Mariana Mazzucato, 58, fondly recalls the year she spent in Mexico as an exchange student in 1989. The Italian-American economist attended the National Autonomous University of Mexico (UNAM), the country’s largest university and the largest in Latin America, and at the age of 20 came to understand that there was a gap between economic reality and economic theory that needed explaining.
“Everyone was very interested in learning why different economic theories were limited in their ability to explain what was happening in Mexico,” she recalls in an interview with EL PAÍS.
The experience later led Mazzucato to pursue both a master’s degree and a PhD in economics. Since then, the economist, now director of the Institute for Innovation and Public Purpose at University College London, has focused on examining economic tools through a critical and socially minded lens, far removed from neoliberalism.
More than 30 years later, Mazzucato has taken on the task of analyzing the state of Mexico’s economy through Plan Mexico, the strategy designed by Mexican President Claudia Sheinbaum’s government to boost growth in the coming years. In August, together with her colleague Lara Merling, she published State Transformation for Plan Mexico: A Mission-Oriented Approach to Achieving Shared Prosperity, a study that positions the Mexican state as the driving force behind the country’s development through innovation.
In the report, she advocates greater coordination across government institutions, as well as stronger public and private investment to ensure meaningful results. Mazzucato is one of Sheinbaum’s favorite authors. The Mexican president has given copies of the economist’s books, including The Entrepreneurial State (2013) and Mission Economy (2021), to some of her closest collaborators.
Question. Is Plan Mexico what’s needed to achieve meaningful growth?
Answer. It is very important that Mexico has a development strategy. However, plans must be implementable; otherwise they are just slogans. The report on Plan Mexico was written with the intent to be useful but also critical, to acknowledge that it is impossible to reach objectives unless we understand why they were not met before.
The fact that tax revenues are so low because of the country’s tax structure is a problem. It is very difficult to have a development strategy without tax revenue. We discuss the problems of rent-seeking by large companies and large individual property owners; we analyze financing, which is quite astonishing in Mexico, because only 35% of financing is directed to the productive economy; we look at the weaknesses of the innovation system, where even the López Obrador administration reduced spending. It is very important that the new president has increased that funding, but it still remains below the Latin American average.
We also examine regional disparities and the fact that industry is concentrated mainly in the north while natural resources such as water are located in the south. And we saw, for example, the need for greater coordination among the various policy tools and institutions.
Q. How did you choose the four priority areas — water security, health, energy sovereignty and food sovereignty — that the government should address?
A. If the grand plan is for Mexico to rank among the world’s 10 largest economies, reduce poverty and inequality, and become one of the five most visited countries in the world, which are very high-level objectives, we focused on how to transform the sectors identified in the plan, bearing in mind that the key foundation is growth. Growth in every economy is a function of investment, but unless there is a reason to invest, investment does not happen. Moreover, if investment takes place without conditions attached to it, such as better working conditions, better pay for workers and better engagement with Indigenous communities, then growth will not be equitable or inclusive.
Q. The report calls for an expansion of public investment. How can the Mexican government afford that when pressure on the fiscal system is already so high?
A. If you genuinely stimulate growth and increase tax revenues and foster innovation in both the private and public sectors, then the economy grows. And if you have a sound revenue-generating fiscal system, so to speak, with the right tax policies in place, that ultimately increases the resources available in the budget for further investment down the road as well. The fiscal space you describe as limited is limited precisely because of the way the Mexican economy is structured, both in terms of low tax revenues and because of low public investment, low private-sector investment and weak conditionality in the public sector.
Q. Are you suggesting that Mexico needs tax reform?
A. In the study, we examine the different types of tax revenues that should exist, including capital gains taxes and wealth taxes, as well as the need to ensure that taxes are properly collected. We believe the lack of attention being paid to tax reform is a problem. Tax policy should not increase the burden on the most vulnerable. For example, when countries raise VAT, the effect is regressive because it places a proportionally greater burden on lower-income households. By contrast, if you change the structure of capital gains, implement a wealth tax, which we argue would be important given the highly concentrated nature of wealth in Mexico, as well as a tax on inheritance and gifts, you could address the intergenerational transfer of concentrated wealth.
But these measures should not be implemented just as a left-wing slogan because they could also harm growth if done carelessly, which would prompt companies to leave. It cannot be done solely through fiscal rules; it also has to be done through tax policy. We also analyze different taxes that may need to be redesigned. And even if a government decides, as the López Obrador administration did, not to alter taxes, which we believe is a bad idea, it could still increase public investment, attach appropriate conditions to private-sector investment, and use public financing and procurement to help further raise private investment.
Q. The report recommends improving coordination among institutions in order to achieve the goals of Plan Mexico. Compared with other countries, how difficult is that to accomplish?
A. It will be impossible to have a Plan México that works without coordination. For example, among the different banks, from Banobras and Nafin to Bancomext and Fonadin, currently have their own mandates but do not collaborate well with one another. When we use the specific example of a mission focused on water in the Tula basin, you can see how these different banks could form part of a credit system that allows the various projects needed to clean up the basin to be genuinely coordinated across sectors and among different types of companies.
It is a cross-sectoral approach. Instead of a single sector lobbying the government for a subsidy, what the government needs to do is use its different tools in a coordinated way to stimulate bottom-up innovation aimed at achieving the mission. If that does not happen, you simply end up with lots of different projects where the whole is no greater than the sum of its parts, and you do not get development or shared prosperity.
The real problem in other countries, in my experience, has been that national missions are only truly pursued when there is a leader, such as [former] president Boric in Chile or President Lula in Brazil.
Q. When it comes to private investment, there is a perception within the business community that the government is not sufficiently reliable.
A. The plan cannot work unless the private sector becomes part of it, gets involved and receives the appropriate support. But the public sector also needs to invest in order to have a more dynamic, agile and flexible civil service. I think the problem in Mexico is that the private sector complains a great deal and does not necessarily recognize that it has been part of the problem. At the same time, the public sector complains a great deal about the private sector. So the issue is not one side blaming the other; it is how they can come together to find solutions.
I am sure that most business leaders want Mexico to become a better country, greener, more equal, more inclusive and more balanced geographically, not only in the north but also in the south. There may be a few who are only interested in lining their pockets and becoming richer, but most companies would be very happy to see Mexico succeed. And Mexico cannot succeed unless the business community itself works more effectively with the government.
Q. Mexico is under heavy pressure over the review of the trade agreement with the United States and Canada (USMCA)…
A. We should have a North American agreement that truly integrates the three countries. But to date, even since NAFTA, the region has been treated only as a free-trade zone. I think there is far more synergy between Mexico and Canada’s worldviews. [Canadian] Prime Minister Mark Carney and President Sheinbaum share stronger values in terms of inclusion, inclusive growth and sustainable growth. The partners need to find concrete areas beyond ideology where the three countries can work together and see that they have a common interest. Ultimately, the most important thing for Mexico is to stop being just a low-cost manufacturer for U.S. companies. What it needs to do is develop Mexico’s technological and productive capabilities and structure the USMCA, as well as certain bilateral agreements, in ways that strengthen Mexico’s ability to move up the value chain.
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