Politics, Business & Culture in the Americas

AMLO’s Biggest Test? Turning His Economic Message Into Reality.

Reading Time: 4 minutesMexico’s next president will soon face the same economic challenges that propelled him to victory.
Reading Time: 4 minutes

Carlos Tischler/Getty Images

Reading Time: 4 minutes

Andrés Manuel López Obrador’s sweeping victory in Mexico’s presidential election Sunday said a lot about the country’s national mood, and the electorate’s justifiable anger over widespread corruption, crime and violence. But the election also shed light on the huge gap between elite perceptions of Mexico’s economy and the way in which that economy works for a majority of the Mexican people. 

López Obrador, widely known as AMLO, won in large part because he understood what many of his critics failed to perceive: People don’t choose a president by analyzing averages, but by reflecting on lived experience. AMLO’s opponents argued that, in broad economic terms, things were moving in the right direction. But the lived experience of Mexico’s economy over the last two decades, for many, has left much to be desired. Bringing about meaningful change in that regard may prove to be AMLO’s greatest challenge.

Mexico has averaged around 2.5 percent growth per year since President Enrique Peña Nieto took office in 2012. But average real per capita income has been in steady decline for years, falling by 10.5 percent between 2008 and 2014. Real income is one of the most significant determinants of whether a person’s economic situation is improving or getting worse, and by that measure about 80 percent of Mexico’s population is now worse off economically than they were a decade ago. The problem is particularly acute among the middle class. 

The “angry” Mexico that voted for AMLO is not irrationally so. Some 73 percent of voters polled in 2017 believed that their economic situation was getting worse, the highest rate since 2002. Meanwhile, among commercial businesses, trust in Mexico’s economy increased by 7 percent in 2017. Other business sectors, like manufacturing and construction, were between 4.4 percent and 5.5 percent more optimistic in 2017 than in 2016. 

López Obrador spoke to this imbalance masterfully. Over the course of the campaign he created a narrative by which Mexico would be much better off if corruption did not absorb so many public resources. And, most importantly, he presented himself as the only political outsider capable of eliminating the root of the problem: the links between economic and political elites.  

The challenge of running against the system is that AMLO will now be expected to solve the entrenched economic problems that have long limited growth and increased inequality. That will not be easy. 

Among the most critical issues that AMLO’s team will face is the need to create incentives to increase salaries, which have stagnated in Mexico for decades. From 2000 to 2016, Mexican wages grew at just 1.2 percent per year, slightly above Puerto Rico at 1.1 percent and far less than the Latin American average of 2.7 percent.

The minimum wage has grown at an even slower pace. At just 0.3 percent per year, the minimum wage in Mexico increases at about the same rate as in Zimbabwe, a country with an economy on the verge of collapse, constant hyperinflation and, until recently, subject to the political leadership of a dictator for decades.

Overall, the number of people who work with salaries below the poverty line has increased over the last two administrations. In 2006, 32 percent of workers did not earn enough to pay for a basket of basic foods; today that number is 39 percent. One out of every three formal workers cannot afford to feed their family with what they earn. Instead, they need to rely on private or public income transfers. 

Coming up with solutions won’t be easy, but research shows that antitrust policy, stronger unions and reducing corruption are key areas to explore.

Mexico’s Federal Competition Commission recently pointed to evidence that if Mexico eliminated market concentration, growth in labor productivity could be between 20 and 30 percent higher than it is now, consumer prices could be 10 to 23 percent lower, and the unemployment rate could fall by 1 percent. Eliminating monopolies could indeed be effective in producing higher wages and lower prices for basic goods, especially since a large share of basic goods in Mexico’s consumption basket is produced by monopolistic or quasi-monopolistic firms.

AMLO’s team should also look at ways to democratize and strengthen labor unions. Only 13 percent of Mexico’s workers are unionized, less than an average of 17 percent among OECD countries. Even then, a clear majority of unions are corporate or authoritarian in nature, making worker representation more a fiction than a reality. Without proper labor representation, outsourcing and contracting without benefits have significantly increased in many industries, particularly in those that employ the poorest workers. For example, while in 2008 14.5 percent of construction workers were hired as sub-contractors, the figure is now 18 percent.

AMLO’s promise to reduce corruption could also create large benefits for the poor. According to Mexico’s Federal Superior Audit Office, the misuse of public resources in Mexico’s poorest municipalities is almost double that in the wealthiest. While poor states like Veracruz and Michoacán are systematically among those where public resources are “lost” or unaccounted for, in places like Mexico City and Querétaro, where poverty rates are relatively low, the share of missing money is much smaller. 

Reducing corruption would also increase AMLO’s ability to promote social inclusion. PROSPERA, Mexico’s largest cash-transfer program, is plagued with irregularities. In 2016 alone, program expenditures totaling 627.8 million pesos (about $30 million) were improperly accounted for. That’s enough to feed 38,000 Mexican children for a year. Overall, Mexico’s Social Development Ministry has yet to clarify how it spent around $223 million that was supposed to be used to combat poverty among more than 50 million Mexicans from 2010 to 2016. 

If one thing is clear as AMLO’s election euphoria wears off, it’s that he won’t have it easy as president. He will have to solve problems related to economic distribution that Mexico has faced for a long time. There is plenty of hope among Mexican citizens about the prospect of a positive change; but there is also some naiveté about just how hard it will be to make it happen. 

Ríos is a fellow at the Mexico Institute and the co-author of The Missing Reform: Strengthening the Rule of Law in Mexico. She holds a Ph.D. from Harvard and is an assistant professor at Purdue University. 

Follow Viri Ríos:   LinkedIn   |    X/Twitter

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