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English Industrialists Supported Universal Education at the End of the 19Th Century As a Way to Increase Their Ability to Compete with French and German Companies NO GROWTH WITHOUT EQUITY? Inequality, Interests, and Competition in Mexico Santiago Levy and Michael Walton Editors NO GROWTH WITHOUT EQUITY? INEQUALITY, INTERESTS, AND COMPETITION IN MEXICO NO GROWTH WITHOUT EQUITY? INEQUALITY, INTERESTS, AND COMPETITION IN MEXICO Santiago Levy and Michael Walton Editors A copublication of Palgrave Macmillan and the World Bank ©2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 01 02 03 04 12 11 10 09 A copublication of The World Bank and Palgrave Macmillan. Palgrave Macmillan Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world Palgrave Macmillan is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave® is a registered trademark in the European Union and other countries. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The fi ndings, interpretations, and conclusions expressed in this volume do not necessarily refl ect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www. copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Offi ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. Softcover ISBN: 978-0-8213-7767-3 eISBN: 978-0-8213-7768-0 DOI: 10.1596/978-0-8213-7767-3 Hardcover ISBN: 978-0-8213-7769-7 DOI: 10.1596/978-0-8213-7769-7 Library of Congress Cataloging-in-Publication Data No growth without equity? : inequality, interests and competition in Mexico / editors Santiago Levy and Michael Walton. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-7767-3 (pbk.) — ISBN 978-0-8213-7769-7 (hardback) — ISBN 978- 0-8213-7768-0 (electronic) 1. Income distribution—Mexico. 2. Economic development—Mexico. I. Levy, Santiago. II. Walton, Michael. HC140.I5N6 2009 330.972—dc22 2008044234 Other Titles in the Equity and Development Series The Impact of Economic Policies on Poverty and Income Distribution Evaluation Techniques and Tools Edited by Luiz A. Pereira da Silva and François Bourguignon The Microeconomics of Income Distribution Dynamics in East Asia and Latin America Edited by Nora Lustig, François Bourguignon, and Francisco H. G. Ferreira The Impact of Macroeconomic Policies on Poverty and Income Distribution Macro-Micro Evaluation Techniques and Tools Edited by Luiz A. Pereira da Silva, François Bourguignon, and Maurizio Bussolo Land in Transition: Reform and Poverty in Rural Vietnam By Martin Ravallion and Dominique Van De Walle Contents Contributors xv Acknowledgments xvii Abbreviations xix Equity, Competition, and Growth in Mexico: An Overview 1 Santiago Levy and Michael Walton Part I: Concepts and International Experience 1 Equity and Development: Political Economy Considerations 45 François Bourguignon and Sébastien Dessus 2 Saving Growth from Unequal Infl uence 71 Raghuram G. Rajan 3 The Political Economy of Equality and Growth in Mexico: Lessons from the History of the United States 87 James A. Robinson Part II: Interactions between Equity, Institutions, and Growth in Mexico 4 The Inequality Trap and Its Links to Low Growth in Mexico 111 Isabel Guerrero, Luis Felipe López-Calva, and Michael Walton 5 Perverse Equilibria: Unsuitable but Durable Institutions 157 Carlos Elizondo Mayer-Serra viii contents Part III: Equity and Core Institutions in Mexico: Social Security, the Labor Market, and Banking 6 Social Security Reform in Mexico: For Whom? 203 Santiago Levy 7 Mexican Labor Markets: Protection, Productivity, and Power 245 William F. Maloney 8 Why Banks Do Not Lend: The Mexican Financial System 283 Stephen Haber Part IV: How Unequal Structures Hurt Competition in Major Sectors 9 Competition and Equity in Telecommunications 321 Rafael del Villar 10 Priorities for Telecommunications Reform in Mexico 365 Roger G. Noll 11 The Governance of Mexico’s Oil Industry 389 Adrián Lajous Index 427 Figures 1 GDP Per Capita, Mexico and Selected Comparators, 1950–2004 2 3.1 The Standard Oil Company 94 3.2 The Evolution of Wealth Inequality, 1780–1980 97 3.3 The Evolution of Income Inequality, 