When Carlos Slim earned his undergraduate degree in civil engineering, he was already a millionaire. Fifteen years earlier, he had managed his investments in such a way that that allowed him to take a yearlong sabbatical. He dedicated that year to doing anything he wanted: thinking, traveling and reading. He went to New York and observed how the global market worked over the course of a few months. He followed the advice of an old Arabic proverb that said: “One’s best companions in times of leisure are good books.” Alone in a city of skyscrapers, Slim secluded himself in the New York Stock Exchange Library where he consulted books and archives on the subject. He then traveled all over Europe where he once again visited numerous libraries. By the time he returned to Mexico, he was ready to sow the seeds of his knowledge and skill.
Slim was a young man of twenty-five when he started creating his own myth, much like many others who came before him in history. Slim is part of a generation that lived through great social and cultural transformations. As budding business emerged, the world was changing: the US intervened in Vietnam, Fidel Castro was growing stronger in Cuba, Che Guevara was becoming an icon, and rock bands like the Beatles were revolutionizing music. Meanwhile, in Mexico, the end of the idyllic Mexican Miracle was under way. Mexico was entering a period defined by economists as the “stabilizing development” model. This was a period of unstable progress in which a small segment of the population, those who were highly protected by political governments, were getting richer. As much as the country’s economic growth allowed the expansion of the middle class, not enough was being done to deal with the marginalized population. With such an inequality of income and the excessive protection of only a few economic agents, the system’s weakness was growing; the same system that would fall into crisis only years later.
The tycoon who successfully positioned himself, in less than three decades, as one of the most powerful men in the world is good-natured man; he projects the image of a quiet and reserved person. He shies away from public life and media. But that just adds to Slim’s charm. With the mentality of a chess master, he strategically places himself where he needs to be. In business, he is always three steps ahead. He’s a moneymaker through and through. As Michel Tournier said, “Suffice it to say, he thought of money and money only since childhood.”
Building his empire went beyond all previously set limits. To his admirers, he is a true genius; everything he touches turns to gold. The secret to becoming a multimillionaire for this King Midas stems from his admiration for philosophers and great financiers such as Jean Paul Getty, Benjamin Graham and Warren Buffet, all of whom are considered to be the masters of investment and speculation.
As a young man, Slim read Getty’s articles in Playboy magazine and learned the formula to financial success: “Rise early, work hard and extract oil.” Inspired by his principles and ideologies about money, Slim followed Getty’s teachings to the letter.
Other tenets, such as Warren Buffet’s ideas on work and money, also influenced Slim: “If something is not worth doing at all, it’s not worth doing well.”
Benjamin Graham, another one of his models, said, “An entrepreneur looks for professional advice in various facets of their business, but never expects to be told how to turn a profit.”
So, surrounded by this small group of gurus, Slim built his empire. With his desire to expand his domain, he aligned himself with Bill Gates, who for years was ranked by Forbes magazine as the richest man in the world. The combined wealth of Gates, Warren Buffett and Slim, the three richest men on the planet, exceeds the GDP of one-quarter of the least developed countries in the world, a collection of about seventy nations.
In Mexico, Slim’s companies report over US$5 billion annually to the treasury, only one position after PEMEX, the country’s largest public sector, and bring in the largest amount of taxes.
Slim’s empire extends to all corners. He has investments everywhere because he buys when stocks are low. He became a celebrity when Forbes magazine first included him on the 1992 list of the world’s richest men when his capital was US$2.1 billion. Back in the eighties, Slim and his business group consisted of companies in several important industrial, commercial and financial sectors. This was the world from which he began to build his fortune as a professional in both financial and industrial sectors.
Fear and discouragement ran the globe when the 1982 crisis hit. No one wanted to invest in Mexico—nationals or foreigners. By investing in and acquiring numerous businesses that operated successfully for many years but were now going into bankruptcy, Slim increased Grupo Carso’s standing as a very important company.
Jean Paul Getty, an oil tycoon so wealthy he didn’t bother keeping track of his fortune, learned that a true businessman is never satisfied with his achievements.
Getty used to say, “When you have no money, you are always thinking about it, and when you do have money you only think about it.” Like Getty, who died thinking of the future as an aesthetic representation, Slim learned about art through his wife Soumaya’s passion. One of Getty’s legacies is his museum in Los Angeles, California, where diverse forms of art are mixed together, from architecture and sculpture to fine and mixed-media art.
Most of all, he assimilated the teachings of Benjamin Graham who maintained the following principles:
1. The investor must impose some sort of limit on the price he pays.
2. More important than knowing how much to buy and how much to sell is knowing when not to buy and when to sell.
3. No one tells the expert how to conduct his business or his life … except the market.
There are three areas where an educated person should act mindlessly or as a child: religion, the market and mathematics. In all three cases not only is it “all right” to be considered perfectly ignorant, but it is impolite to even debate it, according to Graham.
Graham defended one principle of similarity between investment and speculation. For him, it was impossible to distinguish between one and the other because at the moment that it needs to be defined with precision, we fall into a paradox. If the discussion revolves around these terms, then at the end of the day, the cynic is right: “An investment is a speculation that went well, and speculation is an investment that went wrong.”
To clarify the problem, Graham considered and rejected five claims:
1. Investing is buying bonds; speculating is buying shares. False.
2. Investing is buying for cash; speculating is buying credit. False.
3. Investing is buying with the intention of maintaining a long-term relationship; speculating is turning a quick profit. False.
4. Investing is waiting for the dividend; speculating is waiting for capital to appreciate. False.
5. Investing is buying safe securities; speculating is buying risky ones. False.
According to Graham’s business philosophy, one could consider an investment: “buying stock on credit with the intention of a quick profit.” Though this may seem like an accurate definition for speculation at first glance, in reality, the starting point in this tangled affair has to be put into context. People spend more time buying a refrigerator than they do buying stocks. Graham calls the process analysis. Investor and Wall Street consultant Peter Lynch calls it doing your homework.
Armed with this philosophy, Slim became the number one investor in Latin America at fifty years old, all the while creating his own legend. He accumulated his fortune during the eighties under the accusations of having been favored by those in power. “Slim was simply in the right place at the right time,” according to banker Manuel Espinosa Iglesias, who put an end to the discussion about the origin of Slim’s fortune and how he became the richest man in Latin America. “Opportunities like this do not repeat themselves.”
Slim’s secret is simple: he is allergic to publicity and he leads a frugal life, which borders more on modesty than it does on solemnity. His existence revolves around business. He appears on the board of directors of the most important businesses in Mexico and he has a modest way of being seen as a great guru. When asked for his business secret, Slim said, “I can’t be everywhere. My job is to think.” However, he has a unique style to his work. In the morning, far from calls, meetings and distractions, he dedicates himself to the analysis of documents. He uses this solitary time to get to the bottom of the issues instead of becoming lost in the details.
