Inequality in Mexico | World Economics Association
Poverty and Inequality Advisory Unit of the Sustainable In the period, Mexico experienced a sharp increase in both earnings .. the increase in inequality.6 Given the correlation between income and education, this. Given Mexico's traditional fiscal weakness –a tax burden under 12% of GDP, among the lowest in Latin America- inequality and poverty were tackled through. important reduction of income inequality in Mexico, which has almost American and Caribbean Economic Association (LACEA) Congresses in Rio de the region, but also to a reconsideration of the role that higher levels of education.
In relation to the measurement of poverty in Latin America, and of Mexico specifically, one of the most comprehensive methodologies, allowing for international comparisons, is included within the Social Panorama Report of the Economic Commission for Latin America and the Caribbean ECLACone of the regional UN commissions. The methodology for classifying someone as poor takes into account the cost of basic needs in relation to per capita income of households, while considering countries' and regions' consumption habits, as Adam Smith suggested.
The ECLAC report also includes an indigence indicator, which takes into account not the basic cost of overall needs but rather the overall cost of nutritional needs only, thus reflecting the proportion of the population not being able to satisfactorily meet nutritional needs.
There are two major elements which can be observed from the graph. The first is that the peso crisis had a substantial negative effect on the poverty level of the country.
While the overall poverty rate has decreased since according to the ECLAC study, it remains high at slightly less than a third of the total population. The most common method used to measure inequality is the Gini coefficient which ranges from 0 absolute equality to 1 absolute inequality and is highly sensitive to concentrations of income in higher income deciles.
The Gini coefficient varies considerably across countries, according to the undp Development Report the U. S has a higher coefficient. Mexico's Gini coefficient is relatively higher to that of the U. In Figure 2we see the evolution of the Gini coefficient since Inequality has a long presence in Mexican economic history and the years following the consolidation of economic openness since the early 90's have not proven to reverse or modify this tradition as the Gini coefficient has continued to linger between.
This was the case before trade liberalization in the 90's and it continues to be the case today. In light of this, it is necessary to analyze what occurred to the poor and extreme poor of the Mexican agricultural sector prior to and following trade liberalization.
Land tenure has traditionally been very unequally concentrated and socially divisive issue in Mexican rural areas ever since independence from Spain. The lack of land ownership and the dependency on those who possessed it led indigenous peasants to participate in the armed conflict identified as the Mexican Revolution seeking a distributive land reform.
While the beneficiary families did have the right to use the land, they did not have formal ownership of the land, the government retained formal ownership until There is considerable criticism in regards to the effectiveness of the land distribution policy.
In addition to this, the size of the parcels distributed communally or individually were quite small.Why Much Of Mexico Is In Poverty
In regards to this, Williams points out that: From the historical context presented above we are able to identify some of the current weaknesses facing numerous Mexican farmers coping with free commerce both within North America and internationally, specially the bean and corn producers. Prior to NAFTA, the Mexican government aided farmers by guaranteeing relatively high prices for certain crops like corn, beans and dry milk and they aided urban consumers by providing a subsidy on staple products like tortilla.
Several economists and scholars have criticized the lack of effectiveness of the guaranteed pricing policies of the 's and 's in helping the poorest Mexican farmers. A guaranteed price would only benefit the surplus producers who were able to sell their output in the market while seriously harming subsistence farmers with small land plots who were traditionally net consumers and thus were forced to buy their lacking agricultural products at higher prices, and yet unable to buy at the subsidized urban prices Freidman and Legovinim, Even though corn prices are no longer guaranteed, in Figure 3 we see that, partially due to the lack of competitiveness and productivity of Mexican corn producers, corn remains highly priced relative to Mexico's NAFTA trading partners.
Additionally, Hufbauer and Schott have argued that the Mexican government continues to aid Mexican corn farmers by purchasing corn at higher prices than those found in the international market. From toand in part as a preparation for NAFTA, the Mexican government changed the guaranteed price scheme for a comprehensive set of subsidies, including direct income payments based on hectare of production Procampoassistance in achieving greater agricultural productivity by aiding the attainment of modern equipment and technology Alianza para el Campo and infrastructure assistance to livestock producers Produce Capitaliza.
In spite of all these programs, Mexican farmers are considerably less subsidized than those in the U.
Inequality in Mexico and How to Address It | LSE Government
There remains a huge disparity in subsidy levels between the United States and Mexico. Of course the disparity reflects the fact that on average, U. As discussed here, the presence and maintenance of extreme poverty in rural Mexico is rooted in the historical context of unequal land distribution, on the quality of land distributed by the government, on the small parcels of subsistence farmers and on the overall unfavorable state of rural infrastructure needed to facilitate the distribution of products.
