Slim’s challenge in the coming years will be to create the physical and human capital in Latin America, to the extent of his business potential, to contribute and combat the remnants of poverty and unemployment that afflict the region. The tycoon said that the gap between rich and poor doesn’t matter. There is a Chinese proverb that said: “Bad governments care about the rich, good governments care about the poor.”
The journalist Diego Foneca wrote in Rostros, “Who can question the desire of a man who has created more wealth than dozens of Latin American presidents? With a personal fortune of more than the sum of the GDP of Costa Rica, Uruguay and Ecuador combined, and with his decision to work to improve the regional economic development, the engineer has been preparing over the last decade to become part of textbooks.”
Slim knows of the circumstances lived by many Latin American countries with economies that are immature and in urgent need of a strong social investment. In this regard, Slim reflects:
I think Latin America as every country has its own conditions. A country with a billion people is different from a country with a million. A country with so many people has a very large domestic economy and so that is the main issue to handle. But, I think every country has its own situation and its own pace (rhythm) of development, but what is clear is that everyone will learn or should learn from China or Korea. From them, one can emulate an advanced education, which ranges from traditional literacy to the intel-literacy (computer literacy). Not just teaching the ABCs, but rather convergence, connectivity and modern education with average and superior school level focusing greater efforts in education of science, technology and engineering.
Keeping with the quality of Cardinal Richelieu, the prime minister of France in the first half of the eighteenth century, said it was necessary to support the mechanical arts. He spoke of mechanical education. I think it is important to teach all these aspects, without putting aside humanism (humanities), education, creation of jobs, economic activity, investment, or reinvestment.
Slim’s concern for the future has led to new commitments.
I like knowing history; I love the history of my country. But I am also interested in the universe, the origin and development of man. If you look at the development of man over five or six million years to date, the different ages and how everything started, it took only ten thousand years to discover agriculture and civilization. In this new civilization, the good thing is that the welfare of the people is what brings success in this society. In the agricultural civilization, man exploited man and earth. That’s why there were slaves and social immobility. And as you were born, you lived your life in the same place and in the same social atmosphere. And power was monolithic as was political power, economic power, military power and religious power were linked. The emperor came from God, Pharaoh came from the Divine and the same happened in Mexico as it did in Egypt and Japan or anywhere else. Power was not flexible. With the new civilization, up until the industrial age, up until industrial civilization, everything completely changed. The paradigms of democracy, freedom, pluralism, human rights, environment, globalization, competition are very different. Previously, we exploited the raw materials, land and people. Slavery was not an accident; it was part of a paradigm of civilization. But in the new civilization, poverty is not a business as it once was. It is necessary to have people who are involved with the new economy, with time to relax and find areas of entertainment and other areas. I think that is where the future of civilization resides.
I think governments should have a clear vision of this new civilization to drive change. In the past, poverty was an ethical and moral problem and one of social justice, but now it is an economic necessity. A country like the US, which is called a consumer society, is actually a society of work and welfare. It is a welfare society. It is possible that a “Third World War,” as you could call it, could break out against poverty around the globe. It is clear to me that this “war” will come and lift the poor out of their condition, but to achieve this we require education, health and employment. And so, if there are more people employed and receiving better incomes, we will have bigger markets. Therefore, it is very important for governments to achieve this, as there will be much bottlenecking in the future. Energy is one of those aspects; one in which we will see much bottlenecking because the poor people of the world, like in China, India and Latin America, to name a few examples, will be incorporated into markets and sooner than is expected.
Latin America is the name given to the twenty-something countries and nine dependencies of America that speak Spanish, Portuguese and French (all Romance languages derived from Latin) but there are a dozen English-speaking and Dutch-speaking islands, which were erroneously included despite being non-Latin countries. However, one should remember that the term Latin America was first used in 1856 by the Chilean philosopher Francisco Bilbao and Colombian writer José María Torres Caicedo in his poem Las dos Américas35. The term was even supported by the Napoleon III during the French invasion of Mexico as a way to include France among the countries of America, and especially to exclude Anglo-Saxons.
Slim, who is seen as a modern conqueror whose presence now extends throughout almost the entire continent, is passionate about history and Latin American cultures.
