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Peña Nieto’s challenge: Mexico leads the new MIST economic bloc, but middle class wants clear agenda

December 2, 2012
December 2, 2012

Enrique Peña Nieto was sworn into office today as Mexico’s new president. As Peña Nieto vowed to put an end to years of violence and inspire the economy, thousands demonstrated in Mexico City—a sign of the challenges that greet him. To succeed, Nieto must recognize that he inherits a Mexico dramatically changed from the one his party governed 12 years ago, a difference exhibited best in its growing, demanding, and critical, middle class.

Mexico’s economy has sped past Brazil, the region’s largest economy, and is rivaling China, where labor costs have been rising, as a major manufacturer. It’s part of a new clique of emerging market economies, dubbed MIST, for Mexico, Indonesia, South Korea, and Turkey. Because of the country’s growing economic promise, more migrant workers are coming back to work or start new businesses, and more household incomes are rising. These families and individuals form a new class that’s important not just because of their role as consumers but as watchdogs on economic and political reforms.

About 17% of Mexico’s population of 115 million entered the middle class between 2000 and 2010, according to an October report by the World Bank that defined the group as those making between $10 and $50 a day and not likely to fall into poverty. A separate measure based on income and purchasing power (whether a family owns a car or can afford a vacation every year) finds that a little over half of Mexico’s urban population (pdf) were considered middle class by 2002. This year, migration from Mexico to the US came to a halt, falling below zero for the first time in four decades, according to the Pew Hispanic Center.

As consumers, Mexican’s middle class can help the country avoid the middle-income trap, development-speak for economies that grow to a point where they can’t compete with either low-wage economies or advanced economies. Like Chinese central planners who are trying to boost domestic consumption to avoid the same state, Mexico’s new consumers can help shift the country from a manufacturing, export-dependent model to one more insulated from external shocks. In 2009, Mexico suffered a major recession because orders from the US dropped off.

The middle class has the potential to provide internal demand. “Buen Fin,” a retail campaign from Nov. 16-19 modeled on America’s Black Friday, which kicks off the holiday shopping season, boost retail sales 30% over last year. A Brookings study puts Mexico’s middle class in a top 10 list of “new big spenders” (p. 12) for 2020 and 2030, surpassing the middle-class consumption rates of Brazil and France. Consumer confidence is high, although not at levels seen before the recession, it has rebounded quickly. The index rose to 96.8 in October, seasonally adjusted, from 91.7 in 2011 and 86.3 in 2010, according to Euromonitor.

According to a September report by the research firm Euromonitor, Mexicans are spending more on everything from alcoholic and soft drinks to plastic surgery. Dr. Giovanni Betti of the Mexican Association of Plastic, Aesthetic and Reconstructive Surgery, notes a 50% increase in the number of plastic surgery operations in the last decade, the report says. Mexico ranked sixth in the world for number of cosmetic procedures performed in 2010, according to the International Society of Aesthetic Plastic Surgery.

This middle class wants economic growth but also social reforms. Mexican voters elected business-friendly Peña Nieto in July, despite worries that the country would be returning to rule under the Partido Revolucionario Institucional, in power for 71 years. Nieto campaigned on his promise to increase Mexico’s annual GDP to 6% a year. “Middle-class people have different political expectations from either the working class and the rich, they are demanding more education, more in terms of hospitals” and other public services, says analyst Gavin Strong of Control Risk.

They want security from drug and gang-related violence, accountability from their government, and an end to the country’s problems with poverty—over half of the population is still considered poor. Héctor Aguilar Camín and Jorge G. Castañeda write in Foreign Affairs this month of an age of agreement taking shape in Mexico:

The vast majority of Mexicans now agree that the only way politicians should get and keep power is through the ballot box and that the clamor for greater accountability and less corruption is legitimate. They believe that protecting human rights, adhering to the rule of law, and ending the culture of impunity are nonnegotiable goals. They demand due process rights and greater security, and they think poverty and social inequality must be reduced, along with the influence of Mexico’s powerful monopolies and oligopolies.

Indeed, Peña Nieto has his work cut out for him.

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