Business, according to Slim, is comprised of three types of businessmen: the entrepreneur, the executive and the investor. The three should complement one another, to the point where they sometimes meld together. The entrepreneur is the one who conceives and undertakes, the executive is the one who operates the ventures, and the investor is the man who provides the means. Slim defines himself as the entrepreneur, but he said, “It can be said that there is a fourth type of businessman, the one who is the political entrepreneur,” or the one who is entrenched in public relations.
“I differ from those who think that Mexican entrepreneurs cannot manage their own businesses. Many authorities believe it is better to favor foreign investment over domestic,” he said.
Since opening the country to foreign capital, Slim has prompted a nationalist discourse. Perhaps it is not coincidental that on his main work desk, he keeps a framed letter from Benito Juárez to Matías Romero, dated, January 26, 1865. The letter reads:
Mr. Matías Romero
Washington
My dear friend: about your letter from November 14, and from official communication, which refers to the ministry stay tax that states that things have changed in that arena in our favor, which I am very grateful for, I am still concerned about certain news that the government was willing to recognize the empire of Maximilian. So, at the very least we will have the negative cooperation of the republic, and in terms of positive aid which can be given to you, I deem it to be quite remote and extremely difficult, because it is unlikely that the South will yield even an inch of their claims and if so, the government must conclude the matter by force of arms, and this demands much time and many sacrifices.
The idea held by some, from what you’ve told me, that we offer part of our national territory in order to obtain the indicated aid, is not only unpatriotic, but also harmful to our cause. The nation, by legitimate authority of its representatives, has manifested in a strict and explicit manner, which is not its will to mortgage, or alienate its territory, which as you can see from the decree from which my extraordinary powers have been granted in order to defend the independence and if this regulation is opposed, we will fly over the country and we will give powerful arms to the enemy so that a conquest may be carried out. If it is our destiny, so be it that our enemy shall beat us and rob us, but we should not legalize this attack, or give into it voluntarily because of he who forces us by the hand. If France, the United States or whatever other nation supports any one of our regions, and due to our weakness we cannot defend ourselves against them, then we shall stop living out our rights so that the generations that succeed ours shall have a chance to recover them. How bad it would be to allow ourselves to be disarmed by a higher power but it would be even worse to disarm our children by depriving them of their rights. Braver and more patriotic than us, they have suffered, but they will know how to assert themselves and reclaim their independence one day.
It is all the more damaging the idea of alienating our territory in these circumstances, in terms of the states of Sonora and Sinaloa, which are the most coveted today, they make heroic efforts in national defenses, which are the most jealous of the integrity of their territory and they provide the government with firm and resolute support. Then, for such consideration, it is for prohibition which the law imposes on the government to mortgage or alienate the country and finally, because this prohibition conforms entirely with the view that I have always held on these matters, I repeat that which I have already stated in my letters from December 22 and earlier, namely that you should only follow the patriotic behavior I have observed of not supporting any similar idea, instead you should oppose it and work to dissuade it by ensuring that fatal consequences are brought to fruition.
I am grateful that you are satisfied with my opinion about General Grant’s army, with respect to our cause. This opinion, and that which Mr. Seward formed, are guarantees that we will not recognize Maximilian’s empire. This is the only positive that we can expect right now from such a republic.
I will not extend myself anymore, because I am under the impression of such profound regret that is eating at my heart like a deceased son whom I loved, I was barely able to draw the line between them. I say dead son that I loved because according to the letter that you received last night, I understood that such dismal the news (you didn’t give it to me all in one shot); but in reality, my loving son will never exist, no longer exists. Is this not true? With all my heart, I hope I am wrong, and I would be happy to learn in your next letter, which I anxiously await, that you will tell me my son has been relieved.
Much hope that a gloomy presentiment will fade, saying that there is no remedy!
Goodbye my friend. You know that I am here for you with overwhelming affection,
Benito Juárez
From a young age, Slim was an ambitious entrepreneur, but his philosophy has always been very simple. His companies work on basic principles and a simple structure. “We are constantly looking into the fact that our team always has vocation, preparation and stimulating work that fuels self-confidence. This incites a sense of satisfaction in their responsibility more than a sense of obligation, and contributes to their own personal development,” he said. “The team operates without a corporate staff and the company manager is always located in the production plant, in operations and in sales, with minimum operating costs, searching for the best personnel, the most trained and therefore best paid. Investments are made in the production plant and in the distribution and administrative teams, and not in buildings/real estate or other operations.
“We seek to minimize the hierarchy, keeping the directors as close to operations as much as possible. We want to strive for that and not for corporate structures. We try to combine executive work with the interest of shareholders through a representative council, who work together with managers looking to optimize investments, strategies and expenditures. We work systematically to improve the production process, optimizing investment and facilities, increasing productivity, improving quality, reducing wastage and trying to mass produce the best quality at the lowest cost; its reduction means sustaining or improving margins, expanding our markets, reducing prices and competing internationally.
“We guide our growth and our investments toward the most dynamic sectors in the medium- and long-term; we try to maintain flexibility and rapid decision-making and, finally, the advantages of a small business, which are those that make big businesses great.
“The enabling environment in a society gives it political and economic stability, sound public finances, with an open budget applied to economic and social programs in priority, with investments in infrastructure and social expenditures, with redistributive effects that promote consistent and gradual well being. Moreover, such a favorable environment motivates and stimulates confidence in the country, and also in the government. Furthermore, the government has to participate by organizing society and managing common effort. These are, without a doubt, the necessary conditions for national development.
“Hence, a domestic and foreign private investment is required. A market that produces wealth is also necessary. A government that orients and fosters growth and that spends and invests with redistributive purposes in education, health and lifestyle will benefit from a good percentage of gross domestic profit.
“In this new world of economic liberalization and globalization, initiated by multinationals and by technology—which at times seems to recede with economic blocks and the protection by force of the historic subsidies—even the most developed countries like the United States, the European Union and Japan have become entrenched.
“Especially in the agricultural sector, security, efficiency, productivity, quality, design, technology, high added value, large industrial and commercial expertise and competitive advantages, strong investments in research and development, higher education for the masses in science and technology, in times of rapid growth and good results, in the era of the fat cows, management often relaxes and organizations exceed their means instead of taking the opportunity to capitalize and fortify the company, which is deteriorating and aging. On the other hand, maintaining fixed costs and austerity in the growth of the company constitutes its rapid development.
“One must be constantly attentive when it comes to the company; to its modernization and growth capital, quality and simplification, incrementing productivity and reducing costs and expenditures.