He is aware of the enormous amount of work that needs to be put into the development of most of these countries, many of which face problems of social and political stability. Despite all this talk, Slim speaks with conviction of the challenges for the future knowing that one races against the clock; in the morning with US companies, in the afternoon with European companies, and with Asian companies at night:
My priority is to create the physical and human capital in our countries of Latin America. That’s my challenge. That’s what I’m most involved and interested in at this time: health, nutrition, health education, labor and physical infrastructure. That means new projects such as airports, ports, roads, power plants, energy, telecommunications, and homes. That is what I’m trying to do within the next few years.
Since appointing his heirs to manage his companies, Slim has been concentrating on this challenge. He has been actively helping, supporting and participating through foundations and companies that have been creating employment by means of huge investments.
I believe that poverty cannot be addressed through the donation of alms. You can’t fight poverty through charity and social programs. Poverty is faced only with good education and good jobs. Employment is the only way to fight poverty; in the past, the problem of poverty was an ethical and moral problem, a social justice issue. Today in this new civilization, fighting poverty is an economic necessity. If we do not fight against poverty, we are not going to develop. In the past there were slaves. There were struggles for land and soil and people worked for nothing. Now you do not need physical work, you need knowledge. You need to use your work skills and abilities. That is why we need education: for human capital. Of this I am convinced and that is what I am working for and that’s what I’m interested in.
Slim has proposed a Latin American alliance of the rich against poverty. Along with the majority of the most powerful businessmen in the region, he has taken the first steps to form a company to finance development in Latin America that would involve investors, private banks, stock markets, and perhaps the development of banks and global financial institutions.
From their perception, the Washington Consensus did not yield the expected results. For two decades, the region had a growth rate of zero percent and there were many zigzag periods. “Several of its postulates are very good,” said Slim, “but others are pro-cyclical and unsustainable.”
During the golden years of “Reaganomics,” and of course, the “Chicago Boys,” when the majority of the debt crises erupted, the Washington Consensus emerged. The term was coined by British economist John Williamson who picked up on the principles of the economic plan in a book published by the Institute of International Economics in Washington. In compiling the findings of fifty economists from Europe, the United States and Latin America who analyzed the experiences of policy adjustment, the Washington Consensus implemented reform structure in many countries, mainly the so-called Third World, which have always been indebted to other countries.
The Washington Consensus was integrated into programs implemented by the World Bank, International Monetary Fund, the Inter-American Development Bank and major economic and financial agencies of the US government.
The Ten Commandments of the program consisted of the following: fiscal discipline, inflation, public spending, tax reform, interest rates, exchange rates, trade policy, foreign direct investment, privatization and deregulation.
Strictly speaking, the Washington Consensus was a true recipe of neo-liberalism and it began to sprout the seeds of globalization.
Some analysts came to categorize the measures of this consensus as Draconian, in reference to the character of ancient Athens, Draco, who was the first to write laws in the seventh century B.C.
Far from the Washington Consensus, Slim believes one option to get rid of lags in Latin America makes for a more social investment in the region.
In late 2005, Slim started his new business project by Fostering Development and Employment in Latin America (IDEAL), with an initial investment of about US$800 million to promote the acquisition, management, construction, exploitation and development of road works, energy, water and everything related to the infrastructure for developing countries in the region.
The strategy consisted of associating with local investors in each of the Latin American countries with great needs for material and infrastructure development, which constituted a potential for important business.
This daunting task has made Slim bring together recognized experts with business experience from his milieu, including former Treasury Secretary David Ibarra Muñoz; Fernando Solana Morales, former director of Banamex and former Secretary of Education and Foreign Affairs; and Daniel Díaz, former Secretary of Communications and Transport.
Slim also acknowledges Ignacio Ponce de León who was director of analysis in the area of debt research in emerging markets for investment bank JP Morgan Chase in New York between 1995 and 2005 as a true genius.
Slim has been committed to Latin America and even acknowledges that after the stock market boom, many assets were left orphaned. Shareholders decided to abandon them, so the Mexican entrepreneur who had the commitment and vision, as well as having the capital and the ability, reaped the rewards. “Only Slim,” said Ponce de León, “can see value in companies where no one else sees them … Yet, before 2000,” he added, “no one expected that Slim would be a big player in telecommunications in Latin America. We thought we were going to be technology developers, not managers of services.”
