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Mexico: Impatience Threatens Oaxaca’s Economic Freedom

Oaxaca

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Available: Español

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Development in Mexico has not taken place in an equal manner in all states. This is largely due to the way in which the institutional arrangements in the different states were set up during the period following the Mexican Revolution.

The south of the country was the great loser of the Revolution: the lack of property rights and the deficiency of the rule of law in the country became a very complicated obstacle for those states, including Guerrero, Oaxaca and Chiapas to grow as much as others, which is why they eventually became the poorest in the country.

Lack of freedom

The Fraser Institute of Canada, in its study Economic Freedom in the World, tells us that “Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.” Multiple studies have shown that economic freedom is one of the major factors for the development of countries.

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With this same institute, I have participated for the last 8 years in measuring economic freedom for the states of Mexico and the United States, as well as the Canadian provinces. The results rarely surprise us: the U.S. and Canadian states occupy the first 60 places and the remaining 32 are for Mexicans. The absence of economic freedom and the low level of development go hand in hand, and Mexico is no exception.

Oaxaca’s unexpected success

Building economic freedom is simple, but not easy. Improving it at the state level is a matter of bringing sound public finances, lower taxes, less government spending and less regulation to the labor market. Measurements such as the Fraser Institute’s allow decision-makers to know where economic freedom is and what policies they might implement to improve it.

Oaxaca has gone through a difficult path towards improving its level of economic freedom and, as in all cases, success has not been a straight line but a series of ups and downs with a positive trend, rising in the ranking from the 23rd position among the 32 Mexican states in 2006, to the 6th position in 2019, last year measured by the North American Economic Freedom 2021 study.

It would be very unfair to think of this success as deliberate. Economic freedom was not among the priorities of the Oaxaca government, but by pursuing growth they hit on the right formula: reducing spending, renegotiating debt and betting on some regulatory improvement that allowed them, for example, to have extraordinary growth between 2018 and 2020, as well as being among the first states to manage to recover their pre-pandemic economic activity.

The problem of being impatient

When a state has problems as deep as Oaxaca’s, development cannot happen overnight, there is much to fix. Liberalizing the state’s economy is only the first step; economic freedom attracts investment, which increases employment and incentivizes infrastructure investment; the need for skilled workers stimulates education; and slowly, as we have seen in other examples, economic freedom unleashes a snowball of development.

Oaxaca’s course was undoubtedly the right one, but people do not usually have patience and want immediate results. That is where politics takes over the narrative and the economy takes a back seat. People stop trusting in the slow but steady path to bet on quick fixes and false promises of immediate growth.

These promises have been the workhorse of the populist left in all countries and here the owners of this rhetoric are President López Obrador and his acolytes in MORENA.

Salomón Jara, candidate of the president’s party for the governorship of Oaxaca, promised Oaxacans 10 priorities including the banishment of corruption, free health care and medicine, a “welfare state” and cheap credit. A very attractive wish list without a clear plan on how to achieve them.

Jara won the election last June 5 by a landslide with an absurd government program that not only is not possible to achieve, but will destroy the first steps on the road to development that Oaxacans had already achieved. All because of impatience.

José Torra is an economist, Research Coordinator at Caminos de la Libertad, co-author of the Fraser Institute's Economic Freedom of North America Index, and co-host of the podcast Libertad Aquí y Ahora // José Torra es economista, Coordinador de investigación en Caminos de la Libertad, coautor del índice Economic Freedom of Northamerica del Fraser Institute, y co-conductor del podcast Libertad Aquí y Ahora

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