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Down Mexico Way

Corruption is the reason Mexicans keep coming to America.

12:00 AM, Jun 21, 2006 • By JAMES THAYER
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IN MEXICO, it's called mordida, the bite. It's as common in business as it is in dealing with the police. Professor Grayson says that "a study by the highly respected Private Sector Center for Economic Studies estimates that 34 percent of business made 'extra-official' payments to legislators and bureaucrats totaling $11.2 billion in 2004." He adds that Transparency International ranked Mexico as tied for 65th place among 158 countries in corruption, below Bulgaria and Cuba. Joachim Bamrud in the Latin Business Chronicle notes that the giant chipmaker Intel chose Costa Rica over Mexico for its new plant partly because of corruption in Mexico.

State-owned Pemex--the world's fifth largest oil company--controls every refinery and gas pump in the country. Tim Weiner in the New York Times says that Pemex loses at least $1 billion a year due to corruption. He says that part of the plunder is the thousands of gallons of jet fuel sold to drug smugglers for flights to the United States, which generates huge sums for Pemex and union officials. Another part is the collection of wages for no-show jobs. Weiner quotes Tony Cantu, who worked nine years for Pemex: "People who didn't work at the refinery still came in to pick up their money every two weeks. You had to give a cut to the union boss--30 percent." Pemex--which sells almost as much oil to the United States as Saudi Arabia--generates 40 percent of the Mexican government's revenue.

Corruption grinds away at Mexican business, and so do layers of government regulation, often promoted in the guise of nationalism. Foreigners cannot own property in Mexico within 100 kilometers of the border or 50 kilometers of the coast. To register the purchase of property takes, on average, five steps and 74 days. Mexican law limits foreign investment in certain industries, such as telecommunication, and sets the ratio of foreign-to-Mexican employees in foreign companies doing business in Mexico. Foreign money cannot be put into the electricity or petroleum industries. To start a business involves nine separate procedures and takes 58 days.

These and an ocean of other regulations make doing business in Mexico complex, slow, and risky. The World Bank lists Mexico as 73rd out of 155 countries in ease of doing business (Canada is first), 125th in the ease of hiring and firing workers, and 125th in the ability to protect investors.

For much of the world, education and a job are paths to advancement. Not so for most Mexicans. Twenty-nine percent of Mexican youth don't finish high school. Half of all Mexican 15-year-olds are illiterate or only semi-literate. Mexico spends only $1,415 per year on students in elementary and secondary schools. (America spends $7,397 per student.) Professor Grayson says that "corruption, cronyism, crookedness, and feather-bedding suffuse the 1.3-million member" teacher's union.

Why no money for schools? Endemic corruption severely limits the Mexican government's ability to collect taxes. Sang Jin-Wei of the International Monetary Fund writes, "This may arise through outright theft by tax officials, through hiding of taxable income by taxpayers, or through practices whereby tax inspectors collaborate with taxpayers to reduce the latter's tax obligation in exchange for a bribe."

FOR MOST MEXICANS the only way to get a job or to advance in a career is to know someone. David Luhnow and John Lyons in The Wall Street Journal say, "Latin American culture tends to emphasize advancement through personal relationships rather than merit," and note that "Corporate executives and tortilla grinders alike hand their jobs down to the next generation in their families." Eighty percent of Latin Americans say connections are the most important ingredient of success. In such a system, education means less. Luhnow and Lyons say that a Mexican blue-collar worker has only a 10 percent chance of climbing to a white-collar job.

New jobs in Mexico tend to be in the sidewalk economy, where entrepreneurs can earn only a meager living selling CDs or phone cards or tomatoes. Marla Dickerson in the Los Angeles Times reports that "as many as half the nation's workers eke out a living in subsistence jobs such as street hawkers and day laborers because there is nothing for them in the legitimate economy." These folks usually work off-the-books, not paying business or income taxes. Dickerson points out that between 2000 and 2003 the Mexican sidewalk economy grew by 40 percent, whereas no new jobs were created in the formal economy. But, of course, the vendors do make payments: to the corrupt police who make their rounds.

SO WHAT'S THE PROBLEM? If corruption and cronyism are ways of life--if everyone does it--who's the loser?