The first steps in the region were through his companies América Móvil and Telmex. From 2005, Slim’s companies in Latin America began to expand and consolidate financing itself from international markets.
While Telmex is among the ten best positioned Latin American companies with a market value estimated at around US$15 billion, América Móvil is triple the value of Telmex. It is a monster that not only operates in most countries in Latin America, but has also expanded to the United States through marketing. In terms of subscribers, this company ranks among the top five major mobile phones in the world.
Apart from telecommunications, Slim has been given the task of acquiring, creating and managing companies engaged in the infrastructure of Latin America through IDEAL. This will surpass US$100 billion by 2015, mainly for the construction of infrastructure such as hydropower, energy, highways and bridges.
In order to promote their projects, he created Carso Infrastructure and Construction (CICSA). CICSA was created in only two years and is the size of ICA (Ingenieros Civiles Asociados), which took half a century to reach its size. Other CICSA companies are Swecomex and PC Constructions, specializing in construction of oilrigs and many other projects related to the energy sector.
Undoubtedly, there is much to do in most countries of the region. Rebecca Grynspan, director for Latin America and the Caribbean for the United Nations Development Program (UNDP), speaking about poverty and inequality said, “We are trapped because we don’t grow to reduce poverty. Currently, there are two hundred million poor people, but there would only be one hundred million if they had held rates of inequality in the sixties.”
Another United Nations agency, U.N. for Food and Agriculture, FAO has noted the Latin American reality: fifty-three million people, equivalent to ten percent of the population, have insufficient access to food while chronic malnutrition affects ten million children.
The Economic Commission for Latin America and the Caribbean (ECLAC) has also warned that failure to act soon to promote more investment will inevitably lead ten million more Latin Americans to fall into destitution, while a similar decay will happen to the condition of the poor.
Grynspan proposes that to reverse this situation, it is necessary to invest more in education. How can we build a common project of society if we do not know each other? According to Grynspan:
For starters, we should encourage the education of skilled workers, better training for teachers, see education as an indivisible chain that begins in preschool, going to basic and secondary education and ends with technical university. As for social protection, only 50 percent of workers in Latin America have some coverage of social protection. It takes more integrated social systems, based on the principles of universality, efficiency and solidarity, systems that combine solidarity and non-contributory systems. It is important to add that 25 percent of young people in these countries neither study nor work, and many come from broken families.
Regarding the relationship between state and society, Grynspan continues:
The characteristics of families have changed. Many of these changes require more flexible labor markets, but that does not involve social vulnerability, which is why, within economic government, social policies have pre-market and post-market policies. However, we have no equity in the market, which would be met with corrective regulations.
From the new private and state investments in most Latin American countries, this region has shown a slight growth rate of around five percent and even external debt has declined, unemployment has decreased and there are a higher number of salaried jobs. While poverty is also a little lower—forty percent of the population lives below the poverty line—it is clear that we have just reached the end of the first decade of this century at the same level of the eighties, which means that it took Latin America more than twenty-five years to recover from the crisis of that decade.
Given the interest shown by investors in Latin America in recent years, Grynspan believes that the main challenge is a long-term growth. One important aspect, she insists, is how to enhance the trade liberalization that is taking place at different rates for countries and the rapid increase in welfare. A study in sixteen countries in this region showed that the impact of trade liberalization on poverty levels has been very small.
According to this Grynspan, they need to diversify markets and products, strengthen supply chains and generate added value with an emphasis on SMEs (small- and medium-sized enterprises), which must be prepared to be pulled.
Faced with the reality of Latin America, one can analyze the situation of other nations, which have higher and better social stability and strong economic, cultural and educational process.
Based on indicators of Human Development, it is important for us to reflect on what has long been called “the wealth of nations.”
The first surprise is Norway, a country with the highest human development, has a GDP equivalent to less than thirty percent of Mexico’s GDP, or three times smaller than that of Mexico. The GDP is also seventy times less than the US and five times smaller than Brazil. These facts break the myth that only rich countries can achieve great economies and wealth. Among the top ten countries in human development is Iceland, with a GDP of just 1.5 percent of that of Mexico and an insignificant fragment of the US GDP.
