To the People of Mexico Jude Wanniski November 24, 1998

Memo To: People of Mexico
From: Jude Wanniski
Re: Why are You so Poor?

1. People of Mexico, can you tell me why you are so poor?
2. I know statistics can be misleading, but the gap in production in Mexico and the United States is so wide that it only can tell us that you are falling further and further behind the people of the United States, with no end in sight. At an exchange rate of 10 pesos per dollar, the per capita GDP of Mexico is not much more than $1500 — while it is almost $30,000 in the United States. In other words, Americans in total produce 20 times more per person than you do in Mexico.

3. This of course explains why so many Mexican people leave their country and migrate to the United States — an astonishing 3 of every 1000 in the year 1997 alone. It helps explain why there is so much political unrest in the southern states of Mexico, where the per capita income is lower than in the north, and where it is more difficult to migrate to a higher standard of living.

4. The gap in incomes and wealth is not only great between Mexico and the U.S., it is great between the richest and poorest within Mexico. The bottom 20% of your population has 4% of the income. In another rapidly growing economy, Taiwan, the bottom 20% have 8% of the income. Sadly, one of the reasons for Mexico's income gap is that some of your most productive citizens migrate to the United States, because there is so little incentive to stay.

5. So I wonder, why are you so poor? Is it because you are inherently inferior, that God made Mexicans to a substandard? Is it because you have a hostile climate? Is it because you are short of arable land? Is it because you lack mineral resources? I think it is self-evident that all of these questions are ridiculous. You live in the promised land with almost 100 million people created in God's image and likeness. We know you have the potential to be great, because so many of your people have lived up to their God-given potential when they have moved north of the Rio Grande. So how can you have lived side-by-side with the United States these past 200 years and fallen so far behind?

6. This is the question that baffles me and one that nags at me. Because I consider myself a friend of Mexico, a good neighbor of Mexico, it genuinely distresses me to think of how little progress you have relative to the progress we have made in becoming the world's most powerful country and certainly one of its richest. It distresses me further to think that a country like China — a land of 1.2 billion people which 15 years ago had a per capita income of $100, is now at a level 10 times that, and at current relative growth rates will have higher living standards than Mexico within the next several years.

7. Perhaps the answer is that it has been too easy for your political leaders to have a porous border to the north, where citizens who might otherwise remain behind and demand change give up without a fight and head for San Diego or Fort Worth. Is that the answer? I note that after the 1994 peso devaluation, as a million of your fellow citizens streamed across the border in search of opportunity, some of your political leaders actually expressed satisfaction that this "safety valve" exists.

8. In the end, you really cannot blame the United States. Yes, our business and political leaders have from time to time given you very bad advice. Yes, the International Monetary Fund has dropped in now and then to administer some of its poisonous prescription of currency devaluation and tax increases. Yes, there have been recessions and depressions and wars throughout the century that set you back. But these are all excuses I would like to make for you, but I cannot.

9. If I do, you will only feel sorry for having been victimized by Uncle Sam, when you should be demanding to know of your political leaders why they again and again fail to protect you from foreign predators — who frequently see a chance to make some easy money in Mexico, at the expense of your ordinary people.

10. No, I won't even tell you how you can end the poverty of your country and tap its fantastic potential. Why should you trust another gringo, dropping down via Cyberspace to pester you with these questions?

11. Your leaders know how to do it. I sincerely believe this. Your own political establishment has a wealth of knowledge, about how economies fail and how they succeed. Your educated class, richly scattered through your three primary political parties — left, right and center — know the way the world works. They know because they have the same access to the history of the world, past and present. But they are afraid of the forces they will unleash, if they take the steps that would trigger a great wave of opportunity and expansion.

12. The United States cannot grow much more than an average of 4% or 5% a year for the next decade, because we are not that far behind our optimum levels. Your country could easily grow at 10% a year, from now until the year 2020, when China expects to be at the living standards where the U.S. is today.

13. If China can grow at 10% a year as it has since it threw off its socialist security blanket in 1978, why can't Mexico? If I were a young man again, living as a citizen of Mexico, I think I would want my country to grow as fast as it could for as long as it could, until I could look the gringos straight in the eye and say: I've caught up with you.

14. I'm not going to tell you how to grow at 10% a year for the next 20 years, except that I know how to do it, but will leave it to you to determine how it would be done. If you believe, as I do, that throughout all of human history, growth has been the result of risk-taking, then you would ask your leaders how to increase risk-taking in Mexico.

15. If they say the rewards to risk-taking should be confiscated by taxation, then you will have one answer and may seek a second opinion with other leaders. If they say the worker should save his pesos, accumulate them in a bank and in government bonds, and then devalue the peso to a point where all the worker's labors have been confiscated, you will have an answer. But you should seek a second opinion. If your leaders tell you that they want the rewards to work and saving and risk-taking to be increased, but not this year and not next year — that you should wait for another generation until the time is propitious. Then, my friends, I suggest you seek another opinion.

16. There was a time in the six-year period of President Carlos Salinas that it appeared to many Americans that Mexico had finally found a path to hope, opportunity and prosperity. I frankly can tell you that there were times when I wished we in the United States could borrow or kidnap your finance minister, Pedro Aspe, to be our Treasury Secretary in Washington. It's no secret that I have publicly called for the resignation of the current head of the IMF and recommended he be replaced by Dr. Aspe. So I know that if you have someone like Dr. Aspe among your nearly 100 million, you probably have many more like him, who know how to advance, but who give up because the path is too difficult.

17. I see that once again your political leaders have produced a plan for Mexico's economy, which involves increasing taxation to a higher level and cutting spending that now alleviates the misery of those at the very bottom of your social ladder. A gasoline tax of $1.60 per gallon? Which of your wise leaders decided this was the path to prosperity? Ask yourself that question and then ask Why are we so poor? If you have an answer, please e-mail a response to me at this address.