Paper 3/3: The Mexican Exit

How Mexico can turn North American access into institutional progress

THE RULES OF POVERTY / LAS REGLAS DE LA POBREZA · Paper III of III

This series began with a question I have carried my whole life: why is Mexico so different from the United States and Canada?

Mexico joined the North American economy 32 years ago. Our factories, exports and supply chains became part of a continental system; most of our institutions continued working as they had before.

Paper I asked how a region with this much land, ocean, talent, energy and culture fell so far behind countries it once matched. I found rules that consistently rewarded extraction over inclusion and allowed Mexico’s underperformance to continue for generations.

In 1913, Argentina was richer per person than Germany or France. Latin America’s income peaked at about a fifth of American income in 1980 and has drifted down ever since, including during the years after NAFTA.

The region stopped converging 45 years ago. Geography, culture and resources cannot explain this by themselves. The two Nogales sit in the same desert and share the same families, yet their incomes stand roughly three to one.

Paper II asked why these rules stay in place when their failure is obvious to everyone who lives under them. The answer was the capture machine.

Whoever wins power, left or right, redeemer or general, takes control of the courts, electoral bodies, state companies, media, security forces, government contracts and monopolies. Over time, the machine becomes very difficult to touch; those who try can face real danger.

This final paper is about the Latin American country with the clearest possible route out of that system because of its partnership with the US & Canada: Mexico.

Here is the question I want every Mexican to sit with. Our two neighbors have spent the last decades growing their income per person, their standard of living and their access to credit, healthcare, security and opportunity. We share a continent, a trade agreement and, in millions of families like mine, blood.

Why, then, do we live this way? How did so many years pass before we accepted that the growth was not coming?

Access without the formula

In 1994, NAFTA opened the door. Foreign investment multiplied, exports exploded and entire industries moved to Mexican soil.

Mexico is now the largest goods-trading partner of the United States. In 2025, nearly $872 billion moved between the two countries. This is an extraordinary achievement, and one that Mexicans should be proud of.

Still, from 1994 to 2025, Mexico’s real output per person rose by only about 19 percent, which is roughly 0.6 percent a year. Over the same period, it grew by about 1.6 percent a year in the United States and 1.1 percent in Canada. Same thirty years, same open border, and we grew at a third of our neighbors’ pace.

Between 1960 and 1980, before NAFTA, Mexico doubled its output per person. After NAFTA, we gained access to the largest market in the world; it was the access every other country in the region wanted.

What we did not gain was the formula for turning that access into progress for most Mexicans. The people who understood the problem and had the authority to act never did enough.

Even the nearshoring boom everyone is celebrating deserves a colder read. Foreign investment reached a record $40.9 billion in 2025, while about $7.4 billion, or 18 cents of every dollar, was classified as new investment. Much of the rest came from reinvested earnings.

Reinvestment is positive; companies tend to reinvest where they expect to keep doing business, and new investment also rose sharply from the previous year. Even so, the composition raises a harder question:

how many Mexicans are building wealth from this wave? How many Mexican companies, entrepreneurs and families are actually riding it?

The answer is fewer than there should be. Investment is arriving in Mexico without making enough Mexicans wealthy. Mexico and Colombia remain at the bottom of the OECD in output per person, and Mexico collects the least tax of any member.

We attached a first-world export platform to an old machine, and thirty years later the machine remains largely intact.

The chassis

We should name its parts. Each one carries a number we can check.

• Impunity: in 2024, 93.2 percent of crimes were either never reported or did not result in an investigation file.

• Informality: about 55 percent of Mexican workers are informal, and together the informal economy produces only about a quarter of the country’s output.

• Credit: private-sector credit equals about 35 percent of Mexico’s GDP. In Chile, it is above 100 percent.

• Tax: Mexico’s tax revenue reached 18.3 percent of GDP in 2024, last in the OECD.

• Oligopolies: for years, a handful of companies have lived off a huge Mexican market while our competition authorities struggled to make them compete. In 2012, the OECD estimated the loss to consumers in telecommunications at close to 1.8 percent of GDP a year for 2005 to 2009. That estimate is from an earlier period, but it shows how much weak competition can cost ordinary Mexicans.

• Education: only 34 percent of Mexican students reach a basic level in mathematics, compared with 69 percent across the OECD.

• Pemex: after years with financial debt above $100 billion, Pemex still owed $85.2 billion at the end of 2025 and remained dependent on government support to meet its obligations.

The machine is also becoming more concentrated.

Between late 2024 and 2025, seven autonomous agencies were dissolved and most of their responsibilities were moved into the government. The first national judicial election chose a large group of federal judges with turnout of about 13 percent. V-Dem now places Mexico in the grey zone of electoral autocracy. Other monitors classify it differently, but the warning is serious.

In Paper II, I described the PRI’s 71 years in power as part of the history of the system, not as an attack on today’s government.