Comparisons can provoke distortions and usually incur absurdities and fallacies, although it should clarify some data. For example, a study by Time magazine indicates that in Latin America, the economic upswing in the twentieth century was clearer despite many ups and downs. This analysis was based on the value of calculating income in purchasing power parity. Early last century, the average income in Latin America was approximately fifteen percent of the American equivalent and in the early twenty-first century, it represented twenty percent. The backlog is still brutal and convergence is still minimal.
Of course, it’s surprising and shocking that in the twenty-first century, a large part of the world’s population lives in poverty. That is, many people do not have access to basic goods to ensure their survival (food, clothing and housing). And although there are different criteria, always relative to defining poverty, the driving figures are devastating.
For governments and for investors, it is a great challenge to reverse the current situation in Latin America. Slim’s companies are present, so far, in seventeen countries in the region. In the last decade, his companies have invested US$60 billion dollars worldwide. According to World Bank figures, of all global business groups, Slim’s companies made the most investments on the planet in the last ten years.
Like him, many businessmen have placed more emphasis on Latin America. In 2003, the first summit took place in Ixtapa, one of the principle ports in Pacific Mexico, of the richest men in Latin America to analyze the economic and social situation of countries in the region.
The conclave brought together thirty-two of the most powerful businessmen in the area. The president of Spain, Felipe González, spoke to them. He is considered one of the greatest statesmen of the twentieth century whose reflections are accompanied by a calm analysis of the various conjectures of the time.
The magnates had the opportunity to hear the reflective views of a statesman distanced from political power. “No emerging country, and Spain is no exception, became a central country without making trade liberalization with social equity and income distribution,” González said to the assembly.
One year later, held in Santo Domingo, Dominican Republic, a second summit assembled and the futurist Alvin Toffler was invited to speak to businessmen and their heirs.
The third summit, convened by Slim and Venezuela’s Gustavo Cisneros, took place in Buenos Aires, Argentina. The hosts were Paolo Rocca, Federico Braun and Alfredo Román. The Pérez Companc and Fortabat families were notably missing.
A fourth would come in 2009, with a meeting in Cartagena, Colombia, which the media called the Summit of Billionaires. The hosts on this occasion were magnate Julio Mario Santo Domingo and the banker Luis Carlos Sarmiento. “The purpose of the meeting,” Sarmiento explained, “is that now with globalization, the problems of our countries are similar. So we will try to find and discuss solutions to common problems, now compounded by the economic downturn.”
Included in the billionaire’s club, as the powerful businessmen in Latin America are called, was the Venezuelan businessman Gustavo Cisneros, the main shareholder of the largest Hispanic television network in the US (Univisión) and owner of various telecommunications companies. He is associated with Venevisión International, Venevisión Productions y Movida in the US, and Cervecería Regional in Venezuela, all grouped under the tutelage of the Organización Cisneros (Cisneros Group) emporium. He also owns the Venezuelan baseball team Los Leones de Caracas. The Venezuelan magnate’s companies operate in more than fifty countries in Latin America, Asia and Europe. In the US alone, 35,000 people work for the conglomerate. According to Forbes, Cisneros ranks number two on the list of Latin American billionaires.
Also a part of this select group were Brazilian businessman Marcelo Odebrecht, owner of the Odebrecht organization, which has modernized petrochemical construction; the billionaire Joseph Safra and his brother Moisés, who have sown banks as though they were planting wheat throughout the continent; and Argentine Carlos Miguens Bemberg, a descendant of the wealthy family of German immigrants. Bemberg was also president of the International MBP and is currently the president of MB Holdings and Agropecuaria Cantomi. Additionally, he holds a very active mining industry in Argentina, being the director of Patagonia Gold S. A. since its inception. He is the former director of Minera El Desquite. To the list of Latin American billionaires, we can also add the German-born Argentine businessman Alberto Roemmers, founder and owner of Laboratorios Roemmers, a leader in prescriptions and units sold in the pharmaceutical market in Latin America; Federico Braun, manager of the group of imports and exports from Patagonia; Paolo Rocca, president of Techint Group and CEO of Tenaris, a world leader in the production of seamless steel tubes, with presence incountries around the world, and chairman of board of directors of Ternium, a manufacturer of various flat steel products.
