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| Could this be the future of Mexico? |
It is no secret that Mexican president Ángel Manuel Lopez Obrador (AMLO) has been steeped in the same political and economic philosophy espoused by Hugo Chávez and Fidel Castro, which is one of a powerful leader with near-absolute control whose objective is to guarantee the basic basket of goods and services to his people at little or no cost.
It is also no secret that this path is that of complete disaster, as can be easily seen when one looks at Cuba and Venezuela.
In fact, it is my opinion that the collapse of Venezuela is the only thing that is saving Mexico from catapulting itself headlong down this path, and if not for the cautionary tale that Venezuela is to the world, there would be nothing to stop this from happening: AMLO won by a historically wide margin and he enjoys a majority in Congress, so he can pretty much do whatever he wants to do.
With the Mexican economy teetering on the edge, the next steps that AMLO takes are all the more critical.
Currently, Mexico suffers from a crisis of uncertainty.
- Will NAFTA II pass in the U.S. Congress (the answer? yes)?
- Can lawless states like Guerrero and Jalisco be brought under control or will this contagion spread?
- Are any public/private partnerships safe from the axe?
- Can PEMEX turn its ship around and avoid dragging down the economy?
- Can the "informal" economy be regulated?
For the solutions, AMLO is going to look toward greater centralization of power and greater government control over goods and services. He will do this because it is his instinct to do so, and because politicians in his party are suspicious of the private sector.
Therefore, getting Mexico to the level of per capita GDP where it easily could be if not for the inclinations of the ruling party will be very hard, and it may require an economic crisis or a change of government, but I hope not. I see a level of pragmatism in AMLO's approach to government that makes any outcome possible.
What should Mexico do to turn things around and get on the path of growth again?
- Dump PEMEX.
- The same people who dug this hole are not going to pull themselves out of it.
- Sell the assets and the rights to exploration and use the proceeds to buy out the pension obligations for cash.
- Change the mineral rights laws to allow private ownership but keep the excise taxes.
- Open up fracking pretty much anywhere and everywhere.
- Remember that the free market turned the U.S. in to the #1 oil producer in the world against all odds -- when in doubt look to the U.S. for guidance.
- Establish a national land tax structure.
- Currently, property taxes in Mexico are ridiculously low, a mere pittance, which is NOT a good thing.
- Landowners have little to no incentive to put their lands to productive use since it costs them almost nothing to just sit on them waiting to "hit the lottery" when the next big multinational corporation comes along looking to build a maquiladora or big box store.
- A land tax with a homestead exemption will free up large parts of the country to economic development and will help diversify the tax base.
- Lower the IVA tax to 8% nationwide.
- For over half of Mexico, a 16% IVA tax translates to 16% LESS of goods and services that they can afford to consume.
- Almost all of this tax cut will be ploughed right back into the economy.
- Get rid of antiquated and protectionist import regulations.
- Stop protecting new car dealerships and liberalize the import regulations on used cars.
- Stop protecting domestic garment producers and liberalize the import regulations on new and used clothing.
- The grassroots effect of liberalizing import rules will create millions of new jobs.
- Restore the rule of law to the entirety of Mexico.
- Make the distinction between cartels that traffic in substances that are in high demand in the U.S. and cartels whose goal is the establishment of pseudo-governments for the purpose of imposing excise taxes on the Mexican population and local businesses (bribery, extortion, kidnapping, outright theft).
- Drug trafficking is a problem of demand, not supply. If Mexico is not meeting the demand other countries will, and it will not end until the demand dries up. Mexico can go bankrupt fighting the DEA's war or they can be smart about it.
- Keep in mind that being labeled as a "Narco State" can have disastrous effects on the economy so tread carefully.
- The Mexican Constitution must be the ONLY law in Mexico and radical steps are needed to restore peace and tranquility, including widespread imposition of martial law and suspension of habeas corpus.
- Lower the corporate tax and establish a more progressive personal income tax structure.
- A lower corporate tax will attract greater foreign investment which will lead to high employment and better salaries.
- The current income tax structure hurts private spending and the economy as a whole.
- Simplify the legal processes for starting and operating a new business.
- Currently, over HALF of the workers in Mexico do not pay taxes because they are working "under the table" so to speak.
- The barriers to opening new businesses are extremely high and the obligations for periodic reporting are onerous and difficult to comply with.
- Get rid of the need to hire a public notary to draft articles of incorporation.
- Everthing a new business owner needs to form a private corporation should be available ONLINE and at LOW COST.
- Instead of monthly income tax reporting, try quarterly reporting.
- Current policy is a HUGE deterrent to economic growth.
- Look to the U.S. for ideas on how to simplify and liberalize the process.
- Make ending the informal economy a TOP PRIORITY of this government.
