November 8th, 2009, Monterrey, Nuevo Leon, Mexico
Ladies and gentlemen, good afternoon:
I am grateful to Mr. Miguel Alemán Velasco’s words and, above all, to his friendship, alike to his wife. Thanks to both of you.
The Honorable President of Costa Rica, Mr. Oscar Arias, and the Honorable Governor of Nuevo Leon, Mr. Rodrigo Medina Cruz, I am pleased to participate in this forum. I have written some notes, a rough draft of some ideas that I would like to read for you.
In order to have a wide sight of the new world era we are engaged in, we should try to compare it with the preceding ones. It is about seven thousand years ago that human civilization began, some three million years after the Homo habilis, and some 200 thousand years after the Homo sapiens rise. Most of the human thrives made during these million years are unknown to us because they just vanished away along the subsistence and procreation practices they served for. Many, many years have elapsed since the first man did emerge; we don’t surely even know if he counts for our truly older ancestor. What we know for sure is that human civilization began about seven thousand years ago.
During this passing of time admirable ancient civilizations have flourished and died: the enigmatic and colossal Egypt, the refulgent and harmonious Greece, the powerful and practical Roman Empire, the magnificent European Renaissance, all of them inheriting us precocious and paramount developments. Yet, it was just until the 19th Century when a formidable and multifaceted transformation began through continuous technological development as its keystone.
Technological development was not unknown for predecessor societies, of course. Sailing navigation, wind mills and many other artifacts and techniques were profitably used and improved since ancient times. Yet, it was not but until the 19th Century when all of the then energy-producing known forms could be generated by a single and most powerful technique, the steam engine.
The steam engine came to introduce thoroughgoing and accelerated change: railroad, steel industry, steamship, and others, all of them producing a big impact in many social fields. This was a steady succession of great leaps forward which impelled many countries to transform themselves in, I would say, a revolutionary manner, so embracing their route to economic and social development. Most of them keep standing as the developed ones.
The key for their transformation lies on industrial productivity originating in the textile manufacture, subsequently replicated by all of the industries and services being moved by steam engines in the most varied economic activities: manufacture, transportation, mining, and even agriculture, whose productivity grew twenty times at that time.
A bigger development came during the 20th Century with the introduction of electricity power and internal combustion engine. Science and all of the economic activities did grow as never before. Population, scarcely amounting ten millions eight thousand years ago, and 100 million two thousand years ago, have multiplied itself seven times to almost seven billion nowadays. All of this is well known for you, of course. The point I want to make is the emergence of wholly new social, political and economic paradigms that such changes did create.
In ancient times, agricultural societies were conjoined with monolithic power and social immobility. Economic wealth was dependant on land and brutal human exploitation. A set of severe, fixed and frequently deadly rules governed human affairs. It is not strange that monolithic rulers claimed divine origins for their authority. The Egyptian Pharaoh, the Aztec Tlatoani, the Inca Sapa, the Japanese Emperor, and the European monarchs should be invested by their respective priest caste in elaborated ceremonies. Political, religious, economic, military and social powers were amalgamated into a single one. This was the reason for the existence of slaves, vassals, human servitude, illiteracy, superstition and blunt ignorance. These humiliating conditions remained almost unchanged even after the invention of the print at the end of the 15th Century since its use was a privilege of the few.
The evolving social changes gradually introduced by a constant economic transformation began to altering such painful state of human affairs. After the Second World War a wholly new society began to emerge. This new society is no longer agrarian, neither industrial even. It is a tertiary or service economic organization evolving into a knowledge and information-based economy, or digital economy, as it has been named. Its engine is technology generating unprecedented growing productivity. In parallel or intertwined with it, a social sea change has occurred from monolithic power to democracy, plurality, diversity, human rights respect, globalization, economic competition, productivity, environment care and constant innovation.