In Ecuador, we have Álvaro Noboa, the richest man of his country, who has been a candidate for the presidency of the Republic four times (1998, 2002, 2006, 2009), and in the 2007 elections, succeeded in obtaining the post of National Assembly Member. As a businessman, Álvaro Noboa controls Grupo de Empresas Noboa and Noboa Corporation, with over 110 companies in Ecuador and around the world including offices in the United States, Antwerp, Rome, Japan, Argentina and New Zealand. In Colombia, there is Julio Mario Santo Domingo, the largest brewery employer in the region, the banker Luis Carlos Sarmiento Angulo and industrialist Carlos Julio Ardila. This list also includes Chilean businessman Andrónico Lucsik, the largest retailer of bottled or dehydrated food and drink in his country.
Mexicans who have attended these meetings include Lorenzo Zambrano, owner of Latin America’s largest cement company, which has industries around the world, mainly in China; María Asunción Aramburuzavala, Mexican beer heiress whose company exports to all continents; Emilio Azcárraga Jean, heir to the consortium of the largest telecommunication facilities in Latin America and the most important Spanish-speaking television network; and Ricardo Salinas Pliego, the millionaire furniture trader and banker and owner of the Mexican television network that is seen around the country.
The recession of 2008 that engulfed the United States swept the whole world, especially Latin America where the red flags lit up on investors’ switchboards. On one hand, this crisis occurred in the context of the presidential succession to the White House. George W. Bush’s successor Barack Obama inherited the world’s most powerful country in a state of bankruptcy. Wall Street and The City—as London’s financial district is known—warned from the beginning that the United States had many years earlier shown symptoms of a much greater economic depression than that of 1929. Obama was forced to implement a plan of emergency economic recovery in the amount of US$500 billion to the industrial sector. One-third of their resources, it was announced, would be earmarked for infrastructure projects to create jobs. The plan would include construction and rehabilitation projects for roads, bridges, transit systems, railways, schools, plants for water treatment and infrastructure networks, broadband telecommunications, among other projects.
The banking system, equal to the most powerful companies of the most emblematic multinational companies of US origin, had the worst rates in their financial returns as well as the largest frauds (Ponzi schemes). The downturn can be traced to several missteps including poorly-handled accounts on the New York Stock Exchange, over-enthusiastic lending practices by banks, and fund managers choosing risky investments with supposedly high returns that in the end, were never recognized. In this gloomy picture, millions of citizens faced the highest record of bankruptcies, loss of investments and savings, and defaulting mortgage payments.
In the context of Mexico, everyone wanted to listen to Slim, who many consider a financial guru. The tycoon was summoned to discuss the global crisis.
Slim criticized the government’s mismanagement of the US economy. In his view, Washington acted a little late and made some mistakes: “Hopefully, they are little mistakes, and hopefully they won’t make big mistakes.” According to Slim, the government began buying assets, which to him was a mistake. Sooner or later, the amount would become unmanageable because there would be trillions of dollars that would have to be bought.
“Underneath all this, in my opinion, there is poor regulation and even worse supervision. I’m speaking on a global level,” he said.
For Slim, this crisis will allow real structural solutions, not just for Mexico, but also for the United States. “We were worried about bird flu, but instead we got the US financial pandemic,” he said.
It was then that Slim referred to the fact that with this crisis, it wouldn’t be long before we would see the rise of numerous geniuses, but also financial Rambos who are not interested in winning the war, nor having power, but who are just interested in taking part in the war.
Regrettably, we are living a very special situation that unfortunately will not last a year, it will last longer. I am not speaking of the stock market, I mean the real economy, and we must take measures to prevent impacts it will have on the real economy. It must be borne in mind by all debtors that what happened with Fobaproa36 cannot happen again; where the debtors ended up losing their homes because they sold the mortgage at 11 or 12 cents to groups that wanted to recover, instead of giving it over to the debtor … In our case, it is important that the GDP grows by two, one or negative one percent. In fact, I do not think the GDP growth is really significant in these conditions and will surely be a very bad thing. What we need to take care of is the wage sums and total employment.
As the recession began to wreak havoc all over the world and in Mexico, the debate was slowly heating up. Slim, who had been a special guests of the Senate during the “Forum of Mexico Facing the Crisis: What to do in order to grow?” called the global crisis the worst in recent history, even worse than 1929. The scenario for Slim was even more disturbing. “I don’t mean to be catastrophic,” said the tycoon, “but it’s a delicate situation and we must be prepared so that later, we don’t cry.”
