 10.6 million adult Mexican immigrants living in the U.S. sent at least some money back to their relatives last year, for a 2005 total of $20 billion.

In Tuxpan, as in many other towns in Mexico, the money is rarely used for bettering the community. Instead, there seem to be two impulses competing for those hard-earned dollars: a deep love of one's own family and a desire to show up everyone else's. Everyone buys Mom a house. Everyone buys a truck. Many buy subwoofers and chrome packages for their truck. When the returning workers descend on Tuxpan for the holidays in December, the local Yamaha motorcycle dealer has a field day. Rents in Tuxpan now average around $250 a month; completed houses can cost well over $100,000. Nike shoes cost up to $200 a pair. Seafood restaurants in town charge $10 a plate. "In America, we could go to restaurants whenever we wanted to," says the teenager Carlos. "Here, we can't afford it anymore." And the cycle of migration is self-propelling. Bartender Alfonso Mayo López, 43, lost his job in the fall when the last bar in Tuxpan closed because all its customers had gone up north. López now sees fewer and fewer reasons not to leave his daughter and wife and join his brother in the Hamptons. "The more difficult it gets here," he says, "the more I think about going there."

Roberto Suro, director of the Pew Hispanic Center in Washington, says the great irony of Mexican migration is that it often feeds the same problems that sent people north in the first place. "Many towns have lost the best of their labor force. There's money coming in [from the U.S.] but no job creation back home," he says. "It just shows that migration does not solve migration."

The governments of the U.S. and Mexico are trying to encourage people to put the remittances to better use. In 2004 the U.S. Agency for International Development began a five-year, $10 million program to help Mexican microlenders boost small businesses. And the Mexican government is proud of its 3x1 initiative, a project that aims to unite the federal, state and local governments in Mexico with immigrants in the U.S. to fund programs for improving life in Mexico. But Tuxpan's Mayor Gilberto Coria Gudiño (no relation to Mario) says he doesn't know of any 3x1 projects in the region. When asked if he has a plan for ensuring that the next generation of Tuxpeños won't be lost to the U.S., he says his administration has paid $20,000 for a gigantic Mexican flag to be placed on the highest peak above Tuxpan. "This will send a message to all those who are working up north that they should be proud to be Mexican, not ashamed," he says. "It will tell them that Tuxpan welcomes them home with open arms!"

There are some signs of change, but they're planted in rocky soil. Like Mario Coria, a Tuxpeño named Pancho found wealthy patrons who valued his hard work in the Hamptons. He worked as a gardener at one family's East Hampton estate for more than a decade while his wife Ruth worked as their housekeeper. When the matriarch of the family died, she left Pancho, his wife and three daughters a fair sum of money. Pancho won't say exactly how much, but it was enough to seed his American Dream for Tuxpan: state-of-the-art greenhouses for growing roses, orchids and gladiolus to be sold around Mexico. He hoped to supplement his inheritance with low-interest loans that the state of Michoacán earmarked for returning emigrants. He says the loans would allow him to employ up to 40 people. "When this greenhouse gets going," says Pancho, "I hope to be able to save many people from having to go to the Hamptons, myself included." Right now, however, the several plots of land he bought in the hills outside Tuxpan lie fallow. Applying for the loans proved more complicated than Pancho anticipated, and he has no backup plan. He ended up spending much of a recent visit to Tuxpan driving his beat-up Dodge Caravan around town, drinking with old friends, trying to figure out how to raise more money.
I'm certainly no expert on Mexico's economy, but if I had to guess what's holding it back, this excerpt may explain a lot. Mexicans send a cool $20 billion back every year in remittances. That's not exactly chump change -- it's more than the GDP of Costa Rica. And rather than invest that money, it's being spent on chrome for their trucks. But plainly Mexicans are not averse to saving or doing without -- while they live in the Hamptons the article notes that they frequently have more than a dozen people in the same house with few possessions.

My suspicion is that there isn't much for them to invest in. Indeed, the last paragraph cites an experienced gardener who already has some money of his own and is looking to start a business that he is familiar with, and yet is having difficulty getting a loan. Why is that?

