Job Creation in Mexico’s Economy Is a Better Solution to the Migration Problem

If Americans have misgivings this week about President Bush’s plan to extend workers’ rights to illegal immigrants from Mexico, they should look to the future, when many more migrant laborers will no doubt begin flowing across the border.

That’s because the root cause of illegal immigration is the lack of employment opportunities in Mexico’s poor economy. And that economy is getting worse, not better.

“We are in the fourth year of employment decline,” says Mexico City-based economist Rogelio Ramirez de la O. The country needs to create 800,000 jobs a year just to keep up with new entrants to the labor force. Instead it has lost 1.2 million jobs in the last three years.

Financial experts in Mexico and the U.S. describe the economy as “bogged down” and its outlook as “horrendous.” President Vicente Fox has failed to win the tax reforms that would give the Mexican government the funds it needs for education -- the key to its prosperity over the long haul. Meanwhile, he also has failed to put in place many of the structural changes that would propel Mexico’s economy to grow faster.

On Monday, Fox welcomed the White House’s immigration plan at the Summit of the Americas in Monterrey, hailing the fact that the “labor rights and worker rights” of an estimated 3.5 million illegal Mexican migrants working in the U.S. “will be protected.”

But a U.S. guest-worker program isn’t the real answer. As Ramirez so rightfully points out: “Mexico cannot continue to pass on our responsibility for job creation to another government.”

Some statistics suggest that Mexico’s economy is on the mend. Government debt has been reduced. Inflation is under control at 3.8%. The peso has been relatively solid, now at 11 pesos to the dollar. And the Mexican stock exchange has performed well.

Yet both U.S. and Mexican financial experts see flaws behind the figures. For one thing, the central government is engaging in off-balance-sheet borrowing by having government-controlled companies float bond issues -- a kind of debt that doesn’t show up on Mexico City’s books, notes Walter Molano, a partner in BCP Securities, a Greenwich, Conn., investment bank specializing in Latin American issues.

John Rhoads, the U.S.-born founder of a Mexican brokerage firm, says that the stock market also does not accurately reflect the misery on the streets.

Though official statistics put unemployment at 3.5%, Rhoads says, there is vast underemployment in Mexico’s 40-million-strong active labor force. “Some 90% of the people earn less than 8,000 pesos a month” -- equal to about $700, he explains. “We have no purchasing power; that’s why the economy cannot grow.”

Indeed, Mexico’s $550-billion gross domestic product expanded by only 1% last year. That didn’t keep pace with the country’s 1.6% increase in population.

What policy changes could help spur the economy?

Fox, whose six-year term began in 2000, has tried twice -- and failed both times -- to push a tax reform package through

a legislature where power is

split among three political parties.

The Fox measure would have instituted a value-added tax to raise more money for the government than the widely evaded income tax now does. Taxes in Mexico account for only 11% of the country’s GDP, compared with levels of 16% to 20% for the U.S. and other nations.

Fox also has failed to secure approval for opening up Mexico’s electricity and energy sectors to foreign investment. That has hobbled growth of electric power and, more seriously, the exploration and development of Mexico’s oil and natural gas reserves.

Even worse, Mexico has failed to adequately promote the formation of small to medium-sized businesses. Reasonably priced credit is not available to entrepreneurs. Thus, few are able to get their ventures -- and their futures -- off the ground.

Foreign investors willing to make private-equity investments in Mexico have a tough time too. James Jones, former U.S. ambassador to Mexico and now a Washington lawyer, has participated in two investment funds seeking to put money into small companies south of the border. In more than five years, Jones says, “we have only been able to find six companies to back” -- a paltry number for a nation of more than 100 million people.

Not all experts are so gloomy. Sri Kumar, managing director for global investment at Los Angeles-based TCW Inc., compliments Fox, the first president in 70 years not to be a member of the Institutional Revolutionary Party. He has succeeded in “bringing the country through a transition to democracy,” Kumar says. “I think Mexico will see improvements in the years ahead.”

It had better. A headline in Mexico City on Monday declared: “Something has to happen in this economy.” For if Mexico’s young people can’t get work at home, there are plenty of opportunities awaiting them to the north.

James Flanigan can be reached at jim.flanigan@latimes.com. To read previous columns, go to latimes.com/flanigan.