The GDP will collapse. Unemployment levels will be higher than we have ever seen before. “We will see the bankruptcy of large companies, businesses will close and buildings will be empty,” he predicted.
Slim argued that the weakening of the economy mostly affected the middle class, which was shrinking because their income was evaporating. As fiscal initiatives thrive in Congress, the government tries to compensate for these resources by raising energy, gas or electricity prices.
“In this sense, they shouldn’t use state monopolies for revenue purposes, as these should be companies that are managed independently,” he said.
In the political context, Slim’s recommendations to the senators were taken as confrontational to President Felipe Calderón. Days earlier, the president in his working trips around the country had launched a barrage of criticism and insults in which he predicted a bleak future for the country.
Knowing that his relationship with President Calderón had always been cordial, Slim did not flinch. However, some of his competitors took the opportunity to undertake a media campaign against the president using journalists, academics and politicians who identified with one of these groups.
The following is the full text of the controversial address of Slim to lawmakers from February 9, 2009:
Thank you, good afternoon. I am very pleased and honored to be with you in this important forum.
There was no record, I believe, since 1931, at the time of the Great Depression, when there was a great cooperation between the revolutionary block of the Congress and the Commerce and Industry Chambers. That was a very important coalition or alliance that allowed, along with the public policies adopted back then, a growth of 6.2 percent from 1932 to 1982.
Such sustained growth during so many years has been spectacular. That was the famous “Mexican Miracle” and the country achieved a huge transformation, thanks to those efforts and those public policies in which State policies were written and remained for many years.
It is a shame that since 1982, after the big crisis of the external debt, we have grown zero percent per capita. It is not mediocre; it is zero. That is worse than mediocre, mostly if we consider the population that has been expelled. That is a zero percent, including Mexicans that had to leave the country for not finding job opportunities here.
That ’82 big crisis of external debt had various reasons. One was, maybe, significant public expense. Another was, no doubt, the availability of petrodollars, financing and credit, which allowed an excessively large debt. But the main cause was external. It was the twenty-one percent interest rate.
You know that an economy, a company or a normal person whose financial cost is raised four times must be in trouble.
And from that external debt, came the plan and model of the Washington Consensus, which had various purposes, one of them to collect. This model has many virtues, but we have suffered its weaknesses for many years and of course, the developing countries do not notice or pay attention to them.
We have seen that on these abuses that have been imposed on the International Monetary Fund, technocrats, academics, dogmatic and ideologues never showed up or brought this to our attention.
The nearest thing was Greenspan’s irrational exuberance of the markets on December 1996, when the rate was 6,500 and went up to 13,000.
Well, that is a really clear situation; we need to have a long-term vision towards the future, but we have to know what has happened in the past.
There are no simple solutions for sustained development. The country passed from being an agricultural society to an urban and industrial society and now we have to move on to be a tertiary society: of services, technology, knowledge, and to keep in mind what this society and its new paradigms require in order to go in that direction.
I was very glad at the opening of this Forum—not the Forum itself—but the words by the President of the Congress, Deputy Cesar Duarte, who said, “We need to go over a structural revision of the model and redesign of the financial system.” That is what we need.
The President of the Senate talked about proposals and commitments and talked about structural changes to improve productivity and competition, which in fact are the two essential arguments in this whole situation we are living.
This crisis which started in the nineties (which Greenspan tried to stop with his irrational exuberance), by 2000, 2001 was a shock for the destruction of that time’s richness and there came a series of excessive, aggressive policies, monetarily and fiscally permissive, which made that crisis, which was getting better in 2000, 2001, 2002, blow out of proportion and lead us to what we are living today.
The centerpiece of the big crisis of the financial institutions, because of the excessiveness in their liberal policies, neo-liberal policies as well as a total lack of sense of caution, is mostly the government of the United States. Obviously, the consequences came with the lack of regulation and supervision of the international financial institutions, creating new instruments and products in which their main feature is what we call “leverage,” or the possibility to turn one peso into twenty, thirty or fifty.
For example, in order to buy commodities, we used to grant five percent guarantees. To buy products, we did not grant guarantees, and then the risks would multiply by hundreds, and this is what we are suffering now.