“We must distinguish three vocations in the company: the entrepreneur, the executive and the investor. In the first-generation of the family business, one person usually performs all three functions. In large public companies, there are large investors, both individual and institutional, and frequently in developed countries the entrepreneurial function is diluted and shifted by the nonexecutive parties who pay quarterly sums to institutional investors.
“In the competition, companies no longer operate simply to the specification of the proprietor who must be socially and emotionally satisfied. His responsibility should seemingly be fulfilled. But, in contrast, societal resources must be optimized in order to reduce waste, and the first thing to do is to have references. As in sports, we know what the world record is, who the best athletes are and how long they’ve been competing. We must have the best international references for the field in which we play.
“In a company, profit should be present in purchasing, trade and cost. In the industry, now immersed in a highly competitive environment, lowering costs is like reducing time for an athlete. In both cases, perseverance is required, training, organization and above all, vocation and the desire to win, constantly pushing brands, improving at all times, keeping a demand for operations workers, managers and entrepreneurs to optimize investments, production, quality and costs. Like a sports team, managers are not the only requirement, but rather well trained middle management, with leadership qualities and a good sense of organization, is also a necessity.
“When forming a new company or a new plant, one should consider the location, size, the engineering of the project, marketing, and the corporate structure.
“Moreover, greater market efficiency should correspond to economic policy of tax revenue that has fundamentally redistributive ends. This would establish minimum social welfare standards, raised in favor of the less fortunate, to be gradually integrated into modern society by having better nutrition, health, education and more opportunities in general.
Just being a competitive country in international trade may help retain better-paid employees, create wealth within the market rules and redistribute it through tax among the most disadvantaged with a clear sense of justice and economic and human development.
“Not improving quality and productivity, not optimizing our investment and mediocre resources, not capitalizing on Mexico’s advantageous openness to international capital markets, not obtaining the maximum production out of our machinery and equipment, not having competitive levels of quality and prices of our non-tradable goods would be unforgivable. This implies that we would have to import more, export less and reduce the production apparatus. In sum, not consolidating the virtuous process that we have already initiated and not taking advantage of the significant capital inflow (which will only continue to thrive if we succeed) would be a serious mistake with a high price to pay.
“Only quality, productivity, efficiency and optimization of our resources can enable us to compete successfully in this opening.
“With success, a structured market will generate more well-paid jobs, better and cheaper products and greater wealth in society. Only government action through tax initiatives can benefit all members of society through public investment with essentially redistributive ends. So, the economic market in and of itself is not sufficient to put an end to ancestral surplus.
“The entrepreneur has the social responsibility to optimize the company’s resources by making it more and more efficient, competitive, and by re-investing the profit and preparing his well-paid staff through motivation. He should be satisfied in knowing that his responsibility lies in ensuring his staff always does to the best of their ability.
“In short, after all is said and done, businessmen are creators of the wealth they temporarily manage.”
Slim’s philosophy channels some basics of the biblical passages from Genesis. One story tells of a dream the Pharaoh had, which foresaw seven years of abundance followed by seven years of misery. John Maynard Keynes, English economist, refers to these theories as the cycle of seven fat cows and seven thin cows.
Slim found Keynes’s exposition of The ory of Regulated Capitalism in The General Theory of Employment, Interest and Money unoriginal. His theory can be found in the Bible. When Joseph interpreted the Pharaoh’s dream, he said, “You will have seven years of fat cows and seven years of thin cows. This means that in the years of the fat cows, you must collect and store food so the following years the thin cows will not die of famine.” This means that in the new economy, the fat cows are the surplus (excess) and the thin cows are the deficit. In the fat-cow years, businesses should capitalize and accelerate their development, that way during the thin-cow years they won’t have to fire anybody.
In other words, Slim follows the Chinese proverb: “He who saves in times of plenty does not lament in times of need.”
Unlike other business, those belonging to Slim do not require headhunters for recruiting. All employees grow within their companies. In fact, many of its executives have walked the halls of the companies’ own training center, the Instituto Tecnológico12 (Inttelmex). Thanks to this center, the level of schooling has improved from six to fifteen years. Teléfonos de México, Telmex International and América Móvil boast employees with the highest level of education in all of Latin America; the great majority of the sons of the telecommunications employees are academians.
Many of the ideas contained in the ten basic principles that guide Slim’s business decisions were taken from his father, Julián Slim Haddad, who brought young Carlos to work because he noticed his son’s particular affinity for business. These principles have been transmitted to the families, colleagues, staff and team.
1. Prefer simple structures and organizations with flexibility, a minimum of hierarchical levels, and quickness in decision-making. The advantages of the small company are what make large companies big.
2. Maintaining austerity in time of fat cows strengthens, capitalizes and accelerates development of the company. This avoids drastic changes in times of crisis.
3. Always remain active and tireless in relation to modernization, simplification and improvement of the production processes. Seek improvement in productivity and competitiveness, as well as reduction of costs and expenses through the guidance of major world references.
4. The company must never be limited to the parameters of the owner or manager. We get big within our own small barnyard.
5. There is no goal we cannot reach if we work united, with clarity of objectives, and knowledge of the available tools.
6. Money leaving the company evaporates. Therefore, we re-invest profits.
7. Creativity applies not only to business, but also to the solution of many of the problems in our countries.
8. Firm and patient optimism always bears fruit.
9. All times are good for those who know how to work and have the means to do so.
10. Our premise is that nothing is taken from here. The businessman is a creator of wealth that he manages temporarily.
In the practice, day in and day out, Slim’s style and philosophy is the exact opposite of the pompous, corporate brands in Santa Fe, or of the glamorous and luxurious offices in Monterrey and Guadalajara, which resemble museums laden with large marble furnishings and art. In all offices, austerity prevails. High- and mid-level executives share the same secretary; advisers do not exist. Ability and talent is what counts. All achieve their raise or promotion by their own merit. There are no privileges given to family members. In order to climb the ladder, one must demonstrate that he is extremely efficient. Promotions are not granted through flattery, glamour, charisma or ability in public relations. What counts are talent, discipline, and productivity.
Arturo Elías Ayub, Slim’s son-in-law, works out of a modest office where some of the furniture looks older than the privatization of telecommunications companies in the 1990s. This reminds the boss not to waste money during his workday at Teléfonos de México. Taking care of resources extends all the way to payroll.
Telmex spends on average MX$20,000 a month on ten employees.
