More on Mexico's Plutocracy Problem

In an earlier post on illegal immigration, I mentioned a fabulously wealthy Mexican gentleman named Carlos Slim, and his role in restraining the economic potential of the Mexican economy. I have found his name popping up repeatedly since then. The most recent report that I have encountered is "Mexico's Plutocracy Thrives on Robber-Baron Concessions" by Eduardo Porter (New York Times, August 27, 2007, p. A16).

Porter provides some interesting facts:

• Of the 946 billionaires in the world, 10 are Mexican, and Carlos Slim Helu is one of them.


• Carlos Slim (worth US$59 billion) recently surpassed Bill Gates (US$58 billion) as the world's richest man.


• Mr. Slim's net worth amounts to 7% of Mexico's GDP. Bill Gates's wealth is only 0.5% of America's GDP. John D. Rockefeller's (1839-1937) wealth was worth 1.5% of his country's GDP (I'm guessing that he means around 1890).

This son of Lebanese immigrants who clearly has remarkable abilities that most of the rest of us do not have -- and he is entitled to reap the fair fruit of that -- nonetheless did not get to where he is today without significant and morally questionable government help.

In 1990, the government of President Carlos Salinas de Gortari sold his friend Mr. Slim the Mexican National phone company, Telmex, along with a de facto commitment to maintain its monopoly for years. Then it awarded Telmex the only nationwide cellphone license.

When competitors were eventually allowed in, Telmex kept them at bay with some rather creative gambits, like getting a judge to issue an arrest warrant for the top lawyer of a competitor. Today, it still has a 90 percent share of Mexico's landline phone service and controls almost three-quarters of thew cellphone market.

Porter reports that 20% of Mexicans have land lines, less than half of these have cellphones, and only 9% of Mexican households have Internet access. The corrected front page Wall Street Journal Luhnow article on Slim cites the World Bank as putting that land line figure at about 50%.

Mr. Slim's style of wealth accumulation is not rare in modern Mexico. From television to tortillas, vast swaths of the Mexican economy are controlled by monopolies or oligarchies. Many of Mexico's billionaires were created by the government during the privatization of the state-owned companies in the 1990s.

But though the figures may or may not be off, it is certainly true that if men like Carlos Slim would loosen their monopolistic control of their country's economy, they would have more potential customers with a lot more money. As a consequence, they (along with everyone else) would be much richer -- or "prosperous" is perhaps a gentler word.

Porter's leftist sentiments come through in his attempt to sound the alarm here in the United States against big business and wealth accumulation. We are "fast approaching Mexico's levels of inequality." He cites "[t]he concentration of 44 percent of the nation's income among the top 10 percent of taxpayers...." Aside from his seeming unreliability at reporting figures, the difference between our rich and Mexico's is that, in our relatively free economy (it could benefit from being freer), that wealthy 10% generates productive capacity and wealth which spreads throughout the population.

Mexico's Tight Credit Drives Illegals North

People stream across the Mexico-US border in search of jobs. Clearly, there are far too few jobs in Mexico or the pay differential between Mexico and the US is far too high, or both.

Joel Kurtzman, a senior fellow at the Milken Institute, in "Mexico's Job-Creation Problem" (Wall Street Journal, August 3, 2007), provides some illuminating information: "Mexico has a job-creation problem."

"During President Vicente Fox's six years in office his goal was to create six million jobs across all sectors of the economy." During that time, however, "Mexico created only 1.4 million jobs." Of particular interest to Americans is the observation that during that same period, "[t]he number of illegal immigrants from Mexico was roughly equal to the number of jobs Mr. Fox did not create."

Oh, it gets better. Why does Mexico find it so hard to create jobs? They have lots of oil, an abundant and hard-working labor force, long tourist-attractive coastlines, and a shared border with the American economic behemoth. Ka-ching! But jobs are created by entrepreneurs, and in order to create jobs entrepreneurs need access to capital. The problem is that "Mexico's financial and economic structures fail at providing entrepreneurs with the capital they need to create jobs." According to Kurtzman, nearly half the Mexican economy is controlled by one man, Carlos Slim (see WSJ, "The Secrets of the World's Richest Man," Aug 4-5, 2007), and most of the rest is in the hands of a few others. They don't like competition, failing to understand the basic economic fact that a growing economy that is a free economy enriches everyone, even the Carlos Slims.

Read the article for what he says about the oil and banking industries and about household credit and their residential mortgage market. What a mess. "If mortgages were cheap and plentiful -- through the increased use of mortgage securitization tools, for example -- the epicenter of demand for Mexico's trade- and craftsmen would not be California, Arizona, Texas and Florida. It would be in Mexico."

The people crossing illegally from Mexico into the United States are not just job seekers. They are also capital seekers who come here to start businesses. "Solving the immigration problem will not happen unless Mexico solves its job-creation problem."