This is a 180 degree transformation in respect to the agrarian societies, for sure. Unfortunately, as obvious as it appears, we have not fully assimilated it yet. The transition from the industrial society to a service-based society has provoked successive crisis, and we already are in the middle of the most recent of them. In a historical perspective, the current crisis did break up at the beginning of the 1980’s, it picked up during the middle 1990’s, and it flared up during the current days.
However severe this chain of crisis could be, we should not underestimate the full social and political transformation we are already experiencing. This change is generous in itself. We are no longer inclined to land or men exploitation. It is well-being what we all are interested in. Poverty eradication has become an economic need, rather than an ethical or social-justice claim.
The poor should be incorporated to economic modernity in order to sustain the economic development of countries. We Mexicans have already experienced a prior massive incorporation of the poor to modern economy. We should not forget the 50 year period, since 1932 to 1981, during which our country steadily grew 6.2 percent annual, in spite of varied ideological orientations of successive governments. It was just during the Great Depression years when the Mexican government and the productive forces agreed to develop a multifarious state policy to transforming the rural Mexico into an industrial and urban society. This has been the biggest change Mexico has successfully undergone.
The range of such a change can be compared to the ones experienced by the United States and several European countries during the 19th Century, and China and Brazil during the present time. Indeed, China is already hastily transiting from a rural-subsistence society to a higher education-based modern society. But unlike Mexico, China has linked its educational efforts to economic globalization, commercial openness, competition and productivity, to become the biggest good-manufacturer in the whole world. Of course, we are not overlooking that its highly competitive cost structure hardly could be equaled by any other country, let us its political system.
By selling goods to the rest of the world, China has filled up its reserve currency coffers. Since 2002 year it has accrued about 60 billion dollars each single year, in contrast to the United States, which have accrued a comparable amount in deficit during the same time period. With such huge gains, China has been able to investing big sums in order to get ten of million people out of poverty year by year. These masses of people have left subsistence economy and ignorance behind to get incorporated into modern economy and higher education.
As I have already said, this is not entirely new for Mexico. What is to be done? Besides what I will say further, we have to get fully incorporated to this new order, the knowledge-based, digital, tertiary, service-based, information, you-name-it civilization. And we should do it in the most intelligent way, that is, by knowing and adapting its paradigms. One thing is clear: this new civilization rests upon our own well-being by incorporating the poor into the market. There is no other way to get sustainable economic growth.
Social assistance and charity are valuable activities in alleviating poverty, yet also to preserve it. So, what is to be done is getting people out of poverty and incorporating it into modernity in order to create a growing middle class being able to improving itself by means of its own efforts. I would like to repeat that Mexico has successfully moved on this way by offering higher education to many people. Of course, a safety net for both the destitute and those who lose their jobs is indispensable. But the important thing is getting them employed. There is no advanced society without an educated middle class, human capital and serviceable infrastructure. Human capital gets accrued through nutrition, health and education. Although this is part of a long-run process, the crucial point is getting the poor incorporated into modernity as soon as possible, so generating the dynamics for unstoppable social change.
As Governor Medina has stated, Mexico’s per-capita growth has been almost null since the external debt crisis in 1982. Instead of implementing development strategies, we have supported burdensome financial adjustment plans. I say this with due respect to the honorable representative of the World Bank here present. The long-established adjustment plans in order to maintain macroeconomic equilibrium have led us to confound instruments with goals. Adjustment instruments like balanced public finance and low-inflation targets have been converted into national objectives, so fiscal and monetary policies overrule growth and employment. We have lived this process for many years.
As I have said, the only useful instrument to overcome poverty is employment, and jobs are created by employers, especially medium-size and small businessmen, who contribute to create job posts the most. In getting people out of poverty, micro-firm jobs are more effective than the most sophisticated social aid schema. Investment and economic activity are required to create them.
Aside my above description and the effects of the world economic crisis, let me go back to the theme of this summit: what is the long-run vision we need in this bountiful era to swiftly and irreversibly become a developed country with a strong, extended and growing middle class, whose increasing well-being works as the support for our own development?
