Tuesday, May 23, 2006

Mexican Working Capital

De la editorial del WSJ:

May 23, 2006

The immigration debate is producing plenty of nonsense, not least from conservatives who claim to believe in market economics. So hostile have these voices become to all things Mexican that they are now even denouncing the money that Mexicans working in America send home.

Mexicans in the U.S. sent an estimated $20 billion back home last year, most of that to their own families. But to hear American critics tell it, these voluntary, private transactions are actually a curse. They are said to be "subsidies" that prevent Mexico from confronting its own lousy economic policies. But this is an argument with more holes than the border fence that Congressman Tom Tancredo (R., Colo.) wants to build.

It's certainly true that Mexico could do more to free up its economy and invite foreign and domestic investment. Mexico's oil industry in particular -- which remains entirely controlled by government -- has contributed to Mexican underdevelopment by financing the political elite and diminishing any appetite for reform. The country has also done far too little to break up domestic monopolies.

But foreign "remittances," as these expat cash flows are called, are a force for economic and political good. As an economic matter, they flow directly from individuals in the U.S. to private individuals or businesses south of the border. This cuts out the government middleman and provides capital immediately for private investment or consumption.

Mexicans use the money to start new businesses, improve their homes and educate their children. In this month's issue of the Cato Journal, World Bank economist Simeon Djankov and two other authors find that while "remittances have no direct effect on economic growth," they do "have a significant and positive effect on investment, without having any effect on government consumption." The authors found such private forms of aid far more helpful than traditional, government-led foreign aid, which they argued had "discouraging" results. What would anti-remittance American conservatives prefer for Mexico: more World Bank loans?

One area where remittances have had immediate reform impact is in the Mexican financial system. Manuel Suarez-Mier, former chief of staff at the Bank of Mexico, says that there were 51 million remittance transactions in Mexico last year, "90% of which were electronic transfers intermediated by the banking system." Banks have been lowering costs and racing to improve service to grab a larger share of this growing business. Mr. Suarez-Mier acknowledges that Mexican banks could move faster to deepen this financial intermediation, but the potential for wealth creation remains huge.

As for the politics, remittances are also a force for reform. They empower individuals, making them less dependent on the Mexican government or on political patronage. Along with the competition to monopolies spurred by free trade under Nafta, remittances give Mexicans another source of capital. This in turn has helped to grow a Mexican middle class that has broken the 70-year monopoly of the populist, and often anti-American, Institutional Revolutionary Party (PRI). Support for the PRI has collapsed this year in the run-up to Mexico's July 2 presidential elections.

We'd be the first to admit that Mexico has a long way to go to turn itself into a growth engine like China that would rapidly raise incomes. A country at Mexico's stage of development should be growing by 8% or more a year, rather than the 3% or 4% it currently manages. But neither is this the Mexico of 1976. To the extent the country has inched toward modernity, the remittances from America that put money and ownership in the hands of millions of Mexicans have been crucial.

As for anti-immigration conservatives, they are already showing they don't believe in free labor markets; let's hope they don't next oppose the free flow of private capital.


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