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• • • The effort to equip the unequipped, and to find a surrogate for the conventional tools of expansionary fiscal and monetary policy, should be capped by a a pro-growth deal with big business. I begin with two preliminary observations that orient this part of my proposal. The first remark is that Mexico suffers gravely from the absence of any world-class industry, in any sector of its economy. Outside the oil and gas industry, no area of Mexican production stands at the front line of international benchmarks. The successful assembly of consumer durables, for example, remains an imitative industry, operating with low domestic content and with modest skill-enhancing effects on other sectors of the Mexican economy. The consequences of this absence of world-champion industries far exceed its immediate and tangible implications. The lack of standard-setting industries deprives Mexico of a factory of ideas, capacities, and ambitions. It robs the rest of the economy of a source of creative pressure: of bottlenecks that need to be broken and low expectations that need to be overcome. It contributes to a sense of helplessness in the face of external events, such as the recession now imposed from across the border. And it is unnecessary. The second remark is that a creative response to the present recession can serve as an opportunity to remedy this costly failure. In devising such a response, it is crucial, however, to distinguish the end from the means with which that end has, traditionally but wrongly, been associated. There is increasing evidence that the ascent up the ladder of productivity and comparative advantage in the world economy depends on consolidating positions in lines of production that are sustained either by economies of scale and scope, or by the accumulation of specialized skills, or by some combination of these two sets of favoring circumstances. The conquest of such niches is not the natural and continuous outcome of patient diligence in playing whatever hand the international distribution of comparative advantage happens to have dealt a country. It is the discontinuous result of private and public initiatives, working together. So much for the goal. This aim is, however, often associated with the top-down choice by government of the right sectors by which to rise to lead the economy toward higher productivity and greater international advantage: "picking winners." It is a false association. The centralized choice of new niches for national production and international competition by a bureaucratic apparatus represents an extreme, limiting case in a spectrum of forms of strategic coordination between government and business. It may work in special circumstances, but even then at great risk of degenerating into favoritism and dogmatism. It often proves a costly shortcut. There is no need to choose between letting established market forces (as opposed to the forces generated by a redesigned market) run their course and surrendering the choice of strategy to a cadre of enlightened bureaucrats. There is a collective action problem to solve, and in most situations it can best be solved by a form of open, decentralized and experimental coordination. Such a practice will be anxious to encourage new clusters of production in promising sectors and to help break the constraints that prevent their consolidation. However, it will be reluctant to impose a single line from the top. It is in this spirit that I explore a pro-growth deal with big business. I propose two parts of such a deal. The first part of the deal is a negotiation with the leaders of big business in each sector to exchange a commitment to resist the recession through strategic, productivity-enhancing investments. In this negotiation there should be no master plan, no standard terms, only an ad hoc, sector-by-sector set of understandings. The business leaders should be persuaded to make specific commitments to forward-looking investment in their respective fields. In exchange, the government should offer to break crucial bottlenecks. Depending on the circumstances of each sector, these bottlenecks may lie in: (1) the energy, transport, and communication infrastructure of production; (2) the supply of skilled labor; (3) the transfer of more advanced technologies; (4) access to credit, on both the domestic and the international capital markets; and (5) access to foreign markets on more favorable terms, either through new bilateral agreements, or through new uses of the current multilateral arrangements. The second part of the deal should represent an effort to arrive at widely shared and supported understandings of the sectors in which Mexico has the best chance of developing world-class industrial clusters. Independent technical experts and academic institutions as well as domestic and foreign businesses should participate in these conversations. The discussions should be focused. They should be conducted in a climate of practical urgency. A peacetime equivalent to the spirit of wartime mobilization is the ideal. I do not suggest that the government offer subsidized credit and credit enhancements, or even special tax favors, to investors in such sectors. I simply propose that it offer to help break some of the same sorts of bottlenecks listed in my description of the first part of the pro-growth deal. The government should commit itself to overcome some such well-defined constraints, on a definite schedule, in return for definite commitments by domestic and foreign businesses to invest in the development or the deepening of the new lines of production and of the connected and supporting forms of economic activity on which those lines depend. You should begin the negotiation of both parts of this two-part deal with a single national meeting between your government and big-business leaders. Such a meeting would provide an opportunity to present to business -- and to the country -- the entire program of economic reactivation as well as the narrower pro-growth bargain with big business. On this stage, you would have a chance to show Mexico that you are determined to turn a setback into an opportunity and to combine the mobilization of national resources with the democratization of the market economy. The national meeting should
be followed by two parallel sets of sector-by-sector discussions, corresponding
to the two parts of the deal. And the discussions should be presented and used
as a template for the development of organized procedures for future social
negotiation. Such procedures must be able to outlast the crisis of today. They
must lay an enduring basis for a new decentralized form of strategic
coordination between government and business.
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