I am aware that the answers partially lie on my own question. I would like to stress that we need a full, bold and strong vision, and a definite long-run course translating itself into a government policy supporting investment, execution and action plans to be fulfilled in successive three-year periods. In proposing three-year periods, I am trying to transmit the sense of urgency we are called for. The Chinese long-run vision is 50 years, but its goals are subjected to five-year terms, an inheritance of the socialist quinquennial plans pace, I guess.
Three-year periods seem suitable for Mexico. Clean-cut policies are needed to transmit and install a sense of urgency. Individual goals and postures unavoidable will diverge in a free society like ours, but they should not cloud the big picture, and that is to become a developed country in a definite time-period.
Three basic goals are education, health and nutrition. We normally talk about these issues and have specific policies for them. They count for our thriving. What we need is to articulate them from prenatal and early care, early nutrition and education up to higher education, all of them being guided by high-quality standards.
Infrastructure development, housing, investment, public and private financing, and adequate fiscal and monetary policies for economic growth, all of them count for our second set of goals. Like Governor Medina, I would like to have a 7-8 percent annual growth rate, like China’s. Yet, a 5 percent rate would beat the right pace, as long as it is sustainable in the long run. This means growth with employment and income distribution. The most effective income distribution is that that is achieved through employment, but this should be reinforced with social expenditure and public investment.
The domestic economy should be efficaciously furnished by all the financial institutions and instruments, including development banks, commercial credit, national savings, public procurement and steady private investment, all of them under the permanent rule of government.
Let me to open a parenthesis. During the last 30 years, Mexico has had four opportunities to quickly get out of underdevelopment. The first of them occurred during the second half of the 1970’s due to very high prices for our then abundant oil resources and easily accessible foreign credit. This was a big opportunity for Mexico’s growth and development.
The second one came in 1989 and the first years of the 1990’s, when foreign credit for the country amply reopened and huge direct foreign investment saw Mexico as a promissory place to reside in. This opportunity was misused.
The third one came during the last years of the 1990’s, after the financial crisis of 1995-1996, because of a vibrant global growth and oil prices as high as 150 dollars a barrel at a moment. This opportunity was lost.
The fourth opportunity is the current one because of long-term low interest rate for abundant financial resources which make profitable almost every economic project. Rewarding projects depend upon financial choices. With four-percent long-term interest rate in the United States, and even ten-percent interest rate (ten years) in Mexico for the government, many projects can be funded. We should not miss this fourth opportunity.
In traveling from earth to moon a threshold speed-pace is needed (about 40,000 km per hour). So there is an income threshold to break through the underdevelopment barrier, about 10,000-12,000 dollars per capita. Such a percentage heavily depends upon income distribution. A very unequal income distribution will need a biggest per capita income to take off to developed levels. A more evenly income distribution will need a lesser per capita income (about 10,000 dollars). It seems that this is Chile’s case. As a matter of fact, such was the per capita income level of Korea and other Asian and European countries (Spain, by instance) when they began to take off. Nowadays they have about 30,000 dollars per capita income.
We are very near to such a level, hence our sense of urgency. We need to take action and advantage of the opportunity for unraveling development. We don’t need more generational sacrifice. On the contrary, development can come relatively fast, about 20 years. Sacrifice is needless because improvement could starts from the very beginning and from the bottom. With right policies, well-being turns to be a daily experience, as many countries attest for.
Finally, I would to emphasize that fiscal and monetary policies should cease to be considered as objectives to become useful instruments for long-run, swift, sustained, above five-percent-rate economic growth. These instruments should efficaciously serve the domestic economy.
I would also like to underline that a powerful economic dynamics needs to be unraveled. As Mr. Alemán has said, we should overcome fear of ourselves and work hard, as most of the Mexicans do. As it can be seen, hard work stands for Mexican’s daily life both within and outside our country.
There is a big potential energy to be actualized by inspiring hope and pride on the basis of a long-run vision and short-term implementation plans all across the country, without confounding instruments and objectives.
We Mexicans are very proud of our past and culture, and we will remain so for the future by working hard day by day.
Thanks.
