From: DEMON@DESIRE.WRIGHT.EDU (I can't drive 55)
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Subject: Re: This "12 years" thing
Date: 4 Nov 92 19:37:20 GMT
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	Part 3: Getting back on track.

	In parts I and II we examined the present fiscal problems and some of
their underlying causes.  Here in part III, we see how other countries have
learned what we didn't (or wouldn't).  And how they are now applying the
principles of the Seven Fat Years to promote their own economies into
peacetime booms.

	"Congress should take a crash course in economics from Carlos Salinas.
He talks--among other things--about how his administration's supply-side
policies have gotten Mexico growing again." _Forbes_, August 17th, 1992.  Page
64.

	The following is largely taken from _Forbes_, August 17th, 1992.


			We Had to Act Quickly
		An Interview with President Carlos Salinas


	George Bush apparently had no idea how supermarket checkout counters
worked.  The media had a good time with that one and Bush lost a few more
votes.  Mexican President Carlos Salinas de Gortari would never pull a boner
like that.
	Though he's a dapper, polished man with a Harvard Ph.D. in politcal
economy and government, Salinas has worked hard at keeping in touch with
ordinary Mexicans.  Since he was inaugurated in 1988, Salinas has spent
Thursday and Friday of nearly every week on helicopter visits to towns and
villages in the remotest corners of his sprawling country....

	FORBES: Mr. President, I can remember going to Mexico in the 1960s, and
if I had pesos left over, they'd still be worth exactly 12.5 to the dollar if I
went back a year later.  You had 13 years of a rock-solid currency.  Mexico was
an economic miracle, year after year of 6% economic growth.  And then
everything fell apart; you had hyperinflation, negative growth, massive
unemployment, and the peso is nearly 3,000 to the dollar.  What went wrong?

	President Salinas: The main lesson is that you cannot spend beyond
your means, that the strengthening of internal savings is essential to sustain
the process of growth; that those who live on debt must pay its consequences
sooner rather than later.

	[We'll pause for a minute while Capitol Hill reads that several times.
 :)--Brett]

	With the process of privatization [in Mexico], we've raised almost $33
billion.  Instead of spending that money, we used it to reduce the [domestic]
national debt.  The national debt in the US is 58% of GDP; in Japan, 63%; in
Italy, 105%.  But the national debt in Mexico is today only 13% of GDP.  The
savings from reduced debt service can now be channeled into social programs and
still enable us to keep a tight fiscal policy.

	[Once again we'll pause while Capitol Hill gets a clue :)--Brett]

        FORBES: In the years that Mexico was piling up debt, wasn't the aim of
the spending to redistribute income?

	If that was the aim, it didn't work, because income distribution didn't
improve.  We are convinced today that the best way to make a proper income
distribution is, first, through creating the conditions for a sustained
economic recovery.  And second, improved education.  We are [also]
restructuring the educational system.

	FORBES: In addition to reducing domestic debt, you've also substantially
reduced tax rates.

	Oh, yes, we reduced tax rates and we increased the tax base.  We know
we have to be competative [in tax rates] on an international level if we are to
compete for capital, which in the Nineties will be the key question for
economic success or failure.  We've reduced tax rates and strengthened
enforcement, and now are getting more revenue out of [lower] tax rates.

	[Another pause while the Laffer proponents do a high-five :)--Brett]

	Inflation had reached almost 200% three or four years ago; this year
it's going toward 10%.
	The main tool for reducing inflation is on the fiscal side.  This year
we're running a [budgetary] surplus for the first time in history.

	FORBES: One thing about your economic program that has surprised the
world is its speed and momentum.

	We had to react quickly to the end of the Cold War.  The transformation
and change throughout Eastern Europe and the new developments in the
Asian-Pacific countries, the unification of Europe.  At the same time a clear
message was coming from Mexicans to reform the country.

	FORBES: What reassurances can you give that your liberalization process
will continue this opening to foreign capital, privatiziation and fiscal
discipline?

	We have the political will to maintain the process of reform.  As
important as the will is that the population demands this process of reform to
be permanent; and that you can find in Mexico today.  There is very broad
support for the process of reform....

	FORBES: It has always been tough in Mexico to go into business without
cutting in the old political bosses.  Have you made it easier for people to
start small businesses?

	Oh, much, much easier.  We have deregulated, and deregulation has
opened the way for practically anyone who has the means, the desire, the
resources to do so to open a business.  We've established a program for small
and medium-size enterprises.  Last year we provided financial support for more
than 100,000 new small and medium-size firms.  Also training and technological
packages and commercial education.
	This small business program is separate from Solidarity.  [A
grass-roots economic program.--Brett]  Solidarity works with the slums and the
rural communities.  The small and medium-size enterprises support is a program
at the Nacional Financiera, the government development bank.

	FORBES: Something like the US Small Business Administration?

	Hopefully, better.

	FORBES: Touche! ...

	FORBES: Speaking of free trade, your government has been stubborn about
oil.  Your constitution says that your oil belongs to Mexico and that you
cannot share the ownership with foreigners.  And yet, oil requires huge amounts
of capital, and you need every cent you can get for your social and
infrastructural needs.  How can you reconcile the monopoly position of Pemex...
with the need for the foreign capital and foreign technology?

