Globalization and its effects are simply facts of 21st century life. The pragmatist looks first at those effects that most urgently affect the pragmatist’s life and business, then seeks a pragmatic solution – a solution that can actually work for all involved.
Viewed from here in the southwestern United States, illegal immigration is one such issue needing resolution. The following, reprised from two earlier post to this blog, proposes an approach that offers a real chance for a lasting solution. The pragmatist also knows that band-aids and stop-gap measures may be necessary as a lasting solution is implemented. But the pragmatist does not confuse the temporary with the lasting. — C.H.
A Tale of Two Borders
Benito Juarez, a five term president of Mexico in the mid-19th century, famously lamented “Poor Mexico, so far from God, so close to the United States”. Today, many in the U.S., especially here in the southwest, complain about illegal immigration from Mexico.
Finger pointing didn’t work in the 19th century, and it will not work now – in either direction. Canada is just as close to the United States as Mexico is. There are no significant immigration issues between the U.S. and Canada. The difference is the approximate economic parity between the U.S. and Canada. The solution to the illegal immigration issue lies in addressing the cause of that issue — the economic disparity between the U.S. and our neighbor to the south.
Those demographics and trends suggest that reducing the economic gap between Mexico and the U.S. / Canada is possible over the coming two or three decades. With the active support of its neighbors to the north, Mexico could build a large, globally competitive economy that exports worldwide and builds big new markets within Mexico. With a cooperative arrangement that catches the demographic tide, Mexico’s economic growth need not be at its northern neighbors’ expense.
The prize is a U.S. – Mexican border that works like the U.S. – Canadian border.
Lose the Sombrero
Lose the sombrero, the serape and the siesta. Those old stereotypes hardly fit the modern country that Mexico is rapidly becoming. Two recent news items put this into focus:
(1) The World Business Council for Sustainable Development’s Vision 2050 report [i] projects that, in 2050 — 37 years from now — Mexico will have the fifth largest economy in the world, as measured by GDP. That’s right, #5 — behind China, the U.S., India and Brazil; but ahead of Germany, Japan and everybody else. That may shock the stereotype. However, Mexico is already #12 and growing at about 4% annually, while most of the larger economies are currently growing at considerably slower rates.[ii]
(2) Fifty years ago, the fertility rate — the number of children per woman — here in the U.S. was about 3.2, while the rate in Mexico was a whopping 6.8. That’s right, on the average, each Mexican woman had about 6.8 children. Today, the rate in the U.S. is about 2.0, while the rate for Mexican women is about 2.2. And, the projection for 2020 for the U.S. is closer to 2.1, while the Mexican rate is projected to drop below 2.0. [iii] As Mexico’s population growth rate drops, conditions exist for economic growth per person to increase sharply.
The Giant Sucking Sound
Ross Perot received 18.9% of the vote as an Independent candidate in the 1992 U.S. presidential election, a huge percentage for an Independent candidate. Perot was strongly opposed to the North American Free Trade Agreement (NAFTA). He famously warned of a “giant sucking sound” as manufacturing jobs in the U.S. went south, into Mexico. [iv] Perot lost the election and the manufacturing jobs went. But they went to China, not to Mexico. Why? Labor costs in Mexico were lower than those in the U.S., but labor costs in China were much lower yet:
But that Was Then
As you can see, the difference between labor rates is shrinking because rates in China are increasing much faster than those in Mexico. Add to that the costs of transporting goods from China to the U.S., the logistic costs associated with long lead times from China, currency fluctuations, and the hassles involved with doing business in China. Mexico is becoming more competitive every day.
But wait… there’s more: [v]
>> Mexico graduates more engineers every year than Germany.
>> Mexico has free trade deals with 44 countries, more than any other nation.
>> Minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey.
>> Mexico produces substantially more petroleum than it consumes, and Mexico’s petroleum reserves are sufficient to allow Mexico to remain energy independent for a long time.
As a consequence of all this, five years from now, Mexico is projected to have passed China as a supplier of manufactured goods to the U.S.:
Certainly, Mexico has problems, big internal problems, that must be resolved if Mexico is to take advantage of these opportunities for economic development. The Economist referred to Mexico as “Latin American’s perennial underachiever” — if the political will to manage those problems comes to pass, as appears increasingly possible, Mexico may well lose the “perennial underachiever” tag, along with the sombrero.
What This Means for Smaller Manufacturers
Mexico is a big country, 11th largest in the world by population, with an average age 27.4 years (as compared to 37.1 years in the U.S. and 41.2 years in Canada). [vi] And, Mexico is right next door to the U.S. American manufacturers should remain aware of Mexico and its potential across their entire Value Chain:
>> As a Competitor: As discussed above, Mexico enjoys several competitive advantages over many other nations. Expect Mexican manufacturers to become increasingly strong competitors.
>> As a Market: Economic development requires capital goods and infrastructure – related products and services. As Mexico’s per capita GDP grows, demand for consumer products will also grow. U.S. manufacturers are just as close to Mexican markets as Mexican suppliers are to U.S. markets.
>> As a Supplier: The competitive advantages that Mexico enjoys as a competitor also apply to Mexico as a supplier, especially in comparison to Asian suppliers.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome
Photo credit: Man with Sombrero and Serape licensed through www.dreamstime.com.
[i] Here, the Vision 2050 report cites data from Goldman Sachs. Learn about Vision 2050 at the WBCSD website, www.wbcsd.org. The entire Vision 2050 document and/or a summary are available for free download in about 10 languages. There are also PowerPoint presentations and visual aids available.
[iii] These figures, and many others in this post, are from The Economist, 24 November 2012 issue, Special Report on Mexico. Reprints of the Special Report are available at www.economist.com. In instances where figures are not footnoted in this post, refer to the Special Report.
[v] Information from The Economist, ibid