1910–95 101 3.4 A Contemporary View of the Growth Effects of Antitrust Actions 102 3.5 Democracy Demolishing the Trusts 103 4.1 How Unequal Structures Cause Suboptimal Development 113 4.2 Ratio of Net Worth of Mexican Billionaires to GDP, 1990–2008 115 4.3 Net Worth of Local Billionaires in Relation to GDP, Mexico in International Context, 2007 117 4.4 Implicit Income of Billionaires Compared with the Incomes of the Richest Groups in the ENIGH, 2004 118 4.5 Distribution of Incomes of Agricultural and Nonagricultural Workers 123 4.6 CFC Resolutions on Monopolistic Practices, 1998–2004 128 contents ix 4.7 Effect of Being a Billionaire-Linked Company on the Probability of the CFC Finding Monopolistic Practices and Obtaining an Amparo 130 4.8 Net Accounting Capital of PEMEX, 1991–2006 138 4.9 Interaction between Levels of State-Level Confl ict and the Impact of Teacher Incentives 140 4.10 Low Levels of Agricultural Productivity Despite High Levels of Public Spending: A Comparison of Mexico and Other Latin American Countries 142 4.11 Mexican Growth in International Perspective and Sources of Growth 146 4.12 GDP Growth in Mexico and Its Components, Selected Years 146 4.13 High Costs and Low Quality of Service in Electricity, Selected Latin American Countries and Years 149 4.14 Bias to the Rich of the Distribution of Electricity Consumption Subsidies, 2002 150 4.15 Investment in Telecommunications, Selected Countries, early 2000s 151 5.1 Comparison of Per Capita GDP in China and Selected Latin American Countries with That in the United States, 1820–2000 160 5.2 Research and Development as a Percentage of GDP, Selected Economies and Groups of Countries, 2005 163 5.3 Telecommunications Patent Applications Filed with the European Patent Offi ce, Selected Countries and Years 164 5.4 Regulation in Products Market, OECD Countries, 2003 165 5.5 Telephone Charges, OECD Countries, August 2005 166 5.6 Percentage of Students at Each Level of Profi ciency on the PISA Mathematics Scale, Selected Economies, 2003 169 5.7 Difference in Performance between Public Schools and Private Schools, Selected Economies and the OECD, 2003 170 6.1 Social Security with a Formal and an Informal Sector 210 6.2 Federal Subsidies for Social Security and Social Protection, 1998–2006 234 7.1 (a) Distribution of Wages in the Formal and Informal Sectors, Monthly, 1999 (b) Cumulative Distribution of Wages in the Formal and Informal Sectors 249 x contents 7.2 Gross Labor Flows between Formal Salaried and Self-Employed Sectors, 1987–2003 254 7.3 Self-Employment Versus Level of Development, Selected Countries, 1990s 259 7.4 Firing Rigidities Index, Selected Economies, 1990s 265 7.5 Education Expenditure and Mathematics Scores, Selected Economies 269 8.1 Private Bank Credit as a Percentage of GDP, OECD Countries, 2005 284 8.2 Private Credit from Deposit Money Banks as a Percentage of GDP, Latin American Countries, 2005 285 8.3 Private Credit from Deposit Money Banks as a Percentage of GDP, Mexico, 1950–2004 286 8.4 Percentage of Firms Using Bank Credit, Year End, 1998–2005 288 8.5 Development Bank Credit to Private Enterprises, 2000–06 289 8.6 Sum of Stock and Private Bond Market Capitalization as a Percentage of GDP, Latin America and the OECD Selected Countries, 2005 290 8.7 Private Bond Market and Stock Market Capitalizations as a Percentage of GDP, 1990–2005 290 8.8 FDI Flows to Mexico, 1980–2005 291 8.9 Gross Fixed Capital Formation as a Percentage of GDP, 1980–2005 292 8.10 FOBAPROA–IPAB Bonds as a Percentage of Bank Credit Portfolios, September 1997–December 2005 293 8.11 Market Share by Assets, Mexican Retail Banks, 2002–05 Averages 294 8.12 Credit to Consumers and Private Firms as a Percentage of Assets, Mexican Retail Banks, Quarterly Averages, 2002–05 298 8.13 Commercial Loans as a Percentage of Assets, Mexican Retail Banks, Quarterly Averages, 2002–05 300 8.14 Commissions and Fees as a Percentage of Income, Mexican Retail Banks, Quarterly Averages, 2002–05 303 9.1 Weight of Telecommunications Services Rates in the Consumer Price Index,
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