Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Rethinking the Scorecard: Brazil vs Mexico

by Shannon K. O'Neil
June 8, 2011

Fans outside Johannesburg's Soccer City stadium before Mexico and Brazil World Cup game (Siphiwe Sibeko / Courtesy Reuters).

Fans outside Johannesburg's Soccer City stadium before Mexico and Brazil World Cup game (Siphiwe Sibeko / Courtesy Reuters).

The conventional U.S. wisdom today is that Mexico is a problem, and Brazil is an opportunity. The reality is that while Mexico faces serious challenges, the United States shouldn’t count it out. And, while Brazil does present real promise, there are serious issues it has yet to take on.

Economically, these two countries are not as drastically different as current analyses suggest. Yes, Brazil has had six years of consistent high growth. In large part, these were the dividends from macroeconomic reforms begun in the mid-1990s under President Cardoso and reinforced and deepened by President Lula (in fact, the pick up in growth coincided with the start of Lula’s second term, when domestic money finally believed  his centrist promises).

By comparison, Mexico embarked on a similar reform process ten years earlier and earned its macroeconomic dividend in the 1990s, when Brazil was still struggling to rein in hyperinflation. Looking at per capita growth rates over the last twenty years (not just the last 7 or 8), Mexico and Brazil actually look fairly similar (with annual average per capita growth of 2.25% and 2.5% respectively).

While both countries have now solidified a range of necessary macro reforms, they face somewhat similar long term  challenges. Both desperately need to invest in  infrastructure, in education, and to find ways to reduce stark inequalities. Both too are now thriving democracies – a plus on so many levels, but not for pushing through big comprehensive reforms.

There are of course big differences – but those don’t necessarily cut just in Brazil’s favor. Brazil is a bigger market, has ever increasing oil finds, and is a complement to China’s rise – all positive. But it is also a more bloated state, stands in a much worse place vis-à-vis inequality and infrastructure, and faces worrisome inflationary and exchange rate pressures that threaten to undermine its recent gains.

Mexico is already a more export and manufacturing-led economy. And while Obama (and others) made much of  the potential of US-Brazil trade during his March visit, the reality is that the United States already depends on Mexico as its second largest export market – earning some $163 bn last year compared to $35 bn with Brazil.

Mexico is also a much more friendly business environment. According the World Bank’s Doing Business index, Mexico ranks 35th globally – and the highest in Latin America — while Brazil is a woeful 127th (out of a total of 183 countries). On the downside, Mexico lacks widespread credit (which is much more available in Brazil), suffers from too many monopolies and oligopolies, and so far competes with (rather than complements) China’s rise.

The upshot is that there is no clear “winner” in terms of future potential or peril. So what drives the misguided conventional wisdom? A recent paper by Roberto Newell, founder of the Mexican Institute for Competitiveness (IMCO), provides a partial answer.  Analyzing the Mexico coverage in the New York Times and Wall Street Journal since the late 1980s, he shows the increasingly negative tone and focus of the main U.S. papers of record. While political and economic news dominated both papers in the 1990s (in large part due to NAFTA), in recent years crime and the border have taken over the new cycle. Economic and political news – much of it good – rarely merit a mention, much less a sustained focus.

Without doing a similar in depth study, anecdotal readings of Brazil in the U.S. media shows the reverse – an almost ebullient focus  on economics and politics, with relatively few stories on crime (even though Brazil’s 25 per 100,000 inhabitants murder rate far exceeds Mexico’s 14).

This negative shift isn’t because that is the only news coming out of Mexico. Yes Mexico’s security situation is grave, but it isn’t Mexico’s only story. As the brief comparison above shows, there are many economic and political strengths (and weaknesses) in both countries. Newell lays out many more of Mexico’s advantages and advances vis-à-vis the much touted BRICs, which include Brazil.

This skewed coverage hits both countries – though Mexico the hardest. For Brazil, it encourages the “hot money” flowing in, further aggravating the underlying economic weaknesses. For Mexico, the resoundingly negative take may, somewhat paradoxically, make it harder to address the security challenge. To see through necessary changes, Mexicans need some sense of optimism and can-do spirit, as well as a sense of what can be lost – and that is so much of what Mexico has gained.

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  • Posted by Rafael Gomez - Mexico Driving IGIB

    Thanks Shannon. We love hearing positive and frank writing about Mexico. Loved seeing, “Mexico is also a much more friendly business environment.” ~ Rafael

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