Strengthening institutions to improve the prosperity of all Mexicans

By Sonia Araujo and
Lisa Meehan, Mexico Desk, OECD Economics Department

Why are some countries wealthier than others? There is
increasing recognition that the economic success of nations depends on well-functioning
institutions (see, for example, Acemoglu and Robinson, 2012). Institutions
provide a framework that shape economic incentives, thus influencing decisions
in a multitude of areas, such as whether to become educated, start a business,
invest and so forth. The success of policy reforms in all areas therefore
hinges on the ability of institutions to create the right incentives. Quality
institutions also create certainty and a level playing field on which people
can build, thus bringing more fairness and greater access to opportunities. Overall,
quality institutions are of fundamental importance to economic outcomes.

It is therefore concerning that numerous indicators suggest that institutional quality is low and declining in Mexico (Figure). For example, symptomatic of weak institutions, perceived corruption is the highest in the OECD and has not improved over time. Also worringly, the already high levels of crime and violence have been increasing. Mexico has the highest homicide rate in the OECD, and the number of murders has risen sharply in the past decade (OECD, 2019; Figure). Impunity is also high, with over 90% of crimes going unreported, and just a small fraction of reported cases making it to the court system (Le Clercq and Rodríguez Sánchez Lara, 2016).

Corruption is a serious drag on the prosperity of all Mexicans and tackling it features high in the new government’s agenda. Corruption is a drain on fiscal resources, undermines the ability to deliver public services and also has an adverse effect on political stability, the business environment, private investment and inclusive growth . The OECD Economic Survey of Mexico 2019 highlights that improving institutional quality would have the largest growth benefits among all structural reforms and would also facilitate the effective implement of all other policy reforms

To fight corruption and improve transparency, Mexico’s
ambitious National Anticorruption System (NACS) was enacted in 2016 (OECD,
2019).  As well as establishing a federal
anticorruption system, it requires states to create local anticorruption
systems. However, implementation is behind schedule. For example, local
anticorruption systems were supposed to be in place by mid-2017, and while
important progress has been made, not all states have fully completed this
process. The current administration is committed to accelerating the
implementation of the NACS and has taken immediate actions. For example, key
positions are now being filled – in particular, the first Special
Anticorruption Prosecutor was recently appointed.

The experiences of other countries highlight that it is very
challenging to successfully tackle corruption in a wholesale manner. Going
forward, it will be important to monitor and evaluate the outcomes of NACS, and
address identified weaknesses, especially at a regional level, in order to
avoid exacerbating already stark geographic disparities, and take further
action if necessary.

Mexico has also undertaken other reforms in recent years to move the quality of institutions and economic oversight towards international best practice. This included the creation new independent sector regulators were created as part of the 2013 energy reforms and two new autonomous competition authorities and specialist competition courts were established in 2014. Ensuring the independence and adequate resourcing of these autonomous entities will be crucial to the continued strengthening of competition in Mexico.

References:

Acemoglu, D. and J.A.
Robinson. (2012). Why nations fail: The origins of power, prosperity,
and poverty. New York: Crown Publishers.

Le Clercq, J. and G. Rodríguez Sánchez Lara (2016), Global
Impunity Index Mexico IGI-MEX 2016, Center of Studies on Impunity and Justice
(CESIJ), http://www.udlap.mx/cesij.

OECD (2019), OECD Economic
Surveys: Mexico 2019, OECD Publishing, Paris. https://doi.org/10.1787/a536d00e-en