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A Personal Opinion on How President Nieto Should Deal with the Foreign Aid in Mexico

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Historically, Mexico has had a tumultuous past; it has been characterized by decades of political instability and corruption, and its economy has alternated between periods of growth and decline for years. Thus, foreign aid policy and wealth redistribution are critical, albeit divisive, topics that must be addressed. As senior advisor to President Enrique Peña Nieto, much of my work of late has pertained to these issues. While some of my colleagues oppose the idea of the use of foreign aid and wealth redistribution, others hold that these policies would be beneficial to the overall well-being of the Mexican political economy. While I am aware of this controversy and intend to address both sides of the argument, I stand with the latter group, as there is evidence that such policies encourage innovation, economic growth, and democratization.

In his Principles of Economics, Gregory Mankiw draws upon what he describes as the Ten Principles of Economics. The first principle that he lists is that people face tradeoffs: one must give up one thing in order to get something else. He explains that tradeoffs occur not only in individual transactions but on larger scales as well; for example, every market economy must face a tradeoff between efficiency and equity. In other words, all societies must decide whether to give priority to an equal distribution of wealth among citizens or to an efficient use of limited resources. Mexico, like all other nations, faces such a tradeoff, and it is part of a government’s job to decide whether efficiency or equity will take priority in this situation. Thus, a decision must be made regarding which is the more important factor in a country’s political economy. So, which is more crucial to Mexico’s development: economic growth or redistribution? While Mexico’s GDP per capita is relatively low, hovering at around 10,000 US dollars, it has begun to play a larger role in the global economy in recent years with the growth of agribusiness and the enactment of NAFTA. Despite this, however, poverty and wealth inequality in Mexico persist. A country as culturally diverse as Mexico could demonstrate strong economic performance: in Alberto Alesina and Eliana La Ferrara’s Ethnic Diversity and Economic Performance, the authors theorize that countries with higher levels of diversity bring different experiences, preferences, and abilities to the work force and therefore have more productive and diverse economies. Mexico fits the cultural criteria for such an economy, but its significant population of uneducated and unskilled workers prevent it from reaching its full potential as a heterogeneous, booming domestic economy. Thus, it is not an increased level of efficiency that Mexico needs, but rather a more equal distribution of wealth. This will enable Mexican citizens to pursue education and job training that will allow them to enter the labor market and enrich the Mexican economy.

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It can be argued that redistribution of wealth is only necessary up to a point of Pareto optimality, under which a given set of resources are allocated such that one individual cannot be made better off without making another individual worse off. While Pareto optimality can be viewed as a measurement of efficiency of an economic system, it is not necessarily socially desirable. An economic system resembling that of Mexico, in which a majority lives in poverty and much of the wealth is disproportionately allocated to an elite few, can still be considered Pareto optimal. Thus, an ‘efficient’ allocation of wealth and resources is not necessarily socially optimal, nor is it guaranteed to help close the wealth gap.

With specific changes made to both domestic and international policy, the significant wealth gap in Mexico can slowly begin to be rectified. On the domestic front, it is imperative that a strong vocational training system is created. In their Social Protection and the Formation of Skills: A Reinterpretation of the Welfare State, Margarita Estévez-Abe, Torben Iversen, and David Soskice discuss the importance of vocational training and why this is preferable to general education systems. A highly developed vocational program, they explain, offers the opportunity for students to acquire skills necessary in order to enter the workforce. The more competitive a vocational school is, the more incentive a student has to get into the best programs. General education systems, on the other hand, do not provide a competitive or accessible environment to students who wish to enter the labor market (Estévez-Abe et al., 450). Thus, in order to improve the overall quality of the labor market and, in turn, the equity of the system, such training must be provided.

Furthermore, policies and campaigns geared towards encouraging women to enter the workforce should be enacted. Not only will this diversify the workforce, but it will also lead to greater redistributive spending. In their Electoral Institutions and the Politics of Coalitions: Why Some Democracies Redistribute More Than Others, Torben Iversen and David Soskice draw upon the many variables that can affect redistribution, and name female participation in the labor force as one such variable. This is because when women become part of the labor market, they are entitled to some worker benefits, such as health insurance. This will encourage redistribution among workers.

As senior advisor to President Nieto, I strongly encourage these policies to be enacted as soon as possible. Both will require periods of growth and development for their effects to take hold, but the foundations of these policies must be expanded and strengthened such that they can be put into action immediately. We must also take steps to guide Mexico towards a more stable, legitimized government – not one that is ridden with corruption like our current system. I strongly advise President Nieto to consider these policies and what they may mean for Mexico: not only can they improve the institutional development of this great nation but they can also improve the lives of individuals; of the Mexican citizens that they directly affect.

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