Impact of Mexico's Government Structure on the Economy

Impact of Mexico's Government Structure on the Economy
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  • 0:00 The Economy of Mexico
  • 0:52 The Mexican Miracle
  • 2:05 Collapse and Selling Off
  • 3:40 Trying to Move Ahead
  • 4:35 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Mexico's economy has long been shaped by the governments that have overseen it. In this lesson, we look at the impact of government on the Mexican economy, from the colonial period to the modern day.

The Economy of Mexico

Since the beginning of its history until surprisingly recently, Mexico's economy has been largely dependent on the produce of its lands and not the crafts of its people. The Mexico Valley and Oaxaca region maintained some of the largest agricultural regions in the Western hemisphere well into the 1700s, while the silver mines of the country were exploited by the Spanish to such a degree that it caused a worldwide crash in the price of that metal. Even the early Spanish colonies were largely based on a plantation-like system that conceded that the real wealth of the country was from the land. However, Mexico has continually struggled with this land-based approach as it has seen its economy expand and collapse, and hopefully expand again, over the years of independence.

The Mexican Miracle

For much of the early history of Mexico as an independent country, the legacy of Spanish colonialism greatly weakened the economy. In fact, until the 1940s the country lagged behind. However, faced with the very obvious need to grow, the government began to focus on how to achieve that necessary steam in the economic engine. Planners noticed that a great deal of Mexico's wealth streamed out of the country every year to pay for imports. It was like rather than spending less money on groceries to cook for yourself, you simply pay more to go out to eat every night. Sure, it's easy, but it is a giant waste of money. In economic terms, Mexico began to teach itself to cook.

Through a process known as import substitution industrialization, Mexico began to industrialize based off the things that it knew it had a market for, namely everything they had been importing. The resulting growth every year for several decades led to the growth of the Mexican economy being called the Mexican Miracle. Much of this was also accomplished by nationalizing major industries, as well as granting de facto monopolies in others.

Collapse and Selling Off

Still, the financing for all that growth had to come from somewhere. While the industrial base of the country was growing, the financial base was still largely dependent on the United States. As you may know, little makes financially minded people in the U.S. as nervous as the price of oil. Unluckily for them, the price of oil shot up massively in 1973 because the countries of OPEC, the cartel that controls oil production, just decided not to sell oil any more. Within weeks, there were very real fears of market crashes, and people began to worry about the overall state of the economy. This trickled down to people pulling out of investments in Mexico, and the Mexican peso ended up losing a great deal of value against other currencies because there were fears that the Mexican economy would not be able to pay its bills.

Still, it wasn't all the fault of oil. The nationalization process also led to some rocky times for the Mexican economy. Nationalization of some things has proven to work in many countries; after all, most of us agree that the nationalization of fire departments is a pretty good thing. However, nationalization also runs against property rights, and people like to know that they are going to own whatever they are building well into the future. But that certainty was shaken by President Echeverria, who gave large amounts of land to peasants. Suddenly, land once used to earn vast sums of money were now used to grow cheap foods. Sure, it was popular among the peasants, but it shook the economy.

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