What matters are the values that underlie operational efficiency: always getting the most at a minimal cost. Based on the principles of the business group, each peso is valued; the organization defines itself as austere. There is no allowance for big restaurants, first-class trips, nor luxury cars or gym memberships. The working philosophy is not to squander and waste on luxuries and unnecessary expenses. Everything is focused on maximizing resources. Salaries are competitive and at market level, but big salaries are not granted. Instead there are incentives and rewards. Training is another plus for employees. The business spends on average, sixty hours per year per employee on training. One may start as a humble analyst, but hard work can lead to a position of leadership in businesses in Mexico or abroad.
In a way, students receiving university scholarships from Telmex are a future payroll investment. Grants are equivalent to minimum wage for the best students from poor families, who also get free computers and Internet through Telmex and Prodigy. These programs eventually benefit the company, as it is in line with their Corporate Social Responsibility programs. In the case of many, these students will become employees at Telmex, Condumex or Sanborns. Thus, Slim has first pick of the best talent available and in turn, he ensures their loyalty.
Although Slim is one of the hundred most influential men in the world, he has defined himself as a man of solemn mind.
“I would say that I’m solemn, as are my children, for taste and conviction, but not when it comes to discipline,” Slim told Chilean reporter Margarita Serrano during a visit to Santiago. He was in the country at the time to give a talk at the Entrepreneurs Club along with friend and former Spanish Prime Minister Felipe González.
Slim spoke of his philosophy of life and business when he spoke to a group of university students in Mexico City on June 25, 1994.
Dear young students,
I write you this letter in order to share some of my life experiences, hoping it will contribute to your education, your way of thinking and living, your emotional well-being, your sense of responsibility to yourselves and to others, your maturity, and above all, to your happiness, which should be the result of your daily existence.
You are privileged within society due to your talents and efforts, and for the best reason, your own worth.
Success is not about doing things well or even very well, or being acknowledged by others. It is not an external opinion, but rather an internal status. It is the harmony between the soul and your emotions, which requires love, family, friendship, authenticity and integrity.
To be as exceptional as you are, is a privilege, but it also entails many risks that can have an impact on values that are much more important than professional, economic, social or political “success.” Emotional strength and stability are in the interior life, and in avoiding emotions that erode the soul such as envy, jealousy, arrogance, lust, selfishness, vengeance, greed and laziness, which are a poison that is ingested little by little.
When you give, do not expect to receive. “Fragrance clings to the hand that gives the rose,” said a Chinese proverb. Do not allow negative feelings and emotions to control your mind. Emotional harm does not come from others; it is conceived and developed within ourselves.
Do not mix up your values or betray your principles. Life’s road is very long, but it is traveled fast. Live the present intensely and fully, do not let the past be a burden, and let the future be an incentive. Each person forges his or her own destiny and it may influence reality. Do not ignore it.
Live with positive feelings and emotions such as love, friendship, loyalty, courage, joy, good humor, enthusiasm, peace, serenity, patience, trust, tolerance, prudence and responsibility. Do not allow their opposites to invade your soul, may they pass quickly from your mind, do not allow them to stay there, banish them. You will make mistakes many times, it is normal and human; but try to make them small, then accept, correct and forget them. Do not be obsessed by them; heaven and hell are within us. What is most valuable in life does not cost anything but is very precious: love, friendship, nature and what man has been able to achieve with it; the forms, colors, sounds, smells that we perceive with our senses can only be appreciated when we are emotionally awake.
Live without fear and guilt; fear is the worst feeling men can have, it weakens them, inhibits action and depresses them. Guilt is a tremendous burden in our lives, the way we think and act. Guilt and fear make the present difficult and obstruct the future.
To fight them, let us have good sense and accept ourselves as we are, with our realities, our merits and our sorrows.
Staying occupied displaces preoccupation and problems, and when we face our problems, they disappear. Thus, they make us stronger every day. We should learn from failure and successes should be silent incentives. Act always as your conscience dictates, because it never lies. Fear and guilt will then be minimal. Do not block yourself in, do not ruin your life, live it with intelligence, with soul and senses aware and on the alert; get to know their manifestations and train yourselves to appreciate and enjoy life.
Work well done is not only a responsibility to yourselves and society; it is also an emotional need.
At the end we depart with nothing. We leave behind only our work, family and friends, and perhaps a positive influence, which we have planted.
My very best wishes,
Carlos Slim Helú
In 1991 Slim’s name first appeared on the list of the richest men in the world. Slim had no vested interest in the people at Forbes. For several years, when his first business ventures were starting out, he was driving an old red Mustang. By 1993, upon appearing on the list among great businessmen worth more than a billion dollars, he was driving a 1989 black Mustang. Up until recently, when he was recognized as the richest man in Latin America, he continued to maintain such humility. On rare occasions, he does give into his whims. Cars have always tempted him and he regularly pulls up to meetings in a Suburban or a Mercedes.
He rarely wears anything as elegant as a Brioni suit. He is informal: he works in shirts and rarely wears cufflinks. He doesn’t own ostentatious jewels and he wears clothes from his own companies, like Saks13. He is the antithesis of tycoons who pose for magazines like Jet Set. He usually flies on the Telmex plane or helicopter and sticks to an agenda because “time is money.”
One of Slim’s greatest pleasures is to converse with intelligent people. While other millionaires like to play golf or tennis, cruise through the Caribbean, ride along in yachts, take exotic trips to the Orient, go on African safaris, mountaineer, or drive luxurious cars, Slim prefers to visit national parks or stroll along the Sea of Cortez. He leans more toward natural sites and cities that have historical value and pre-Hispanic ruins, but he is also passionate about new technology, culture, art and sports. Until three years ago, he smoked Cohiba cigars, but never indulged in extravagant foods; his favorite cuisine is Mexican. He enjoys cochinita tacos (a slow roasted pork taco), refried beans, handmade tortillas, pambazos (Mexican white bread), tamales, mole, enchiladas, salsa, and some traditional Lebanese dishes such as bulgur and chickpeas. Even in recent years, when he leaves for a road trip to Acapulco, he always makes a stop at the Cuernavaca’s booth to eat the giant tortas(traditional Mexican sandwich) sold there.
One of his hobbies is film. His favorite movies that have most influenced him are El Cid and Modern Times. His favorite actors are María Félix, Sophia Loren, Charlie Chaplin, Joaquín Pardavé, Pedro Infante and Marcello Mastroianni. In music, his favorites are Elvis Presley and Little Richard. He had a very warm and affectionate relationship with la Doña, née María Félix14, in her later years. She had a special soft spot for Slim’s eldest son Slim Domit.
One time, Slim told la Doña that he would have loved to be a journalist so that he could have interviewed her and asked about her life, about love, about friendship. The diva, he remembers, had a wonderful concept of happiness.
Although he belongs to the Rock ‘n’ Roll generation, Slim is passionate about classical music as well as the bolero, the mambo and danzón.
