Free-Market Solutions Also Work for Poor Regions

Last week, a brain trust drawn from the public and private sectors sat down to address poverty in Mexico and its inevitable consequence--immigration. The effort, launched by President Bush and Mexican President Vicente Fox on Sept. 6, 2001, was dubbed the “Partnership for Prosperity,” and its mandate is to make recommendations on what can be done to accelerate the flow of private investment to Mexico’s poorest regions. Although the project hasn’t received nearly as much attention as the continuing bilateral negotiations on immigration, it is every bit as important and is likely to be the center of attention when Bush visits Mexico later this month.

Republicans in the United States and free-market politicians throughout Latin America often have been defensive about social policy, relying on the worn but true notion that responsible economic management, investment- friendly policies and growth create a rising tide that lifts all boats. But with populist passions on the rise throughout Latin America, and with the market reforms of the 1990s under attack there, more is needed in the way of social policy. The U.S.-Mexico “Partnership for Prosperity” could satisfy that need.

Rather than focusing exclusively on government spending to alleviate inequality, the partnership builds on the market-based economic reforms that Mexico has implemented, on the NAFTA paradigm and on the commitment of both countries to free-enterprise solutions. Rarely have two governments tried to formulate social policy on the basis of the recommendations of a private-public partnership, and never has there been so explicit an attempt to harness the engine of private capital to explicit social goals.

Putting some of his eggs in the partnership basket is a wise move by Fox and his economic advisor and coordinator of the economic Cabinet, Eduardo Sojo. The United States, with its deep philosophical roots in private initiative and small government, is unlikely ever to go down the European Union’s path of large, government development funds. Support for large foreign-aid programs in the U.S. Congress dried up long ago, but there is no better way to appeal to U.S. cultural proclivities than to appeal to American entrepreneurial spirit. By this logic, socially conscious business and trade promotion should be the centerpiece of U.S.-Mexico relations.

The partnership also is the logical counterpart to any impending liberalization of immigration policy. It will be hard enough for a well-meaning Bush to generate congressional consensus on a limited liberalization of immigration policy in advance of the midterm elections. Trying to do so without putting in place an assertive economic-development strategy in Mexico would put the cart before the horse, opening the U.S. to the prospect of indefinitely absorbing Mexico’s surplus labor at a time when jobs are being lost in the U.S. economy. Whether or not one supports the large-scale regularization of immigrants in the U.S., ultimately it is a palliative, not a curative approach. The only real answer to migration is one that provides economic opportunities for Mexicans in Mexico. Americans are much more likely to find their comfort zone with a liberalized migration policy if they know that Washington and Mexico City are doing all they can to target the migrant-sending regions of Mexico with private capital.

The businessmen, scholars and government officials of the partnership have been working on the financing of housing, telecommunications, remittances, infrastructure and agriculture. Linking social development to cyber market integration, people-to-people initiatives, integrated financial instruments and mortgage programs is under consideration. Moreover, the partnership is likely to hold its own feet to the fire by building into the effort some means of measuring its success or failure in meeting defined goals. There is a degree of results-oriented practicality and accountability in the initiative that is rarely a trait of government policies, but that is perfectly suited to two presidents with a background in business.

Rural development is one area where the private-sector motif of the “Partnership for Prosperity” is especially compelling. Agriculture receives less than 1% of the total direct foreign investment in Mexico. Yet, 25 million Mexicans, or about 25% of the population, live off the land, and they constitute around two-thirds of the very poor. Increasing foreign direct investment in Mexican agriculture by only 2% or 3% would make a big difference in productivity, incomes and employment.

Anyone who has ever seen the scraggly corn patches and frighteningly lean campesinos of the parched mountains in the state of Guerrero knows that it makes sense to introduce radical measures to stimulate investment. Why not simply declare Mexico’s most desperately poor rural areas to be “rural enterprise zones” and make them tax-free to investors, domestic or foreign, willing to develop rural infrastructure, commit capital and work with peasant organizations to transfer out of corn production and into higher-value-added products? Why not match poor farmers with local and international marketers, retailers and processors in mutually advantageous arrangements?

Let market demand for products aid the Mexican farmer’s shift out of corn and beans, rather than sending in aid workers with government-funded projects for products that may have no market. Government can play a role in getting a few pilot, private-sector matches started, helping to guarantee sanitary standards, creating cooperative extension services and providing credit guarantees for viable projects.

The “Partnership for Prosperity” is, in sum, the next step beyond trade. It is a model that could work not only for Mexico but for the hemisphere at large, especially should Bush’s dream of a Free Trade Agreement for the Americas become a reality. Keep your eyes on this one if you want to see where the most immediate progress in U.S.-Mexican relations will be made.