Here in the U.S. you can be marginally employed with zero savings and still get bombarded for credit card offers. Banks will will give you interest-only loans to buy a house. You can have a terrible credit history and still buy a car. Yet in Mexico getting a loan appears to be a major problem even for a seeming good candidate. I decided to investigate this further and checked out the World Bank's online publication "Doing Business" that examines how easy it is to do business in most countries. Fortunately they just issued a new report for Mexico. Here's what it says about obtaining credit:
Access to credit is consistently rated by firms as one of the greatest barriers to operating and growth. Small businesses are constrained the most.
Big surprise.

While everyone can talk and talk about what the U.S. government needs to do to halt illegal immigration, the real solution is for the Mexican government to fix what's wrong with its own economy. Although I don't have all the answers, I suspect that it will take more than just buying really big flags.

4 comments:

Anonymous said...

I am Mexican and I have to agree and disagree on many points. I think the article is pretty accurate, but your interpretation of it is a little off.

Several points: remember this is rural Mexico. 80% of Mexico is urban. Most immigrants come from rural Mexico.
Second, you cannot blame the entire government for what a small town mayor does. It's like blaming the White House for what somebody at Paris, TX with less than 1,000 residents does.


Now going into the article, one of the reasons these people basically waste the money they so hardly worked for is lack of education. They simply do not know any better. Even if they didn't have credit available, they could build smaller houses and put a small store or save for their children's education... but these are people with low education.

Now, Mexico's poverty also dates back from corruption, to it's beginning. Spaniards came to Mexico to rob, to get Gold, they stablished monarchies. The average Mexican was always stepped on. Although Mexico became independent of the Spanish Monarchy and powerful families, that kept going for many years and still many have that mindset. That's why in Mexico, white people are treated like Gods and everyone wants to have white children.

Not to mention that several countries have also taken advantage from Mexico, like the US which stole basically half of it's territory. American history can say whatever they want, but every Mexican knows that was stolen. "bought by force"... sure there was bloodshed on American Soil by Mexican troops just like there were weapons of mass destruction in Iraq. You get my point.

Sorry for being so random, I just wanted to give my 2 cents. I'm a small town Mexican and know how it is.. I now live in the US and have a college degree. I can see clearly the pattern. Plus there is much much more.

Colin said...

Thanks for your comment. I am curious, however, what you think the US taking land from Mexico has to do with Mexican poverty? Do you think that if California, for example, were owned by Mexico today that it would be just as prosperous as it is today? Frankly I doubt that very much. I suspect that Monterey, California would look more like Monterrey, Mexico than the wealthy community it is today.

Unknown said...

I am Mexican too, and i agree mostly with the article and disagree with the comments of my countryman.

Bottomline, thats what said my countryman its the classic thinking why we still poor: "its not our fault, we are not responsible for that, so we keep as we are".

Its a cultural behavior, not only in rural, also in cities, that we dont know how to manage money. The first thing we do with it to expend it. We do not save, nor invest. If we dont have enought money for buy something, we ask for loans much bigger than our income.

An add to that cultural behavior the complexity of the goverment and
corruption thats blocks people
to make bussiness, and rewards
the informal economy.



We cant control our ansiety to buy. The proof of that is that many bussinesses that give mini-loans are arised.

And at the end, "is not our fault." "Its because Spaniards came to Mexico to rob, the US which stole basically half of it's territory, and the weather its horrible"

The people who want to improve, will make everything that need to get better. Period. If not have an education, they will get it, if they dont have the ressources, also they figure it out who to get them,
no matter how much time or effort is needed.

But the people who want still poor,
thinks that is because the education is not
supplied by goverment, the jobs doesnt appear like magic, the
investements dont fall from the sky.

Anonymous said...

This is exactly where America is heading in the future. Spending money we don't have, not saving money, trade deficits to countries all over the world; there is no way we are going to be able to sustain our quality of life in the long run. It might not affect the present generations, but our posterity is the one who is going to feel the impact of irresponsible fiscal policy over the past 30 years.