One of his tiny indulgences is his personal security, which he reinforced after his financial information appeared on a Nicaraguan list of prominent businessmen to kidnap. This document, attributed to Patria Vasca y Libertad15, targeted one hundred fifty Latin American businesses, seventy-seven of which were Mexican, and some of whom were defrauded, including Fernando Senderos, Juan Bosco Gutiérrez Cortina, Juan Robinson Bours, Alfredo Harp Helú and Ángel Losada Moreno.
Like Gates, who became a billionaire by revolutionizing the computer industry with Microsoft colleague Paul Allen, Slim began to climb the rungs of wealth in the eighties with his gift for business.
From then on, Slim, with his extensive business experience, became an authority in the world of money. From his position as a money guru, he wrote a few articles in the newspaper Novedades on October 3 and 4, 1988. This was one year after the stock market crash of October 5, 1987, when the Price and Quotation Index (IPC) of the Mexican Stock Exchange had risen to more than 26,000 points. The IPC didn’t move more than that because the computer operators and staff, who manually work the stock market board, could not face the relentless pace of transactions. The National Banking and Securities Commission (NBSC) was forced to intervene, under the argument that the law allows the termination of the auction when there are fluctuations that are too abrupt, be it upward or downward.
Stock analysts argued that the market responded the way it had because of an information leak amongst investors about the nomination of Salinas de Gortari for President of the Republic, which was a sign that he was guaranteed to continue the economic policy.
In this context, Slim wrote two installments of his personal understanding of what had happened, entitled “Four Epochs of Mexican Economy: What Started in 1952 Ends Today” and “Excessive Debt and Deficit; Rising to the Oil Nightmare.”
The first article published by Novedades read:
In the economic development of Mexico, since the postwar period and its immediate effects, three periods can be distinguished with similar economic characteristics across six different governments.
The first period lasted twenty years, beginning in 1952 and ending in 1972. The second period, which lasted little less than ten years, ended in 1981, having exhausted the sources that life provided: external credit, high oil prices and public deficit spending. The third period, the crisis, lapsed over seven years from 1982 to date. Currently, a new period is being envisioned beginning early 1989.
First period—1952-1972: During these years, substantial development was achieved by maintaining the proposed balance, stable prices and moderate external debt. Domestic debt was reduced to equate that of deficit, despite significant population growth and a major effort to provide public services. Domestic products almost quadrupled; income per capita doubled. Income was distributed through increasingly better-paid jobs—still far from the desired level—and by way of public spending, which covered the needs of more and more Mexicans.
The rapid substitution of imports and income from services, chiefly from tourism, attenuated the needs of foreign savings despite the rising importation of capital goods and more elaborate consumables. The State increasingly participated in economic activity.
Second period—1973-1981: Lasting nine years, it was expected to jeopardize the development process because of unhealthy strategies, like excessive external and internal debt, an exaggerated public deficit with a consequential imbalance of public finances and the excessive growth of bureaucracy. This reduced the possibilities of substituting imports, which affected the previous development model. There is a fundamental difference in the international financial, monetary system, technological changes and consumption patterns that affected the traditional primary materials and their terms of trade.
In the early years of this stage, participation in the private sector of productive economic activity was reduced, the deterioration of the economic situation of the country was accelerated by the handling of incompatible financial and economic policies (inflation, parity, interest rates), causing not only domestic savings to move abroad, but also the greater part of foreign loans was used to pay interest and consumption, and the waste caused by unproductive investments.
Extraordinary income derived from oil was wasted, as was US$76 billion of net external credit. Coincidentally, this stage began with the discovery of rich oil fields of Chiapas and Tabasco, which entered in production years later causing the “oil boom,” and concluded with the drop in price along with foreign credit.
In the last five years, there was also a stretched out private investment, substantially financed by foreign savings, which threatened the production plant and employment; public finances and external accounts were upset, public and private external debt were in excess. Inflation was rampant and the country’s reserves exhausted.
However, at the end of this period, the country produced large, modern facilities in all fields of economic activity, mostly operated by Mexicans, at all levels.
Third period—1982-1988: The Challenge of Crisis. Having lost the historical opportunity that gave us “oil wealth” by trying to force growth, the current government, since its inception, faced every serious potential economic problem. I believe there is nothing missing: triple-digit inflation, fiscal deficit of 17.6 percent, external debt of US$88 billion, current account deficit: the productive apparatus of debt without liquidation fearing massive closures, without international reserve and an excessive dependence on oil revenues.
Moreover, we still did not know what would come of the earth tremor of 1985, the collapse of oil prices in 1986 and Hurricane Gilberto shortly thereafter.
To address many problems, it was necessary to act in several directions at once, some of which had undesirable and unpopular consequences. So, to clean up the public accounts, it was necessary to increase the revenue by raising prices and public services and taxes, and reducing or eliminating subsidies; public investment and current expenditure were reduced as well.
In 1987, a primary surplus close to 4.5 percent was obtained that would consider us more than healthy. In 1988, it was necessary to bring this effort to a point of pursuing achievement of a primary surplus of approximately eight percent of GDP, despite having lost strong revenue from the decrease in oil. This surplus is a useful target for curbing inflation, along with other measures that periodically come along with the Economic Solidarity Pact, and which allowed inflation to dominate.
The success of the Pact was faster than anticipated and its success was recognized by pessimists. Inflation in the second half of 1988 should be less than fifteen percent annually and it is possible that in 1989 it will reach single digits annually, especially since we have learned to deduct: to stop one has to not only decelerate, but one must slow down (negative acceleration). Economists should study physics.
To disallow inflation quickly, not only does one have to maintain without changing certain variables, but one has to allow certain negatives; that way, stopping the flow of inflation becomes possible.
Inflation is reduced by setting it at zero, but it vanishes when lowering certain variables. It was impossible to bring inflation down gradually from three digits to one. Public accounts could not be attacked at the source without sufficient reserves to face it dead on.
The problems with the external accounts and its solutions have been: heavy reliance on oil revenues that have been replaced by several manufactures making it possible to absorb the debt service to maintain a slight current account surplus and the huge external debt of private and public sectors. The private sector has been practically solved through FICORCA16, from financial restructuring with capitalization of liabilities of several large companies and the negotiation of foreign debt that many companies have been acquired at market value, close to fifty percent of their nominal value through debt swaps with Mexican external debt.
Private enterprise in the crisis has excelled in making itself efficient and incrementing productivity and quality, being competitive in other markets, and reducing internal prices facing economic openness.
In the case of public external debt, there have also been important advances: for the most part, short-term restructures every twenty years and the reduction of interest rates.