Every sexenio, the six years each Mexican president governs, has had a chance to change the same machine, and every administration has chosen to preserve too much of it.

Mexico’s great democratic opening came in the year 2000. After 71 years, the PRI finally lost the presidency. Ernesto Zedillo, the last PRI president, handed power to Vicente Fox of the PAN, and the PAN held it for twelve years, through Felipe Calderón.

Changing the party in power did not change the deeper structure. The PRI monopoly ended while the machine continued.

What Spain teaches us, twice

I have been reading Why Nations Fail, and one chapter will not leave me alone. It tells the story of Spain and England.

In the 1500s, Spain was the superpower. The silver of the Americas ran through Seville, and the Crown made sure it also ran through the Crown. Trade was a royal monopoly; commerce was a privilege granted to a limited group; the wealth of the empire belonged largely to the court and the few families around it.

England was far from inclusive by any modern definition. Its merchants, however, had more room to trade on their own account. Parliament eventually limited the Crown’s power to confiscate, and property became harder to take from the person who had created it.

Spain defaulted repeatedly even while American silver was flowing. England later became the center of the industrial world. Over the long arc of history, the system that gave more people room to participate produced far greater prosperity.

Mexico inherited much of Spain’s old rulebook. The extractive system planted here did not leave with the Spaniards; independence handed it to new owners, and it has been passed down, renamed and repainted ever since.

Five hundred years of evidence have shown that this has nothing to do with blood, culture or heritage. Mexicans get ahead when they live under rules that protect their effort. Millions of Mexican immigrants have shown what becomes possible when hard work is backed by safer streets, deeper credit and institutions that let people build and keep what they build.

Spain also offers a more recent lesson, and this is the one that gives me hope.

For much of the twentieth century, Spain was poor by European standards, closed and autocratic. After Franco, the country began its democratic transition, adopted a new constitution and anchored itself to its neighbors. Spain had already begun changing before it entered the European Community in 1986. Membership gave those reforms an outside anchor and made them harder to reverse, and Spain agreed to live within shared rules on trade, competition and public administration. Poland later followed a more demanding version of the same process, with standards, deadlines, monitoring and a common body of law.

Spain, the empire that once spread an extractive system across the Americas, eventually found its own way toward greater inclusion. The gravity of its neighbors helped pull it forward.

Mexico has an extraordinary version of that opportunity. We share 3,000 kilometers of border, a trade agreement and a production system with the largest economy on earth and with Canada.

These countries have serious problems of their own, and their governments will always defend their own interests. They also have deeper credit, stronger enforcement and some of the oldest institutional systems in the world. The evidence that another road exists has been sitting next door my entire life.

Institutions on paper, exclusion in practice

Mexico is very good at writing laws and creating institutions. Drafting has never been our main weakness; the deeper problem is how our institutions operate and whom they actually serve.

Institutions that should be helping Mexico become a more inclusive country keep following the old path of exclusion because too many interests live off that path. Monopolies, unions welded to parties, contractors welded to budgets, políticos welded to their franchises.

These interests work like antibodies. When a reform threatens a center of power, the system surrounds it and slowly dissolves it. Paper II showed this mechanism across a continent. Here I am telling you that it also operates in my country, and that I have watched it work.

As a nation and as a society, we have never clearly decided what kind of country we want and then measured the distance between that vision and the country we have. It may sound like a soft exercise; in practice, it is one of the hardest things an institution can face. Once a society writes its standards down, every institution can be measured against them.

I want to be honest about the limits of this paper. I do not have a full map of the exit, and I distrust anyone who claims to have one. The first step is admitting, as a nation, that the way we have governed ourselves has failed to produce the progress and wealth Mexicans deserve. Once we stop defending the system out of habit, party loyalty or pride, the work becomes easier to see.

We need to open every institution and look closely at it. Which ones are weak? Which ones are bloated? What is missing? Where is the oversight? Which institutions exist because citizens need them, and which ones survive because someone powerful benefits from them?

Some will need to be repaired, others strengthened, rebuilt or closed. Mexico needs institutions designed for a modern government and a free market that competes with the world. Too many of our systems still belong to the country we were fifty years ago.

This will be difficult. We can at least begin with the advantage of having working examples close to home.

The exit depends on trust

Lasting change depends on people believing it will survive the next election. Mexicans need to see institutions working for them regardless of who governs, and they need to see results within a reasonable period. Trust is what carries real reform across sexenios.

A few changes could begin building that trust.

Push the banks to compete so they grow in size, reach and ambition, and so credit finally reaches ordinary families and businesses at prices that make building possible. Things like open banking and public loan guarantees could get credit to young companies before they are big enough to be safe bets.

Entrepreneurs and innovators need clear legal ground and real financing. Starting something in Mexico should feel like a reasonable decision instead of an act of faith.

Former mayor Miguel Treviño has also spoken about bringing young, capable people into government and using technology to make public services faster, simpler and cheaper. Too many talented Mexicans do not see public service as a place where they can build a serious career. We need more of them inside government if we expect the machinery of government to improve.

