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07/27/2012

Rich Mexicans, poor Mexicans

How is Mexico’s middle class faring? That is far from an easy question. And it is one that might have addled many readers in recent times given conflicting reports.

To start with, Mexico’s wealth is distributed unevenly. Scroll to page 2 of this website to see the income disparity between Mexico’s 31 states and the capital of Mexico City. Mexico has the world’s richest man, Carlos Slim, a fair number of really upscale areas that tourists might see, and an awful lot of poor people living in shantytowns, especially in southern states.

Of Mexico’s 113 million people, 52 million live in poverty, says the National Council for the Evaluation of Social Development Policy, the state agency that measures such things.

The balance between the better off among the poor and those who might fall in a category considered middle class is murky. That’s why you get headlines with far different slants like the following:

“Mexico’s new president faces long grind on poverty,” Reuters said in a story this week.

“Mexico’s middle class is fast becoming its majority,” the Washington Post said in a March 17 story. The paper followed up this week with a story headlined, “Returning migrants boost Mexico’s middle class.”

The New York Times last year wrote a story on the dropping numbers of Mexicans migrating to the U.S. It was headlined, “Better lives for Mexicans cut allure of going north.”

I’ve played into this debate as well. In a series on Mexico’s future that ran in June, an article on factory workers carried the headline, “Mexico’s ‘maquiladora’ labor system keeps workers in poverty.”

Very smart people disagree in this debate, including highly skilled economists, academics with decades of experience studying Mexico, and journalists taking a crack at the topic from different angles. It underscores the complexity of the issue.

Those who argue that the middle class is expanding point to improving education levels, shrinking family size, greater availability of cheaper consumer goods, remittances of $22.7 billion last year, and rising per capita income.

All of these factors are backed up with empirical data.

Just as in the United States, though, many people who’ve climbed into what might be considered middle class (definition, anyone?) are “one health emergency away from poverty.” How do you measure those people? Shannon K. O’Neill of the Council on Foreign Relations has a blog post here about the issue.

This issue has given some heated debates in the last couple days on a private bulletin board among Mexico watchers, with valid points by those who say a middle class is growing and those who say the data is skewed or doesn’t match reality.

Chalk me up among the skeptics. Sure, there are pockets of prosperity. See this story I recently did on the aerospace sector, whose workers are solidly middle class, more so than the booming automotive sector.

And returning migrants are also a source of relative prosperity.

But will there efforts be transformative? El Salvador offers an illustrative example. Fully 25 percent of the country migrated to the U.S., beginning with the civil war in 1979. In places like Intipuca, in La Union province, some signs are in English and returned migrants own most businesses. Remittances are huge but a lot of it has gone into commerce, not into production.

Now for some fluffy, non-empirical observations. I’ve lived in Chile in the mid-1980s, and in China last decade. Both are places with powerful forces toward expanding a middle class. Opportunity there is tangible. You smell it. People have dreams, and many are turning into reality. Another place where I lived, Peru, has also gone through a transformation, with poverty levels dropping from the mid-50 percentile to the low 30s today.

Does anyone sense this level of hope in Mexico today? Very few of the people I interact with. And one factor is the state. No broad policy exists at a grassroots level to truly open doors to the poor and the middle class, at least with the intensity I've witnessed in Peru. What’s more, Mexico suffers from what I’d call a predatory bureaucracy. Who can imagine a better live than being a division or bureau boss at a secretariat, having funds to entertain, featherbedding the staff with friends and mistresses, and having iron-clad social ties to godfathers who put you in the post? When that changes, Mexico will transform.

I’d be glad to hear what anyone else thinks about this issue.

In the meantime, I’ll be out of the country till Aug. 12 on holiday.

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John Randolph

Hi Tim,

As a retired US Border Patrol Agent, I have one burning question. Would the undocumented from Mexico come to or stay in the US if they could make a decent living wage working at home with their families? The day that they are free to prosper at home will be the day that significant economic and social changes have taken place in not only Mexico, but the US too.

watstain2474

The balance between the better off among the poor and those who might fall in a category considered middle class is murky. That’s why you get headlines with far different slants like the following:

“Mexico’s new president faces long grind on poverty,” Reuters said in a story this week.

paulstrecker

I must agree with the idea of proper education, shrinking family size and greater availability of cheaper consumer goods really helps in their country's economy.

Trever

I would say that Mexico, atleast in Saltillo, has a pretty big middle class. There are definitely a large quantity of poor here but I would be surprised if it was greater than 30%. I suppose you can thank a healthy automotive industry and infonovit for that. That is however the last time I'll praise the government. The government is first and foremost the reason for Mexico's poverty.

My opinion to change that:

1: Allow all politicians to be elected indefinitely. Politicians are more likely to do a good job when in office if they can stay in office. When the PRI candidate trying to get elected follows a PRI term and they run on a "change" campaign.. I consider this to be a problem.

1B. An internal audit function in the Mexican government is desperately needed. Case in point. I have a friend who is a software consultant for government branches of all levels in Mexico. He indicated that you cannot do business (win contracts) with the government without kickbacks. The standard kickback is between 10%-20% of contract value. His contracts typically range between half a million US$ to 5 million US$. No matter what the region and what the level the rule holds true 100%. He has personally delivered 2 million pesos to a politicians house in order to win a contract.

2. Fund education more and ensure the dollars are getting in to the classroom and not the beauracracy. I see it every day in the employees that I work with. People with high school educations here can't perform even basic calculations and problem solving. The private schools are no better. Engineers, accountants, lawyers, almost all have no abilities after graduation and 5 years in are still barely marginal at their jobs.

If Mexico can fix corruption and fix education.. it should have an easy time developing a middle class. I however do not believe that this will ever take place.

Lore Weiner

Totally agree with your "fuzzy" yet compelling logic: you don't feel the same level of hope in Mexico as one senses in China, Peru or even Colombia. And yes: one of the main reasons is the "predatory bureaucracy". The fastest, steepest and surest way up the Mexican socioeconomic ladder is (and always has been) politics -- if not crime. That's the way things are - being an "entrepreneur" means setting up a taco stand (or similar mom & pop biz) and moving up the food chain one generation at a time. The idea of developing a high tech or cutting edge "venture" is reserved for hijos de papi and the privileged elite. Mexican politicians are obviously to blame but also the population which, despite being "aspirational" (hence blown up claims of middle class), is anything but. Look at the culture: Mexicans work to live - not visa verse. Surrounded by good food, friends and family today, why worry about tomorrow? Though they are among the nicest and hardest working people I know, Mexicans are - in a word -UNAMBITIOUS.

Arni fullerton

I am very familiar with the Caribbean region of Mexico
Up until 2008 with new schools and other public programs being funded out of the Fed and state government coffers things were looking quite good..but
as you can see from this following blog http://mexicogulfreporter.blogspot.ca/2012/05/cancun-zetas-extort-even-street-vendors.html
A new taxing body with very tough enforcement is being imposed on business and this will be having a major impact on Government revenues to co their part in rescuing the poor with education etc..in addition extortion as well as fear is having its affect on tourism and Expats living in and moving to Mexico as well as local business..as I understand it across most of Mexico...

don Gabacho

As long as the Mexican Government sanctions and protects elite 'paracaidistas'to squat businesses and appropriate, as their own, the enterprise, work and profit of others, Mexico has no hope.

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Tim

This blog is written by Tim Johnson, the Mexico bureau chief for McClatchy Newspapers.

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