This new term, the lowest rate and the implicit recognition of creditors of which payment growth is a priority, has meant that the debt is listed at fifty percent of its nominal value, which is the most diverse option to stop trading, reduce principal debt and interest, such as swaps, buying debt in the market, the exchange of debt for investment (venture capital) and recognition of the value of the creditor that really gives its role to the market, all to benefit debt and move it into new restructuring.
Moreover, according to the president, in December 1982 to date [October 1988], the effective use of external credit resources has been negative by US$7,113,000. To this, one must add that the dollars that are now worth more than that of 1982, and that debt will be reduced by more than US$20 billion, despite the loss of more than US$30 billion of revenue in the last three years due to the decrease in oil (an amount through which actual market prices could have practically bought the debt).
The United States has become the world’s largest debtor. Its debt is more than US$500 billion and is increasing by more than US$150 billion annually. Soon (and I use the term loosely), they will have similar problems that we had if they do not change their fiscal deficit and current accounts.
In our country, all this effort has only been achieved with high costs: deterioration of real wages, underemployment, informal economic growth, and deferred public investment. However, if we avoid falling into an increasingly serious chronic underdevelopment and structural change, we have the foundations for a new national project of a larger and fairer country.
Oil wealth was a chance opportunity that ended in nightmare, an ephemeral wealth that put us right back where we were. The current basis and immediate prospects represent a new historic opportunity, the only firm path to development: efficient and constant hard work, with steady steps. We cannot take this second chance for granted, or in less than ten years our children and our grandchildren may not forgive us.
In the second part of his analysis, published in Novedades, Slim wrote an article entitled, “A New Path to the Future Has Begun.”
Fourth period—1989 – ?: A new historic opportunity, the economic picture is opposite that of 1982: annual inflation is one digit; public finances are sound; we have eight percent primary surplus; the production plant is healthy and highly efficient, exporting in a great way, with high liquidity; and we have an expected annual inflation of a single digit. The best alternative to production is productivity; the private sector has the capacity to invest and is ready to take responsibility.
We have a surplus in current accounts and high international reserves.
The external debt problem has not been resolved, but as I said before, progress is substantial: the solution is long term, its market value is half, and bankers are willing to do much more than they were six years ago, including changing their debt for venture capital. Worst-case scenario, we could“aficorcar” the debt, that is to say, pay only the real interest and capitalize on the inflationary component, keeping the debt at the same level of constant dollars. In the best-case scenario, that banks would recognize as debt that which the market recognizes: fifty percent, and that will change into long-term investments, leaving a minor foreign debt to two years of exportation, or three years of reserves, or twenty percent of the GDP, reducing it to a third and reopening it to new financial markets.
Some call for not paying the debt on the grounds that we have already paid more in interest, but I ask them if they would accept that argument as investors if a bank gave them that as a reason to not repay the principal.
Many complain that they are lowering the nominal interest rate, though Mexico is paying a higher interest rate than I’ve ever seen before (more than three percent per month for September). On the other hand, there is a rapid change in global finance, by giving the largest transfer of wealth in history to Southeast Asian countries, mainly Japan. They are concentrating wealth, savings, financial strength and trading in Japan and the NICs (Newly Industrialized Countries), countries that despite not having the resources became very strong after the oil shock: a basis for work, imagination and efficiency.
Mexico can count on foreign savings for development, but must extend and intensify their economic transactions with more countries and in new ways.
It should be a super-macro plan, with a wide horizon of space and time in which large national projects, economic and social projects with long-term goals, defined priorities, and the origin of resources to achieve all of this can be determined. This should complement the public sector with national savings so it can coordinate with national interests when they come along, with more foreign investments or foreign debt conversion in productive investment.
Economic recovery will require more work and more efficiency, especially at the management level, and higher incomes to reactivate the economy. The public sector will increase its revenue and in order to resume economic growth, may invest more by reducing the primary surplus at levels of three percent of GDP and the nominal interest rate will be fiscal.
Export does not need dramatic increases like in recent years. It would suffice for it to consolidate and continue to grow, along with tourism and other services, to maintain our ability to import the capital goods and inputs that growth requires. With a consistent recovery of real wages and employment, the process of investment, productivity, income distribution, economic recovery, and tax revenue would be simultaneous and provide feedback.
The recovery of real wages is not just for social justice or political reasons, it is an economic necessity: the force of our recovery and development, the reason for our growth and ultimate goal is the emotional and material welfare of the population. Work is not only a social responsibility, but also an emotional necessity.
In late 2005, in a lecture to students at the Universidad Anáhuac, Slim explained his insight on the challenges Mexico faces in a global context:
I am both pleased and honored to be with you here today. If it is all right with you, I would like to start off with a bit of history of the evolution of Mexico’s economy and then go on to current events, so as to give you a broader perspective.
Evolution of Mexico’s economy
Owing to the difficult situation the country was undergoing as a result of recession, in 1931 Mexico arrived at an unprecedented agreement, which was called Congress’s Revolutionary Movement, made up of congressmen, as well as representatives of the Chamber of Commerce and the Chamber of Industry. This decision led to a campaign, which was called the Nationalist Campaign, the slogan of which was “Buy what the country produces.” Whether this is a coincidence or not, I do not know. Nevertheless, this campaign marked the beginning of fifty years of growth in Mexico at a rate of 6.2 percent: fifty continuous years.This growth was also spurred by Mexico having gone from an agricultural and rural era into a much-delayed urban and industrial stage.
The golden era of those fifty years was from 1958 to 1970, when Mr. Antonio Ortiz Mena worked for both the Ministry of Finance & Public Credit and Mexico’s Central Bank, growth was accelerated, inflation was low, interest rates and financing were long term, etc.
This sustained growth not only allowed for Mexico to grow substantially, it become industrialized and was no longer a predominantly rural and agricultural country that mostly lived off of self-consumption (in other words, people lived practically with what they produced and used and did not buy any other goods besides the necessary tools to work). It also gave rise to an enormous population growth, which as we all know was more than three percent as the economy grew at a rate of 6.2 percent.
Mexico went from an agricultural and rural country to an industrial and urban country
During the 1930s, the country’s population was about seventeen million, perhaps sixteen or fifteen million, and by the 1940s, there were already twenty million. During those days, there was a beer commercial, Corona, I believe, that went like this: “Twenty million people cannot be wrong”; anyway, I had not yet been born when that commercial was popular. The Chamber of Commerce, Mr. Cayetano Blanco Vigil—the father of Nieves Noriega—and my own father as a chamber member, participated in that campaign; that was back in 1931.
Mexico was greatly strengthened by this transition from an agricultural and rural country to an industrial and urban country because growth was reinforced by the construction of roads, housing, factory jobs, and others elements of infrastructure.
