In Mexico Large Gap Between Developed and Under Developed Regions The Economist suggests that the main obstacle to development is a traditional mind set that cannot embrace modernity

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WASHINGTON – I recently wrote about the absurd news item regarding 2.3 million applicants for 368 entry level civil service jobs in Uttar Pradesh, a very populous and very poor Indian state.

Grotesque gap 

The grotesque gap between the number of low skills and low pay jobs and the avalanche of applications, many of them made by people with university degrees, is illustrative of enduring lack of opportunity and gigantic backwardness in a country often cited as an example of success in the struggle against under development.

Yes, India has many important companies, some of them quite competitive in the global market place, (Tata, Reliance, Wipro, and Infosys, among others). But the grim reality is that there are still hundreds of millions who struggle, trapped in perpetual poverty. And part of the reason lies in antiquated institutions and absurdly complicated bureaucratic rules and overlapping jurisdictions that suffocate business and prevent development.

What about Mexico? 

Well, what about Mexico, another promising middle-income developing country? If we use the same yardstick of number of applications per job opening, Mexico is doing a lot better, but not great.

The Economist reports, (Of cars and carts, September 19, 2015), that German automaker Audi is recruiting workers for a brand new plant that will be built in San Jose Chiapa, in the state of Puebla. So far, the company received about 100,000 applications for 3,800 jobs.

Obviously this shows that there are many more jobs seekers than available openings. Even though the gap is not as monstrous as in the Indian case, it is still way too large. Far too many Mexicans need decent jobs.

Not taking off 

But why is it so? Why is it that Mexico, notwithstanding its significant progress and the advantages created by free trade agreements with the United States (NAFTA) and many other countries, cannot “take off”, as a country?

There are many theories, but one seems to dominate. The main reason is that millions of Mexicans are still prisoners of an outmoded, traditional, and very conservative mind set. Small companies born in the informal sector do not want to graduate to the formal economy in which, along with tax obligations, they would also gain access to commercial credit and other tools that would favor expansion.

For ever informal, for ever small

They prefer to stay informal and small. And this means that they will never be part of the globalized economy. At best, they are and will continue to be small domestic players. As The Economist story reports, there is plenty of anecdotal evidence that illustrates this mind set. For instance, the windfall of a successful business transaction usually is spent on a big fiesta, as opposed to having any plans for reinvesting profits in the purchase of new equipment and hiring more workers.

Two societies 

The picture that we get is of two very distinct societies. There are the “globalized” Mexicans who have a good education and are plugged into the international economy and trade. They do well. They are and stay up to date. They understand business strategies, along with the need to plan and invest in modernization.

And then, next to them but a universe apart, millions of others who are not connected to this world. These Mexicans do not know and do not understand modernity and its dynamics, in large part because they lack the education that would allow them to access it.

Hard work is not enough

And so here is the broader lesson to be drawn from this story about Mexico and its sharp contrasts. Economic success today is only in part the result of hard work. It is mostly about smart work. It is about having or not having a real understanding of where you and your enterprise are situated within a country now plugged into the global economy. It is about understanding technologies and markets, about optimizing the use of capital, and about choosing the most cost-effective tools.

And there is more. In order to thrive, you need to be situated within a modern eco-system. You need modern infrastructure, reliable logistics and –most important of all– rule of law.

Islands of modernity 

If the eco-system exists, but only in patches here and there like in Mexico, then you will have islands of impressive modernity surrounded by an ocean of backwardness.

100,000 applicants for 3,800 factory jobs in the state of Puebla is a symptom of this enduring gap.

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