Nonetheless, it is also arguably due to the competition represented by imports of heavily subsidized American producers of key products like corn, beans and sorghum who enjoy larger land holdings, better technology and infrastructure to distribute their output. Nonetheless, it is also important to mention that, contrary to what some believe, the NAFTA agreement actually provided a grace period of 14 years before Mexico had to open up completely to imports of corn from the U.
Instead of allowing the gradual rural adjustment foreseen by NAFTA, it was the Mexican government who unilaterally decided to speed up the process and allowed imports of corn over the NAFTA mandated quota almost every year since Yet the increase in the international price of corn in response to the thrust to incorporate ethanol as an alternative fuel between and has significantly reduced the Mexican government's capability of controlling inflation through importing corn.
While the higher corn prices have benefited some Mexican corn producers, the corn surge has been overall damaging to most Mexicans as the price of the tortilla, which constitutes a basic food staple for the bulk of the population, has also augmented and sparked a series of protests in Mexico City early in The overall lack of competitivity of Mexican producers in the production of basic crops like corn, sorghum and beans is quite relevant in analyzing rural poverty as about 80 percent of the cultivated land in Mexico is committed to the production of these crops Wodon, The importance of infrastructure in explaining the lack of Mexican rural development has been emphasized considerably by Hufbauer et al.
It is three time more costly to deliver corn by rail from Sinaloa to Mexico City than by shipping from New Orleans to Veracruz". As a result of the low living standards faced by a sizeable proportion of those working in the Mexican agricultural sector, many have actually chosen to migrate elsewhere. As seen in Figure 4total employment in agriculture, hunting, fishing and forestry has dropped from to by over 2 million workers.
Certainly, this does not mean that prior to NAFTA there was no migration from the rural areas into the cities. Yet the relative lack of competitiveness and profitability involving the production of common crops, in the midst of free trade with the U.
As pointed out by Williams It is also important to point out that not everything has been negative for Mexican agriculture as a result of trade liberalization. Producers of tomatoes, avocados, live cattle, fresh fruits and vegetables have benefited from trade. However, the growth in the exports of selected agricultural products has not been enough to offset the low living standards of rural Mexico nor the persistence of extreme poverty. This is particularly what Williams Mexican NAFTA negotiators were convinced that agriculture itself could not solve rural poverty nor that it could be solved in rural areas themselves, but rather, the problem required strong job creation in urban areas.
The rationale was that the establishment of maquiladoras, that is, industrial plants assembling final products intended to be exported for consumption in the U. Unfortunately, as we shall see, the overall growth of foreign direct investment and trade, which are components currently considered to be pulling the overall Mexican economy, have not been enough to provide sufficient job growth to significantly assist rural and urban poverty, and have actually been associated with some trends enhancing inequality.
According to the Economic Commission for Latin America and the Caribbeanthe Mexican economy has grown at an average rate of 2. The data for the gdp per capita is even less encouraging. A first glance at Figure 5 may give the impression that the gdp per capita has been somewhat increasing from to the current estimate for Figure 6 displays the stagnant per capita gdp growth Mexico has displayed since the 's, that is, since the first steps were taken toward trade liberalization as Mexico joined the General Agreement on Tariffs and Trade, now referred to as the World Trade Organization, in Between and initial estimates for real gdp per capita growth in Mexico has averaged 1.
The slow growth since the early 's, both of the real gdp and of the per capita gdp, must be placed in proper context. In addition to this, it is evident that since the onset of NAFTA trade and investment flows, and their derivative effects, have further and significantly linked Mexico's economy to the economic dynamics occurring in the U.
Inequality in Mexico and How to Address It
During "good times" from to the yearboth economies grew considerably. Likewise, the slower growth rates of the U. Furthermore, the potentially slower growth of the U. Although the Mexican economy has presented relatively slow growth after NAFTA, some predicted results did actually occur. One of those results was that foreign direct investment fueled into the Mexican economy.
Foreign direct investment can be defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor As seen in Figure 7foreign direct investment flows have been considerably higher after NAFTA than in the previous years from to The data is expressed in millions of U.
There are, nonetheless, two things that must be mentioned about the flows of foreign direct investment into Mexico. Firstly, the investment has been mostly concentrated in establishing or endowing companies producing goods or services for export back to the U.