In my opinion, this is the same process that China is undergoing at present. China has been growing at a rate of 9.5 percent in the last twenty years and it is also a rural country depending on self-consumption and agriculture. However, it is going from a very primitive agriculture of self-consumption to no longer an industrial stage, but rather this new civilization that we are experiencing.
[China] is already a country that is giving its people a great deal of education. It is a country that is rapidly absorbing the technology of this new civilization and that is making substantial progress at a very fast pace, however with a very long-term vision. In other words, they are not thinking about the last twenty years or even the next twenty years, but rather about many years to come. Out of a population of 1.3 billion, seventy percent or nine hundred million people are still living in disadvantageous circumstances; however, there are four hundred million Chinese who are already living in the urban world, are better educated, and who participate in a more modern and prepared society, and this is what creates the country’s tremendous strength. It is to be expected, though, that China’s process will still take many years.
In Mexico, this process was interrupted by the excesses of the administrations of the 1970s and 1980s, which experienced very high deficits in spite of growth. There were tax deficits; they spent the money borrowed from the well-known petro-dollars. I am not sure if you have heard about those. There was an oil boom and the oil countries did not know what to do with their oil money. They gave it to the banks, the banks recycled it, lent it to countries and the countries spend it irresponsibly, just like the bankers lent it.
So, somewhere around 1981 and 1982, not only were they in debt, but interest rates jumped to twenty-one percent. Can you imagine paying interest rates of twenty-one percent or twenty-two percent? Countries fell into an enormous crisis. The large crisis of 1982 was a terrible one; it was a crisis of external debt that not only affected Mexico, but also many other countries and Latin America in general.
Adjustment programs followed that crisis. One of them was called the Washington Consensus, which gave rise to the well-known model that has been followed to a certain degree but in fact continues to be an adjustment program. So, for the last twenty-three years our per capita growth has been practically zero. In other words, the number of Mexicans each year grows by maybe 1,700,000 or 1,800,000 and the economy by almost two percent. So, the difference is very small between economic growth and population growth, and not only was growth small but also irregular. Growth was suddenly good and then crises such as that of ’95, ’94, etc. occurred.
Two percent economic growth in twenty-three years
For twenty-some-odd years, we have had no per capita growth. In other words, the economy has grown at a rate of two percent in twenty-three years, which is insufficient for countries like Mexico.
Fortunately—or rather fortunately and unfortunately— there has been a very important escape valve, namely that 400,000 or 500,000 Mexicans go to the United States each year in search of work.
Mexico has many regions and the inhabitants of the rural regions that used to be able to find work in the cities now have to migrate to the United States to work; they send a great deal of money back to Mexico. So we are talking about maybe ten million people who have left Mexico in recent years and who are sending back US$18 to 20 billion. These are very large figures and the positive effect is actually double, since half-a-million people find jobs on the other side of the border and are able to send remittances.
However, at the same time it is sad that we have been unable to generate employment here, retain our citizens and give them opportunities to come back and find local jobs. We already have a twenty-three-year long serious problem of scarce growth since the crisis of ’82. During this period, there have been good years and bad years intermittently, with the country growing at about the same rate as its population, in spite of many Mexicans having left. If those half-a-million people would have stayed in Mexico, growth per inhabitant would have practically been negative.
This is the outline of those twenty-three years, which has lead to serious problems, since there are no job opportunities, there is no growth, people have to go elsewhere to find work, and marginalization and lag have continued to worsen.
So, in our opinion, what we have to do is to go from adjustment plans to development plans, and reach agreements collectively as Mexicans. History has taught us that, when we have not been united, there have been many problems. For instance, after Mexico’s Independence, for fifty-five or fifty-six years there were fratricide wars; then came the Revolution that was also fratricide, in which we destroyed, were invaded by other countries and lost half of our territory. The results have been fateful when we have been disunited. It is very important to have low inflation. Having a zero or balanced tax deficit is equally important, although they are merely means and should not be seen as national objectives.
We know that problems are neither attacked nor solved with agreements or laws; actions need to be taken to solve them and these are some rough ideas. Meetings and seminars need to be held and specialists need to be consulted. In this regard, the universities can help us a great deal.
We know that Pemex is essential; it is the most important company of Mexico by far and of Latin America, although it operates within the public budget. Here we said that legislating was necessary so that state-owned companies can be run autonomously. This means that they would manage their operations independently, as large companies—which they are—without political interference and split off from public budgets. That is to say they would not be part of the balanced budget in which revenues plus expenditures equals zero. So, what happens is that Pemex cannot make investments, nor can it be operated transparently by professional government bodies. A Board of Directors would be appointed whose intent is on maximizing national wealth, reinvesting profits and fostering the preservation and development of the company. Independent board members will appoint and remove the CEO, will make investment and compensation decisions, and when an investment has to be made, they will not have to ask the budget or the public treasury for permission and they will not be allowed to make investments that are not within budget. These investments are so important that it would be crazy not to make them. Pemex should operate with a Surveillance Committee and an Audit Committee and should have the obligation to pay taxes as any other productive company, including production taxes, taxes on services and other dues that have to be paid.
The new civilization
What is happening in this new civilization? During the agricultural civilization—and I am going to discuss some religious topics here—Christian doctrine was very generous, very advanced and well ahead of its time. Since two thousand years ago, society required slaves, needed to exploit mankind, and needed to treat men like machines; the only interest then was to exploit mankind and the planet. This agricultural society needed hard-working people who consumed little so that there would be as much as possible left over. This is why there were slaves. Slavery is inherent to an agricultural society. Thus in those days, it was very important to plan ahead, contemplate and be charitable.
Nowadays, however, things are very different. Everything has changed and I have spoken about today for many years. What we have not realized very well though, perhaps since World War II, is that there has been a very important change. Neither the economy nor society is interested in exploiting labor, exploiting mankind; the convenient thing to do now is to make sure that our neighbors, society, that everyone is well and that they consume more. In other words, it is no longer important to have uneducated and strong people to exploit their physical work twelve or fifteen hours a day. Now it is better for people to work with more knowledge, for them to be prepared, for them to work less time and for them to be able to have the satisfiers offered by civilization, to have time to become cultivated, to read, be entertained, do sports, travel, consume, etc.
The appealing and interesting aspect of this new civilization is that what used to be an ethical problem or a problem of social justice is now an economic need. Hence, the progress of China which is increasingly incorporating its population into the economy. This is not our case, which explains why we have not grown. Lag and lack of growth prevail among us because we have not incorporated a large portion of our marginalized population into today’s modern society and economy.
