Lessons from the East – El Financiero

A few days ago, the Chinese Communist Party was 100 years old, this continuity requires thinking about how to achieve their productive transformation into today the second largest economy in the world. This transformation process was present in other Asian countries. This is the case for the economies of Japan and South Korea, which Southeast Asian countries such as Malaysia, Thailand, Singapore, the Philippines and Indonesia are slowly joining. The key element of this transformation was its dynamic investment, which in the Chinese case in the middle of the epidemic amounted to 42% of GDP, and in South Korea 31%, such high investment coefficients were compared to 13.4% in Mexico.

This situation highlights the lack of a long-term transformation strategy for the Mexican economy, we are at a crucial moment, we need to adapt to the practices implemented by the successful countries. These countries adopted the concepts of the English economist little discussed in Latin America, Nicholas Kaldor, to design their strategies, who argued that the best way to accelerate growth was by reinvesting all profits and depreciating all wages. This practice has been emulated by the Chinese economy, where large private companies invest much higher than firms in the United States, Europe or Latin America do. A typical example is Huawei, a telecommunications company, which invests the equivalent of twenty percent of its sales, through which it has achieved impressive growth in the past three decades, to become one of the major telecom companies in the world.

The effort in China has not been limited to private companies, public companies are generating profits that allow for strong growth. This is the case for its companies in the fields of oil, electricity, construction and insurance. All this effort to reinvest as a basic principle is what has allowed companies to grow quickly and with it the economy. This reinvestment practice is widespread in East and Southeast Asia, as is the case with large Korean companies such as Samsung, Hyundai and Kia. The same is happening in other countries in the region.

Mexico cannot transform its economy with such a low investment coefficient, we require a large investment agreement, public and private, so that we can first restore the investment coefficient that existed before the pandemic of about 22%. And then we can increase it. Gradually to reach the level of at least 32% in South Korea. What is required to achieve this goal? It is not just a matter of will, but of a change in strategy where investment is the nerve point, and with that it is possible to generate higher levels of employment and levels of welfare on the basis of production and not on transfers, which must exist, but the foundation of the strategy must be investment.

It is this perspective that should be encouraged as a new administration enters the Ministry of Finance, with the new person in charge of public finances being the man who has been hard at work designing strategies for the private sector. From this perspective, his administration can promote a budget project that raises the public investment coefficient in strategic areas and thus stimulates private investment in different regions of the country, especially in the south and southeast, in order to enhance the strategy of regional transformation. However, the support from the central bank is required to complement the transition efforts with the low interest rate policy, so that it serves as a support so that the multiple businesses that had to close can reopen their doors.

The strategy of raising the investment coefficient to levels higher than those historically observed in our country requires financial engineering that will allow thousands of companies in the country to flourish; In other words, it is necessary to reach an agreement with the financial sector so that the large profits obtained in the midst of the crisis can contribute to transforming the Mexican business fabric, a new financial agreement is required to support production. In this perspective, the new treasury secretary needs to be called in to credit growth in new approaches that encourage a new business community for productive transformation.

Putting investment at the heart of the strategy is essential, it is necessary to re-establish the foundations of the country’s growth model, it requires not only material investments, but also reaching an agreement to increase spending on investment in innovation, which is one of the other significant shortcomings of The country to promote productive transformation with high technological content, so that we can compete on an equal footing with the advanced and emerging economies of Southeast Asia. It is not an easy task, but this is the art of economic policy, which must be reformulated to promote a new stage of development in Mexico.