	The oil will remain Mexican.  But we introduced recently to Congress a
law to restructure Pemex and to form indepenent companies within it.  No
private businessman can participate in Pemex ownership, but they are welcome to
participate in services contracts--not risk but services contracts.

	FORBES: In other words, anything to do with ownership of the crude oil
must remain in Pemex's hands.

	Yes.  That's what the constitution establishes, and that's how it will
remain.  Pemex can contract with private drillers, Mexicans or foreigners, but
they are paid in cash, and the oil that is found remains in Pemex, as the
constitution establishes.

	FORBES: So crude sharing...

	No.

	FORBES: Joint ventures for finding crude oil?

	No.

	FORBES: And you have no desire to change that.

	That's what our constitution says and that's how it works.

	FORBES:  Mr. President, when the people in the US think of Mexico, they
think of immigration.  It's an issue that almost dominates US-Mexican
relations.  You have said that our Simpson-Mazzoli immigration law ignored
economic reality.

	I said that in the sense that the American economy demands this type
of labor.  Mexicans are migrating, attracted by the demand pull from the
American economy.  But at the same time, the Mexicans who go north take many
risks; they are very energetic risk-takers.  That's precisely the kind of
people I want here.  That's why I am so committed to generate employment
opportunities in Mexico, so that Mexicans will not go north, competing for with
Americans for their own jobs in their own country.  That's why we have to grow
faster.  That's why it's better to have a free trade agreement, and we would be
able to export goods and not people.  But migration will have to be talked
about in the bilateral relations sooner or later....
----------


	Kinda makes you wish Salinas was running for President of the US, eh?

	But wait, there's more!  Here's an excerpt from the interview with the
Finance Minister.

			We Don't Tax Capital Gains
		An Interview with Finance Minister Pedro Aspe

	FORBES: ...Well, some people are pretty worried about your current
account deficit--$11 billion is a lot of money in an economy like Mexico's.

	There are four things that are important with respect to trade.  The
first thing is whether the country is capital intensive or labor-intensive.

	FORBES: You're saying that a country where labor is cheap needs to
import capital.  That's common sense.

	In the 1950s, when Japan was labor-intensive, it was good that Japan
had a current account deficit.  Then Japan became highly capital-intensive and
now has a surplus of capital.

	FORBES: This is getting complicated.

	I'm sorry if I sound professorial.

	FORBES: Don't apologize.  It's a pleasure to meet someone running an
economy who understands economics.

	Okay, now be careful.  I've said a current account deficit like
Mexico's can be good.  But you can also have a current account deficit for a
bad reason.  If the government has a balanced budget like in Mexico, it is
obviously the private sector that is using the imported capital.  The private
sector is investing more than it is saving, and it needs net savings from the
rest of the world.  That's happening in Mexico.

	FORBES: This is the reverse of the sitution ten years ago, when you
were borrowing abroad to finance government consumption.

	Ten years ago it was 180 degrees the reverse.  Which brings me to the
third part of my argument: What is the private sector doing with the capital it
imports?

	FORBES: Well, if it is importing machinery and other capital goods,
that must be good.

	And it's exactly what Mexico is doing now.  Our imports are growing at
around 20%, but imports or capital goods and machinery are growing at 40%.
That concludes my lecture on current account deficits....
	An industrial country for a while can get by with a big fiscal deficit
if the rest of the world is willing to finance you.  But what you are really
doing is building up debt, instead of building up factories.  So you erode your
competitiveness.  When you lose control of the fiscal deficit, sooner or later
you get into trouble.

	FORBES: Stop, Mr. Aspe.  You're hitting too close to home.  Let's talk
about a pleasanter subject.  President Salinas has said that supply-side
economics has worked very well in Mexico.  Would you elaborate?

	Only a few years back our maximum tax rate for individuals was 60.5%.
Today it's 35%.  For a corporation, it was 42%; now it's 35%.  On value-added
tax we had two rates, 20% and 15%; now we have just one, 10%.  And we have made
13 federal taxes disappear.  We have zero tax on dividends.  Why should you tax
corporations if they distribute the money?

	FORBES: Come to Washington and convince our Congress.

	You know, a government should not mess around with the decision of the
corporation to distribute dividends or not.  This is a typical entrepenurial
decision that the government should not mess around in....

	FORBES: Do you have a capital gains tax in Mexico?

	On all [publicly traded] firms the rate is zero.
-----------

	Well, I think our friends down south have eloquently put down any
supply-side nay-sayers.  The proof is in the pudding, so to speak.  We are
today approaching the point Mexico was at last decade.  They are using the same
methods we used to boom in the 80s.  Why have we turned away?  Collective guilt
at being wealthy?  Tired of success?  Willing to rest on our laurels?

	Well, there is still a lot more to be done in America, and around the
world.  Please fax this series (heck, send the August 17th issue of _FORBES_!)
to your congresspeople and favorite presidental candidate.

	If you are dissatisified with the Dems and the Reps, take a look at the
Libertarians, whose economic philosophy is based on free trade and no
government intervention (like taxes).

	We've gotten de-railed.  But we know how to get back on track.  The
only question is are we willing to try?


	Sources for this series include _Forbes_, August 17th, 1992 and _The
Seven Fat Years_ by Robert Bartley.  I strongly recommend reading both.

	(Coming soon to a NEWS/list near you: Look Back in Anger.)

Brett