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Two Nations Indivisible: A Roadmap for Modern Mexico

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In many respects, Mexico is moving forward, boosted by nearly two decades of post-NAFTA economic transformation. However, the country still suffers from serious problems related to corruption, a weak legal system, and an ongoing (though declining) wave of organized crime and violence. So far in 2013 Mexico has attracted billions of dollars of new investment from foreign companies, but it has also witnessed the emergence of vigilante groups in several parts of the country where the federal government has been unable to effectively combat organized crime. Shannon O’Neil’s new book Two Nations Indivisible: Mexico, the United States, and the Road Ahead, insightfully analyzes and explains the different and at times paradoxical aspects of modern Mexico. Throughout the book, O’Neil livens the narrative with well-told anecdotes drawn from her own experiences in Mexico City and other parts of the country. She distills more than two decades of research into straightforward prose and also shares the stories of the friends and acquaintances she met through the years.

On December 1, 2012 Mexico’s new president Enrique Peña Nieto took office, promising to deliver robust growth and push through an ambitious reform agenda. A new chapter has opened in Mexican history, but in many ways the country is still defined by the dynamic economic activity and unfortunate violence that made headlines during the previous administration of Felipe Calderón. Ciudad Juarez, the Mexico border city known for its modern factories and strip malls and disturbing levels of cartel killings and street violence serves as an example throughout the book. “Juarez today mirrors Mexico’s…larger dilemma. Can it realize its potential and become a hub of North American competitiveness and interconnectedness? Or will it succumb to inept government, weakened communities, and escalating violence, walled off rather than embraced by its neighbor next door?” O’Neil asks.

Throughout the book O’Neil weaves together analysis and anecdotes about Mexico’s expanding corporations and the unfortunate persistence of violent crime in many parts of the country. “Overlooked, underreported, and at times even blatantly ignored in the United States is the positive side of what is happening in Mexico. Yes, the Mexican government faces significant challenges—the most urgent being security. But as dismal as the current news is, Mexico stands on the cusp of a promising future. Mexico’s real story today is one of ongoing economic, political, and social transformation led by a rising middle class…and enterprising individuals and organizations working to change their country from the inside,” she writes.

Even during recent years of cartel crime, modern Mexico has emerged a vital trade partner for U.S. businesses. Every day one million people and more than one billion dollars worth of goods cross the border, but most news coverage focuses on the drug cartels, the violence, and the US$6 billion that flows back to Mexico every year from the illicit drug market in the U.S. Overall, these illegal cash-flows account for a small fraction of Mexico US$1.1 trillion dollar economy. Despite the violence, at corporate campuses across Mexico, a more positive trend is at work.

“Integration with Mexico has allowed giants such as General Motors, Johnson & Johnson, General Electric, and Hewlett Packard to lower costs and compete in global markets where they would otherwise be excluded—creating more exports and jobs for both the United States and Mexico in the process,” O’Neil explains. As Mexico’s policymakers steered the country through the tumultuous years of the 1980s and 1990s, they earned a reputation for implementing strong macroeconomic policies and fostering a new era of macroeconomic stability and investor confidence. Throughout the book O’Neil highlights the specific examples of international corporations such as Citigroup, LG Electronics, Home Depot, and Whirlpool who opened facilities in Mexico as well as the cases of Mexican companies such as FEMSA, BIMBO, and Cemex that expanded in the U.S. and elsewhere in Latin America. GM, Ford, and Chrysler have all made billion dollar investments and hired thousands of workers in Mexico in recent years, a fact that helped these companies earn a combined US$12.7 billion in 2012. Even as the U.S. economy sputters, Ford recently posted its highest quarterly income growth rate in a decade. Likewise, Cemex a Mexican company that has emerged as one of the world’s leading cement companies (including in the U.S. market) posted net earnings of US$4.8 billion in 2012. Grupo BIMBO, a Mexican company that owns Sara-Lee and other U.S. brands has emerged as the world’s largest bakery, reporting net sales of US$14 billion in 2012.

The result of this evolving economic relationship has resulted in profound changes in Mexico. “Three generations ago, the vast majority of Mexicans lived in semi feudal conditions, tied to the land and political bosses…. Today Mexico is a consolidating democracy, an opening economy, and an urbanizing society,” O’Neil explains. Although more than half of Mexico’s citizens have joined the middle class, a figure unprecedented in the country’s history, more than ten million Mexicans live in extreme poverty, far from the benefits of the country’s modern era. Overall though, O’Neil’s assessment is positive. “Mexico’s macroeconomic stability (even with slow growth) has been particularly beneficial for the poor,” she says. The economy's shift from protectionism to export-led growth corresponded with a trend of rural-urban migration and a more than two-fold increase in per capita GDP. Prices for consumer goods have fallen by half.

Mexico is moving forward but serious challenges remain in the road ahead. “Woven into the new landscape of skyscrapers, shiny cars, and iPhones are marginalized millions struggling just to make ends meet,” O'Neil explains.  Lost in the mix are the small-town farmers who reside in tiny enclaves in the isolated hills of southern Mexico, unwilling and in many cases because of poor access to education, unable to shift away from their traditional patterns of economic activity. O’Neil says, “some of the biggest aggregate losers from NAFTA were Mexico’s small farmers, and rural poverty increased in the years following the passage of the free trade agreement.”

Overall, however, Two Nations presents a positive outlook on many trends in modern Mexico. Throughout the book, O’Neil explains that Mexico is a country in transition and that despite the challenges it faces, Mexico is moving forward. Mexican billionaires such as Carlos Slim and Ricardo Salinas Pliego have gained tremendously over the past few decades, but new reforms should further widen the spectrum of the country's population that benefits from economic growth.

“The magnitude of Mexico’s economic shift is hard to overstate [but] to truly transform Mexico, Peña Nieto and the PRI will have to take on the powerful teachers union, break up concentrated economic control, spread financial credit more broadly, create a stronger and fairer court and law enforcement system,” O’Neil explains.

To see a webcast of Shannon O'Neil's presentation of Two Nations at the Americas Society in New York, click here. 

For more analysis on modern Mexico, see my recent article for The Atlantic here.

Follow me on Twitter: @LatAmLENS.