Anarchy and Economics

The problem with democracy is that the majority often gets what they want even when the majority doesn't have any idea of what's good for them. Let's start with subsidies.

Mexico has always had distinct separation between classes and the "revolutionary" efforts of the governing party for most of the last century caused that the separation to become an infinite abyss. Subsidies are the source of the abyss. I'm not against subsidies but they should be used to increase use of products or services that are beneficial and unpopular for a limited amount of time.

Here's how it happened in my point of view:

• The impoverished masses demanded support from the government.
• The government responded with subsidies on water, basic foods such as tortillas, electricity, and gasoline.
  
• The poor masses were complacent for a while and plenty of money that could have been used to promote productivity and education was spent to keep the masses quiet with tortillas and cheap energy. Meanwhile the government nationalized PEMEX and telecommunications.
• This went on for decades until the economy got into such a spin drift of increasing subsidies that productivity became completely dependent on oil exports and sweat shops. The subsidies also favored larger companies who, with greater efficiencies, could still make a profit under price controls. Rural farmers and smaller civic centers couldn't compete causing mass migration to Mexico City and causing increasing poverty in the poorest areas.
• Adding cheap gas, mass urban migration, minimal infrastructural investments, and corruption (subject for another post) results in congested and polluted cities with marginal productivity and high crime. In the "campo" (countryside) thousands of small farms and businesses were abandoned. Mexico is practically 98% dependent on gasoline and derivatives for its energy.
• The largest cities now had dominant economic and political power meaning that rural Mexico became forgotten from government agendas and development focused on the saturated urban areas causing more migration to the cities. The urban black hole could not be stopped.
  

So, do you think the people are going to ask the government to lift the subsidies now? Actually, the government is now left with no choice but to start lifting price controls and subsidies and the result is a massive social uprising and "crisis".

People asked for cheap tortillas; now that's all they can afford. They asked for cheap telecommunications; now they have just one choice: Telmex who's owner, since privatization, is now the world's richest man ever. They wanted cheap gas; now they are dependent on oil in a world running out of it.

What's the future for Mexico... Organized crime? Socialist revolution? Foreign takeover? The only sure thing is that rapid economic recovery seems unlikely. However, looking at the world it seems Mexico is definitely not the worst off and has a wealth of resources and resourceful people who are accustomed to crisis which makes them more prepared for the imminent global economic crash than countries who are accustomed to prosperity and equally dependent on cheap energy.

My hope is that the subsidies will shift from consumables to productive technology and education. Also, that the spending on development will be diverted from the monstrous urban centers to revive the forgotten rural poor. A proportional re-distribution of population and development can alleviate the congestion and revitalize the poorest areas.