These are early steps. The heavier work should follow a clear order.

What we must do now

The police, prosecutors and courts come first. Mexico spends about 0.7 percent of GDP on civilian policing and justice, while a recent estimate placed the economic cost of violence at around 11 percent of GDP in 2025. The two numbers measure different things, but the imbalance is very hard to defend. Every major reform depends on security and justice, because capital, formal businesses and talented people all retreat from places where contracts mean little and crime carries almost no consequence.

Educate the whole country, and do not wait for the government to do it alone. An educated society is the ground everything else on this list stands on: it makes better citizens, the ones who defend the referees Paper II described, and better workers, the ones who can capture the value of the investment arriving at our border instead of watching it pass through.

Government has to raise the floor in every public school. But this is too big and too urgent to leave to the state alone; it needs a real commitment from the private side.

Companies, factories, universities, chambers and community groups can open their spaces after hours and turn them into classrooms, and the Mexicans who already know something can teach the ones who do not. A country that decides to teach itself, in every space it has, closes the gap between the talent we are born with and the skills the world now pays for.

We also need to change how we choose the referees: the courts, the electoral authorities and the regulators. The requirements should be public, demanding and based on merit. Appointments should be spread across time so one government cannot fill every position at once. Removing an independent official for political reasons should be difficult, and visible to everyone.

This protects every party. Any party governing today may be in opposition tomorrow, and independent referees are the best insurance every side can buy. Building them will take the politicians, because lasting institutions cannot be imposed from outside the political system.

Campaign money should be transparent in real time. Mexico should keep strong public financing so parties do not become dependent on a few private fortunes. The public should know who is providing campaign money and who benefits from it, especially when donors have connections to government contractors. The INE already oversees much of this system; its autonomy should be protected, and its power to audit, investigate and impose real consequences should be strengthened. No ministry, governor, contractor or private fortune should be able to buy a political party through a door the public cannot see.

Becoming formal also needs to be radically simpler. Opening a business, paying taxes, importing & exporting goods, hiring a worker and registering property are the places where I would replace the process instead of managing small improvements over many years. Brazil offers a useful example. It launched Pix in 2020, and five years later nearly 170 million Brazilians use it. Pix lowered the cost of moving money, brought millions of people into digital finance, and gave small businesses a payment system that had once been much easier for large companies to use. Pix did not erase informality, but it showed how fast people change their habits when a system is useful, cheap and easy to trust.

Customs and trade should be simple and efficient. Mexico should become known as one of the most modern, trade-forward countries in the world: a country that moves legitimate commerce on verification and trust instead of treating every person and business as a possible offender.

Mexico needs to bring back talent and start filling up with great, diverse and international people and to do this it needs to transform to an inclusive and highly efficient immigration system to assure that Mexican organizations and institutions are filled with the best talent in the world.

The USMCA review can give this work an outside anchor. This month, the three governments completed their first joint review. The United States declined to confirm the sixteen-year extension. The agreement stays in force until 2036 and now enters annual reviews until the three countries agree to extend it, and bilateral negotiations are already underway. That calendar creates uncertainty for an unprepared country, and it is a discipline for a serious one.

USMCA is narrower than joining the European Union, and it has no power over us from the outside. It cannot rebuild our police, choose our judges or clean our public accounts. Washington and Ottawa will negotiate for their own interests, as every government does.

Mexico can still use the review to hold itself to a promise. Alongside the negotiations, we could publish our own standards and deadlines: how long courts take to resolve a case, how contracts are awarded, how fast customs clears legitimate trade, how regulators are appointed, how state companies report their finances, and how new competitors enter concentrated markets.

The results should be public and measured every year, so Mexican citizens, businesses, universities and civil organizations can see whether the country is moving forward or backward.

A nation exercises its sovereignty when it chooses its own direction and takes responsibility for the results. Adopting standards that protect Mexican citizens would strengthen that sovereignty, not surrender it.

We could use access to our largest market as the reason to finally fix what we have postponed for forty years. Spain used Europe as its anchor; Mexico can use North America, once the commitment begins here at home.

Home

Mexico is a rich nation in territory, energy, geography, culture and, above all, people. A rich nation owes itself the systems that let its people show what they can do. Maximizing Mexico’s potential means maximizing Mexicans: their safety, their credit, their schooling, their freedom to create and their right to build and keep what they build.

Our northern neighbors have plenty of failures of their own. Their institutions have still produced more security, deeper credit, stronger productivity and more opportunity for more people, over a longer time, than the system we have defended at home. The honest response is to recognize what works, learn from it, adapt it to Mexico, and start catching up. Five hundred years of experience already showed us which rules give more people a chance to prosper.

Mexico’s future is in the decisions we make.

El futuro de México no está al sur de sus problemas; está al norte de sus decisiones.

This concludes The Rules of Poverty / Las Reglas de la Pobrez