Friday, June 16, 2006

Allow investment or else stagnate

Mexico is protecting its oil industry from outside influence. By not allowing foreign investment. On the other hand, Alberta, Canada welcomes investment - about $80 billion. Mexico has a per capita income of $6,000 per year and its oil industry is in-grown and stagnant. Alberta's is growing and innovating; per capita income is $55,000. There is a corelation. The Wall Street Journal reports (mail link should work for a few days):
The idea of a virtual wall to stop risk capital from entering Mexico is so dumb that only a political class actively pursuing poverty could be perpetuating it in today's global economy. With oil at $70 a barrel, the opportunity costs of Mexico's monopoly energy policy are skyrocketing. That's not the only problem. Pemex's union pensions are unfunded and Mexico's proven reserves are shrinking. If nothing is done to change the model, Mexico's oil sector and Pemex retirees are both in real jeopardy.
Unfortunately the voters of Mexico don't realize the damage done by preventing investment:
In the July 2 presidential race, the hard-left candidate of the Democratic Revolutionary Party, Andres Manuel López Obrador, is running on a pledge to protect Pemex as is. This champion of old, authoritarian Mexico from the desperately poor, oil-rich state of Tabasco is now in a statistical dead heat with the more free-market National Action Party candidate Felipe Calderon. Mr. Calderon has timidly suggested that, yes, perhaps Mexico might open the energy market to some private investment but he has not made it a major issue in the campaign. Voters are rational but not necessarily informed. That's what political debate is for. Unfortunately, Mexican politicians seem to have concluded that Pemex -- the Mexican symbol of sovereignty against the mighty North -- is the third rail of politics and it's best not to go near it. If that's the case, the past is prologue.

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