Thus, the fight against poverty is the best investment, from an economic point of view, incorporating this marginalized population into society and into the economy. For it to become part of today’s modern economy, for there to be educated people, people who participate in the social productive apparatus and who can produce more for society in general.
Society benefits from those people having the capacity and time to buy things and pay for services, and I am not just talking about goods. What are these services? To receive an education—higher learning—for them to enjoy entertainment, to go on vacation, to have a home of their own and to buy goods because this fosters growth.
Growth is encouraged and sustained by the wellbeing of others; this is very important. In this new technological civilization (it is called technological, but is actually a service-oriented society. If you recall, the previous stage was the industrial society, in which most of the population was engaged in industry, before that was the primary sector, farmers, etc. We are currently in a service-oriented society, in which most of the people are engaged in services, since machines can easily produce goods and large numbers of people are no longer needed to work on the machines), development is an accelerated process which takes place in very few years.
We no longer have to say, “We have to sacrifice this generation for the next ones or we have to sacrifice two generations.” At present, this is an accelerated process which can take place in very few years and which feeds upon itself when shared; this is very important.
Mexico can and has to enter into this virtuous process, as other countries have already done, and it is here that we wish to underline other countries of diverse cultures and different continents. It is not that the Chinese or the Koreans are all working. This is also the case of Europe: the progress of Spain, Ireland, and others, as well as Central Europe, which had fallen behind. You remember this, don’t you? Since 1989 with the fall of the Berlin Wall, in only fifteen years, many countries have been rapidly joining this new civilization.
What matters here is that we can join this new civilization and we will not require many generations or years to achieve it, because it starts, it receives feedback and supports itself. It is not a matter of creating wealth and then spending it; it is a matter of creating wealth. What is distributed is not the wealth per se, but rather the fruits of wealth, namely income.
If tomorrow wealth were to be handed out among the entire population, if, for instance, Pemex were to be distributed, people are not interested in having one thousand Pemex shares or ten thousand; what they want is the income. So, what the population needs is income to have a better living standard and well-paid jobs.
Fight against poverty
There is something else: well-paid jobs bring families and society together, and if families and societies are united, governability becomes easier. However, the opposite also breaks up families and society and complicates governability.
So, from every point of view—whether social, political or economic—the fight against poverty is essential. How does this fight come about? I believe that aid and charity only alleviate poverty temporarily. What has to be done is to ensure health, nourishment, education and employment. In other words, the best way to fight poverty is by creating better sources of employment. In order for these sources of employment to be better, education for the formation of human capital is paramount.
As mankind becomes civilized, it makes technological progress
Civilization has been making progress for many years. However, if we focus on let’s say the last eight thousand to ten thousand years, from being hunters, nomads and gatherers who discovered valleys rich in fauna and flora, to the Ice Age, it was then that civilization began to flourish at an accelerated pace.
Mankind, as it becomes civilized, progresses technologically to make its life more productive, more effective, and to make its existence on this Earth easier. At the same time, this also makes it possible for more people to live in society. Most likely, ten thousand years ago, the total population was eight million or perhaps ten million. But to make things easier, let’s say there were six million. Now there are six and a half billion, meaning that the population has increased a thousand times during those years. I think there were about one hundred million people two thousand years ago, meaning that the population has grown sixty times since then, and towards the end of the eighteenth century, there were one billion inhabitants.
Now there are six and a half billion of us. This progress has allowed the Earth to sustain the life of six and a half billion people and the story seems to be unending. Why? Because first, fire was invented, then the wheel, irrigation, windmills and then fertilizers. These were the great advances in agriculture. Then industry largely increased production capacity. Industrial development is what caused society to no longer be agricultural and to become industrial, to no longer be rural and become urban. It is during the industrial civilization that high-productivity machines began to be invented, allowing ten people to do what it used to take one hundred people to do, as a result of which the remaining ninety can do other things.
Nowadays, this is also a fact: now there are robots, equipment, fast machines and the like, allowing for goods to be produced easily and at great profits. Consequently, what has to be done is to lead society so that those workers who were displaced can perform different activities. Normally, what is happening in the world is that the people who used to produce goods, that is to say industry workers, are now engaged in the field of services.
If we watch movies from fifty years ago, almost everyone was linked to industrial work. At present, farm workers in the United States account for two percent of the economically active population. Out of one hundred percent of the population, forty percent is considered active; I believe that about ten percent works in the industry sector. Perhaps the construction industry occupies somewhat more, but the remaining eighty percent is engaged in business, education, health, federal employment, the financial sector, banking and entertainment. Why? Because a lot can be produced with very little.
Economic activity needs to be generated
What has to be done is to absorb this twenty-five percent of the population that lives in rural areas, that is still dependent on self-consumption, is marginalized and has to migrate to the United States; make the fields more productive; find sources of employment for them not within the industry, but basically in the service field. For instance, tourism and infrastructure construction services. If we are really serious about this, health and education need to be fostered. Therefore, we will have a lot of fields in which we will be able to generate economic activity.
Directing the economy outwards is good in terms of generating currency, but it is not good if the economy’s internal sector is neglected, that is to say the domestic economy.
Internal economy needs to be addressed with the development of human and physical capital, which would provide substantial help. But how? Well, 850,000 houses need to be built each year, many highways need to be constructed, a lot of ports need to be developed, drinking water needs to be properly managed as well as sanitized, the sewage system needs to be treated, and airports, schools and hospitals are also required.
And of course, substantial amounts should be invested in forming human capital and providing education in the fields of science, technology and development.
Finally, here is the budget, and I wish to compare … December of 2000 and 2005. The need for a tax reform was discussed earlier to have resources to invest. However, during those years, income from oil and the price hike in electrical power have accounted for 4.8 percent of Mexico’s GDP, which is a lot of money.
This 4.8 percent translates into US$110 billion. Financial expense also declined significantly, but since interest rates went down and the GDP grew, this is why it was said that there was a favorable downward trend in interest rates, another 0.8 percent of the GDP. In this regard, there has been an income of 4.8 percent and a 0.8 percent savings in financial expenses, accounting for a 5.6 percent increase in the Gross Domestic Product as a percentage of the GDP during those years, whereas investments only increased 0.7 percent. What you can see is that there are so many social and political pressures, the idea of a paternalist government, etc., that I think that some efforts, actually some great efforts, have to be made because social assistance is very important. However, this assistance should focus on employment and investments.
So, in spite of this increase, investments have only gone up 0.7 percent, which is not enough. More than any other reform, what we need to do is to combine public resources, public investment with private investment. With this, we feel that the cap and brake on investment possibilities and domestic growth will be removed.
Thank you very much.
Slim Helú
Carlos Slim with Prince Charles.