"Where once the primary route to a middleclass income was employment in a state agency or enterprise, the opportunities now largely lie in private sector jobs."


The headlines don’t mislead. Mexican society is reeling from the collateral damage of the permanent war on drugs in the Americas, as crime cartels duke it out for control of illicit exports to the US. Indeed, high levels of violence largely explain why Mexico ranked 104th out of 142 countries in the Safety and Security category in the 2013 Legatum Prosperity Index™—and why, in spite of a very high ranking (27th) in the Economy category, the country is only 59th in the overall prosperity ranking.

But that’s just one element of the story of contemporary Mexico. Here, Shannon O’Neil, a senior fellow for Latin American Studies at the Council on Foreign Relations (and author of the new book, Two Nations Indivisible: Mexico, the United States, and the Road Ahead), focuses on Mexico’s progress in escaping what development economists call the “middle-income trap”.

In the early 1980s, Mexico began to shake off the political and economic torpor created by one-party, Tammany Hallstyle rule and self-imposed isolation from the competitive pressures of a rapidly integrating global economy. Reform was initially forced on the country as a condition for relief from the consequences of default on its foreign loans. But it triggered a series of secondary tremors that shook the domestic economic and political landscape, leading first to the free trade agreement with the US and Canada, and then to the opening of the political system to interests that had no stake in preserving a bloated, bureaucratic government and corrupt, state-owned enterprises.

O’Neil picks up the story from there. Arguably the least understood aspect of Mexico’s coming of age, she suggests, is the role played by global supply chains in manufacturing. Mexico’s combination of competitively priced labour, proximity to the US and Canada, and market-friendly regulation has led to an unprecedented degree of integration between the three economies, powering the growth of Mexico’s middle-class.

O’Neil makes it clear that the path forward is not strewn with roses, however. Organised crime still makes life terrifying for millions on a daily basis. Public services—in particular, public education—remain inadequate to meet the challenge of creating a workforce the equal of, say, the US or Northern Europe. The national oil monopoly is still corrupt, poorly managed and woefully lacking in modern technology. But by O’Neil’s reading, Mexico really does have a shot at joining the elite club of rich, democratic nations.

Peter Passell, Editor

Complementing the Legatum Prosperity Index™, the Prosperity in Depth series of country studies provide additional analysis and insight into the political and economic paths of selected countries. Futher Prosperity In Depth papers are available for Argentina, Brazil, China, Colombia, Egypt, Iceland, India, Iran, Japan, Mongolia, Turkey, Vietnam and South Korea.