I remember reading an essay by PJ O’Rourke years ago where he explored the meaning of the term “developing economy.” Why, he asked, was Mexico still a “developing economy”? It was settled long before the United States was. It has natural resources.
The answer is simple and it is complex. Chiefly however it is because Mexico does not have the tradition of property rights and rule of law that we in the United States do. (Did?) Deeds aren’t always recognized, same with other contracts. If the local big shot wants your property, he likely will take it somehow. The law is sort of a general guide more than it is the law. This is the case in many parts of Latin America.
That is why we should be concerned – for instance – when the president seeks to “govern” outside of his constitutional authority. This is the telltale sign of “developing world” politics and the mother of “developing world” economics.
Where power, and power alone rules the day, not the law, the economy is forever mired in the the ooze of corruption.
Crony capitalism, a growing trend in America, is the way of the “developing world.” It is the way of Mexico. (Though there is always hope.) It should not be the way of the United States.
(From The PanAm Post)
Instead, the model implanted in Mexico is what’s known as crony capitalism, capitalism among friends, or mercantilism. Businessmen don’t compete for the goodwill of consumers, but that of those in power. This story could be told time and again about Mexico. Furthermore, a cursory look at history shows that his has been the predominant model of social organization in Latin America.
Market mechanisms, even today, are supplanted by political favoritism. According a study by the Friedrich Naumann Foundation for Freedom, while Mexico has made important advances in opening up to external trade and developing a stable currency, it hasn’t been able to make the necessary institutional reforms, above all with regard to the regulatory environment and the system of property rights, that favor economic freedom. This facilitates the arbitrary awarding of resources without due transparency and competition, and necessarily mires elected officials in corruption.