The investment has constituted financial flows mainly from the U. Secondly, the flows of foreign direct investment have been overwhelmingly directed towards the wealthier regions of Mexico. As shown in Figure 8 the investment has been skewed in favor of Mexico City and the northern regions, while significantly absent from the poorer southern regions of Chiapas, Yucatan and Oaxaca.
Mexico City Distrito Federal in the figure received almost half of the foreign direct investment in The concentration of the investment in wealthier and predominantly urban regions has further intensified Mexico's regional disparities. Nonetheless, the concentration simply responds to the fact that the wealthier Mexican urban regions possess the necessary transportation and communication infrastructure as well as the labor pool required to facilitate the exportation of products and services back to the U.
Trade has followed a similar pattern to that of foreign direct investment. From to exports grew from roughly over 60 billion U. However, just as foreign direct investment, foreign trade has also concentrated in the wealthier and more urban regions of the country. Specifically, trade flows have concentrated in the northern industrial states along the U.
The enlargement of regional disparities would not in itself be an irreconcilable problem if employment growth in the wealthier regions were strong enough to absorb the extreme poor from urban and rural areas. Nonetheless, this has unfortunately not occurred as job growth has so far been slow, along with the overall lower than expected economic growth. For example, according to Zarsky and Gallagherfrom to around 6. Additionally, international foreign investment and trade have not been able to considerably spur "spillover effects", that is, independent domestic industrial or productive capacity reflected in an increase of technology, skills and knowledge in local firms and workers.
These "spillover effects" are considered to be a primary conduit to economic growth in the context of globalization. Zarsky and Gallagher As a result of the insufficient job growth, many of Mexico's new jobs since are informal jobs which tend to pay less than formal ones and are generally of poor quality.
Zarsky and Gallagher found that approximately 55 percent of the informal jobs in Mexico created since do not provide any form of benefits. The net result has been that the limited number of formal jobs in the urban or industrial regions along with the unappealing nature of informal jobs have in fact induced strong incentives for Mexican workers to migrate to the United States in search of better opportunities.
Aside from the cyclical nature of the U. The first element frequently cited by economists is that while labor costs are much lower in Mexico than in the U. Mexico has increasingly had to compete with East Asia for foreign direct investment flows and for markets to export products and services to.
The relative success of East Asian nations in obtaining investments from and exports to the U. A recent development that may help to exemplify this is Hitachi's closing of its Guadalajara manufacturing facility in Hitachi is a multinational provider of a wide range of electronic, power and computer appliances and components. The Guadalajara plant was chiefly dedicated to the manufacturing of hard drives and employed approximately 4, people.
In March of the company announced it would close its plant in Guadalajara, Mexico and transfer it to the Philippines in an overall effort to reduce costs Itnews, Lou Dobbs has been influential in bringing this element of globalization and free trade to the American public sphere. It is the rationalization of CEO's of multinationals who have continued to prove that they do not care what happens to the working men and women of this country.
Hundreds if not thousands of big America companies are ignoring the needs and interest of their employees and the communities in which they are based by outsourcing work to the communities and citizens of other nations Dobbs, Certainly, as shown by the Hitachi example, we must add to Lou Dobbs argument that the outsourcing trend does not only affect the American middle class, rather it also may affect developing nations whose labor is or becomes comparatively more expensive in relation to the labor of another developing country.
The issue is thus a lot more complex and global than Lou Dobbs' defense of the American middle class. Another factor hampering Mexican economic and job growth frequently discussed by economic and demographic scholars is the population explosion. From to the Mexican population nearly doubled and went from 53 million to million while the labor force more than doubled from 15 million to 40 million. Inas a reaction to alarming forecasts of population growth and its derivative effects, the government launched a promotional campaign to promote family planning which helped lower the average number of children per woman from 7 in to 2.
The demographic expansion since the 's has been coupled with several economic crises, one in the 70's, another one in the early 80's and one in the mid 90's. Export-led growth combined with the stagnation of real wages caused inequality to rise substantially in the late 19th century. With the help of powerful social actors including unions and agrarian organisations, rural productivity increased and political pressure supported a high minimum and real wage.
For the first and only time, workers were able to share the benefits of capitalist growth. The compression of large measures into a single indicator means there are lots of different distributions that will achieve the same Gini coefficient. Yet, inequality in different points of the income distribution represent vastly different political and welfare implications. In turn, the three panellists proposed new, more accurate, measures of income inequality.
Income Corresponding to the Highest Decile: Inthere wereindividuals in Mexico with more than a million dollars net worth. Role of fiscal policy The solution? Mexico currently receives a disproportionate 5. There is still no inheritance or estate tax.
If Mexico is to balance its developmental disparities, improved redistribution would be a good place to start.