EconomyMexico and the problem of buddy capitalism

Mexico and the problem of buddy capitalism

(Expansion) – Large companies play an important role in the ability of governments to implement their agendas in various areas of public policy. However, when economic power has been concentrated for a long time in the hands of a small number, which does not favor the consolidation of the country and there is less competition, which harms consumers.

For Mexico to really have a transformation, less government, good regulation and more competition are needed.

Buddy capitalism is a concept used to describe privileged business groups colluding with the government so that the former prevail and occupy part of the market or are exempt from certain laws. Under these practices, the success of some private companies is due to the preferences or privileges that the government grants them over others. These are more common in economies with weak rule of law, as weak institutions and loopholes often drive companies to apply them.

Buddy capitalism harms the economy because it sends a message to the population that wealth is only available to those with connections to the government, not to those most qualified to develop projects. In that sense, I add, this would weaken and affect the market economy, democracy and give way to populism within society.

Every emerging economy has imbalances and there are always areas of the economy where incomes are growing the fastest. This leads to inequality in the wealth of the population, but one thing is the typical imbalance in the process of change -naturally even desirable- and another is the imbalance created by corruption and order among the partners.

However, the buddy economy occurs at all levels. At the local level, entrepreneurs are friends or buddies of the governor or mayor, doing business in urban development, public transport franchises, construction of public works, and government purchases.

At the darkest level are also the businessmen who profit from illegal businesses, such as drug trafficking or prison operations. In some states, these “businessmen” appoint and remove governors. They are the holders of political power and everyone knows it.

As a citizen, I have no doubt that some of the social objectives of governments are real. However, his policies toward business so far suggest that he will likely continue to replicate the crony capitalism model that would, by definition, further destroy and weaken the country’s formal institutions.

It is striking that in Mexico there have been several alternations of power, changes of political parties, but the capitalism of friends is still in force. Unlike other developed countries, Mexico has not invested in innovation nor has it encouraged the creation of new companies that are not linked to the government in power or to concessions or licenses granted by the government. Really, the entrepreneurial success that starts from scratch in Mexico is practically non-existent.

Mexico will not jump to the level of economic freedom of Canada, or Sweden, or Denmark. Buddy capitalism is embedded in the system. But hopefully in the future I can begin to move towards a path far from both crony capitalism and socialism.

Editor’s note: Jorge Sánchez Tello is Director of Applied Research at the Fundación de Estudios Financieros-FUNDEF AC Independent “Think Tank” based at ITAM, on the Financial System. Follow him on and on The opinions of this article are the sole responsibility of the author.

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