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Political Risk Assessment of Foreign Investment in Mexico

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Rotman commerce Political Risk Assessment of Foreign Investment in Mexico
Siyu Li 997707209 RSM491

Mexico is a democratic country in Central America that has a reputation for being a poor and dependent country. However, its democratic title and recent political movement has inched it toward stability politically. The country is comprised primarily of two parties with several smaller ones, much like the US and other countries, including the National Action Party (NAP), a conservative group, and more moderate Institutional Revolution Party (PRI). These two powers have experienced much deadlock and turmoil in the past few presidential elections to the dismay of Mexicans, who appear to simply be interested in the progress of the country and not necessarily just one political group. This paper’s intention is to outline the political ecology of Mexican government and offer a look into the risks and rewards possible from an economic standpoint as the result.
Political movement of late has primarily involved the election of President Enrique Pena Nieto, a very young and idealistic leader who has nevertheless brought the country together politically by working both sides of the aisle and offering a moderate rather than liberal viewpoint. John-Paul Rathbone writes that “What made this display of Latin cordiality so notable, though, was that it took place on the second day of President Enrique Peña Nieto’s new government – and between opposing Mexican leaders who are better known for fighting among themselves than embracing each other on national television (2013: 3).” This passage very appropriately highlights both the political ecology of Mexico before the most recent election and the spirit of the political economy after it. Not the least of the hope for Mexico from both parties and the people of Mexico, though, was the promise of massive, wide-sweeping reforms in education, social systems and the economy.
This recent reuniting of Mexican politics provides a stable base from which Mexico can work economically. Though reforms are barely one year old at this point, the fact that they exist is both an issue of anxiety and one of hope for the Mexican political climate.
One of the major issues that has threatened the Mexican economy is the “corporatist” view on economics, focusing only on major growth and the development of monopolies and essentially ignoring the lower classes to poverty and destruction of stability (Thomson, 2013: 4). A 2012 piece from Tim Johnson argues that “Mexico is a country of concentrated economic power, and in some cases outright monopolies. It’s an arrangement that limits Mexico’s hopes of a thriving economy, chokes its consumers, discourages competition and prevents better products and services from emerging in the marketplace.” Tim Johnson offers additionally that “says poor Mexicans pay as much as 40 percent more than they should for basic goods and services because of monopolistic practices. It also hobbles the economy. Greater competition, economists say, would lower prices, create stronger companies and accelerate growth, lifting the nation more quickly (Johnson, 2012).” Another piece argues eloquently that “Mexico really does have a shot” at economic prosperity despite issues of public services and an oil monopoly that is highly corrupt (O’Neil, 2014). Monopolies on everything from oil to a limitation of brand of milk means that consumers have little option to help control prices, enter markets as entrepreneurs, and free trade that helps encourage competition and economic growth.
Others argue that Mexico’s political instability has hurt the education system in Mexico, which is ultimately what is holding the country back in economic growth. Some, like Calderon, Mexicanos Primero, argue that the Mexican government has offered only “cowardice” in the face of politically corrupt union organizations that encourage teachers to cater to the politics and not to education, ultimately harming the system and making Mexico remain in the lowest categories for growth in the OECD (Argen, 2012). The new President, Enrique Pena Nieto, has promised educational reform as well as the economic, though in practice this could prove much more difficult. Though politically overall Mexico is stable, it does not mean much if the government is not using that stability for the economic growth of the nation. One of the programs it does have encouraging it however is a regional trade push US President Barack Obama is making to integrate economic trade between Canada, the US and Mexico as neighboring trade allies that encourage North and Central American economies despite an increasingly globalized trend in trade over recent years. This push has increased Mexico’s hope for government supported economic growth via “Mexico's combination of competitively priced labor, proximity to the United States and Canada, and market-friendly regulation” which “has led to an unprecedented degree of integration between the three countries' economies, powering the growth of Mexico's middle-class (O’Neil, 2014).” This is a more recent take on the Mexican economy under President Nieto, and offers hope that economic reform combined with political forces from outside Mexico’s borders will encourage economic growth. Though there are difficult and undeniable challenges to Mexican economic growth thanks to the shortcomings or idealism of past and modern political forces, there is also undeniable potential. Mexico’s population alone, combined with its proximity to the US, shipping lanes and reform, offer the country the economic opportunity that until now political struggle and monopolistic, corporative economic tendencies have hampered. It is essential that Mexico use its political system in its favor for encouraging economic reform as well as encourage political systems from outside its borders to aid in this process. This is after all what globalization is all about according to its supporters, and the potential both geographically and especially politically is there to ensure continued economic growth. In closing, then, an admittedly rocky political system has given way to the potential for greater cooperation, less corruption, and most importantly the opportunity for economic growth.

Works Cited
Agren, David. “Education system holding Mexico back, critics say.” USA Today. 2012, web.
Johnson, Tim. “Monopolies hold back Mexico’s economy with high prices, poor service.” McClatchy DC. 2012, web.
O’Neil, Shannon. “Mexico on the Brink.” Foreign Policy. 2014, web.
Rathbone, John-Paul. “Reform Plan Lifts Hope for Greater Prosperity.” FT Special Report, 21 March 2013. Print.
Thomson, Adam. “New rules bring party to an end for dominant operations.” FT Special Report, 21 March 2013. Print.
Thomson, Adam. “Unity provides reason for cheer.” FT Special Report, 21 March 2013. Print.

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