Liberalizing Mexico’s Natural Gas Industry is Not the Solution to the Immigration Issue

Lawrence Kudlow makes a good case that we should not close the borders. He hopes – as do I – that Mexico can foster its own economic development. After all, the CIA’s World Factbook reports Mexico’s per capita GDP at only $10,000.

But he loses me with the following:

When Fox took Mexico’s helm six years ago he promised pro-growth policies. But it never happened. Right off the bat he sought a higher value-added tax, and since then has never had the courage to privatize the oil and gas sector. So, Mexico’s vast energy and mineral-wealth base has never developed into a job-producing machine. Meanwhile, small-business credit availability is low and inflation tax-bracket creep is high in the absence of tax reform. No wonder Mexican families seek a better life in America. Instead of an Asian or Irish Tiger, Mexico has become a poodle-like Chihuahua, with economic growth of less than 2 percent a year and per-capita growth at less than 1 percent. That’s pathetic. In an age when free-market reforms are sweeping emerging economies worldwide, Mexico should be growing at 8 to 10 percent each year.

While the State Department indicates an even lower level for per capita GDP, it also states:

Mexico is highly dependent on exports to the U.S., which account for almost a quarter of the country’s GDP. The result is that the Mexican economy is strongly linked to the U.S. business cycle. As the U.S. economy has emerged from its downturn in 2001, so has the Mexican economy, growing at a 4.4% rate in 2004, and estimated to grow 3.0% in 2005.

The U.S. economy grew by 4.2% in 2004 and by 3.5% in 2005. Mr. Kudlow thinks these growth rates were amazing, while he describes similar growth rates for Mexico as pathetic. As far as the oil and gas sector, the State Department states:

In 2003 Mexico was the world’s fifth-largest oil producer, its ninth-largest oil exporter, and the third-largest supplier of oil to the United States. Oil and gas revenues provide about one-third of all Mexican Government revenues. Mexico’s state-owned oil company, Pemex, holds a constitutionally established monopoly for the exploration, production, transportation, and marketing of the nation’s oil. Since 1995, private investment in natural gas transportation, distribution, and storage has been permitted, but Pemex remains in sole control of natural gas exploration and production. Despite substantial reserves, Mexico is a net natural gas importer.

A handy summary of Mexico’s production and consumption of various sources of energy over the 1993 to 2003 period can be found here. It would appear that Mexico’s energy sector has been enjoying growth.