It was the speculation with oil, speculation with food—which fortunately collapsed - commodities in general, because we did not have to give anything that created a series of players, gamblers, newcomers, boys who came believing that everything was going upwards forever, and they would bet and bet, and, well, this is what we are paying for.
But, the serious matter is that even though the centerpiece is in the United States, the bigger consequences are appearing outside, in Japan for example. While in the United States the GDP dropped 3.8 percent, in Japan it dropped eight percent, in Germany eight or nine percent alone in the last quarter.
We are now in the moment, I would say. We have already been through the twenty-nine[percentage drop in GDP], we are living the thirty, we need to avoid the thirty-one, thirty-two and thirty-three. We need to avoid the financial market, which has not been stabilized or is not stabilizing and of course, it contaminates real economy through credit. It collapses the economic world as it did back then and as it looks it is doing, in many ways, at this moment.
Unemployment increase is excessive; we are talking about two digits. Spain is already in two digits as well, high digits; Japan, Germany, the whole [world’s employment] is decreasing very much.
Our countries have the strength. Our countries, I am talking about Latin America, have the best strength in terms of exchange in these last years. We have oil; other countries have sorghum, or wheat, etc., and we also have minerals.
[Our countries] have an economic strength and we have to take care of it and apply it very carefully in order to avoid these physical collapses.
There is no doubt that the Mexican Gross Domestic Product is going to drop; it is going to fall down, it will be negative. It has already [fallen] since the last quarter of 2008. We do not know how long it is going to last, but the effect is going to be very strong.
This is where I say: the GDP is going to be negative, substantially negative, because of the fall of oil and exports, among other things, and the consequences, also internal. But we have to watch over employment.
We do not have to worry if it is negative two, negative one or zero. We have to pay attention to which is the salary mass, which is the employment rate, and we need to establish, like the national agreement led by the President of the Republic Felipe Calderón Hinojosa, to seek actions to protect the employment and the family income. That is the critically important thing to do at this moment.
I am glad that in this agreement, it has taken up what all these models and ideologies, dogmatisms and doctrines have been living in for so many years, since ’83, but mostly, when the Washington Consensus started applying more firmly in our countries, has maintained us in a zero growth.
I think that the main goodness we are ending up with, just as it happened in that meeting with the revolutionary block of the Congress, is that we are turning over to the internal economy as we are realizing that thinking outwards is not everything.
We used to think that foreign investment was wonderful—it seemed like a donation. Foreign investment is not a donation. Foreign investment comes because we are offering good profits.
Modern companies are like old armies. Armies used to conquer territories and collect taxes. [Now,] companies conquer markets and collect dividends, royalties, and transfers from one or another source.
I mean, we need to turn over to the internal economy. We obviously need foreign investment and to adopt technology and such, but we have to turn over to the internal economy [and] take good care of our internal economy. Encourage small and medium sized enterprises, decrease business mortality, encourage [business growth] in Mexico… There are strong enterprises that compete internationally, but there are no strong countries without strong enterprises.
If the countries do not have strong enterprises, they are turning into neo-colonies. In a certain way, they need to have the strength, not internally, but outwards, to be able to project themselves.
Therefore, we see countries that have encouraged strong enterprises in their trans-nationalization, even with fiscal incentives, like Spain, which gives a seventy-five to ninety percent deduction to the investment, or Brazil, which gives support with the development bank, etc.
We need, as the United States has done since 1823 with the Monroe Doctrine, to help the Independence control our economies and markets until now.
I think it is very important to pay attention to the internal economy. It is great that we return to development banking. We used to neglect it, but development banking is essential for our country’s growth.
We also have to get back to building infrastructure to improve our human capital since we have a huge budget.
And there is [the matter of] quality. It is low quality and we need to modernize it, improve quality and pass to a digital culture, not only alphabetize, but digitally alphabetize the population.
We need to be competitive in this civilization of knowledge, of information, etc. We need competition and I agree with competition, it is very important. It is as if we are athletes. If we do not compete with anyone, we will never progress.
We need to use international references in competition. What was the record time for this? How high does he jump? How well does the baseball player play? How well does the football player play? Who is the best coach?
Clearly, we have to be open to [the fact that] competition and globalization is not an alternative, it is a necessity. This new civilization is a paradigm, even though at this moment it is retracting because of the economic collapse; the lack of employment, the lack of consumption, the fall of the American economy and of the developed economies as well. Obviously, the exporting countries will see their imports reduced, the prices of primary products will be lowered, actually they already were, etc., etc. Then, there is going to be an important fall of the international trade.
But besides that, international trade is going to fall and employment is going to fall as well. There is going to be a high unemployment rate. Unemployment indexes are going to go higher than we have ever known, [as high as in the 19030s].
The companies are going bankrupt, many of them small, medium and large. Businesses are going to close and there are going to be closed storefronts everywhere, the buildings empty. So this is going to be a very delicate situation.
I do not want to be catastrophic, but we need to be prepared to foreshadow and not just look at the consequences afterwards and cry.
I think that, as we did back in 1931, we have to review our decisions, see which model we need to generate, how it is supposed to work, how we are going to get out of this crisis, because we have to get out of it much stronger. How do we do that? Well, by creating human and physical capital. If we have a good physical capital, human capital is going to be very important.
Employment is encouraged through the small- and medium-sized enterprises, we all know that, but we also have to pay attention to our agricultural sector, which may be a little abandoned, and of course, infrastructure. [We need] an even faster, more effective and more job-generating infrastructure and the construction itself of the infrastructure, which is essential, is infrastructure maintenance. For that we do not have to wait for the plan, the project, the engineering or the right of way, or such. This is done overnight.
There are 30,000 schools in bad condition. We need to repair them, modernize them. We need to repair windows, bathrooms, ceilings, which are really deplorable, and painting. [We need] to do the same thing with hospitals, health centers, government offices, archeological zones, taking care of the environment biodiversity, etc.
I believe there is such ability in Mexico to give intensive employment with very little money, and of course, we have to look for the combination of public and private capital to drive those projects that justify it.
I think we have to try to get out of this, as I was saying, much stronger; it particularly catches my attention that the dogmas are still on after twenty-six years of failures.
They still find new formulas, new blames to justify that it is not so, even though those who have been more important have recognized it.
I think we should [recognize it]. Besides, in the situation of these last years, we have reduced the middle-class and we have affected it very much.
A good part of what the President of the Competition Commission indicated, of which thirty or forty percent was income, because they have no income, people do not have an income.
One-third of the students at the UNAM live on a monthly family income of four minimum-wage salaries, which today is equivalent four hundred US dollars. Is that an income? We need to improve the people’s employment and income.
There is often a debate between wealth and income. I think the fact that richness is private, collective or public has to be handled efficiently to generate more richness. Its product, which is income, has to have a better distribution.
And we see how, without question, one of the ways to improve income distribution is with education, employment and sources of employment. Education not only has the advantage of creating human capital, but it is a better offer, and one who has a good education has better job alternatives.
There are still some issues to go through, but basically to insist [on higher] employment in Mexico. I think we have to search, no doubt, for strong and competitive national capitals, stand face to face with transnationals, create more public richness and when a fiscal initiative fails in the congress, do not to use the monopolies of the state to collect or to substitute tax collection. [We should ensure] that energy is not summed up, as it has been done, for tax collection; that gasoline is not used for tax collection, those things should be separate. Those companies should be handled with autonomy and out of the budget to avoid the fact that when an income is not authorized, a point is not added to the net, or such, the prices are rising and the tax is not collected.
Last, I want to tell you here, [just as they say in the United States, to “buy American,” and] Minister Sebastián, from the Spanish industry said, “There is something our citizens can do for their country, which is to bet on Spain, on our products, our industry and our services, bet on ourselves.” There is starting to be economic nationalism in consumption. Hopefully we are not [saying], “Sell Mexico.”
I am leaving information for the legislature about competition as referred by the president of the Commission.
It is indicated here that the main reasons and more problematic factors in Mexico are government bureaucracy, inefficiency, corruption, inadequate infrastructure, restrictive regulations, tax regulations, financing access, tax rates, crime and robbery, and inadequate education of the workforce.
I am leaving you this: for the third time, we are in sixtieth place. It is not God’s law either, because the United States is in the first place. We already know they are not the most competitive in the world, since they are spreading their products everywhere.
So then I am leaving you this information and I thank you very much for your attention, time and invitation.