3rd in this series of re-posts of the most read FP2P pieces over the summer comes from Ricardo Fuentes, who has 
One of these men is Carlos Slim
since gone off to be big boss at Oxfam Mexico. Here he introduces Oxfam Mexico’s new report on one of Mexico’s many claims to fame – the richest man in history.
In his 2011 book, The Haves and The Have Nots, Branko Milanovic asked a simple but quite illuminating question: who is the richest man in history? (Given the gender structures and distribution of wealth and resources across men and women, it had to be a man). To simplify comparisons across time and space, he used a common metric for wealth: the number of people that a rich person could hire in his society with a conservative return on his wealth. Milanovic was following the thinking of Adam Smith, who wrote in The Wealth of Nations “[A
person] must be rich or poor according to the quantity of labour which he can command.”
Milanovic found that the richest man in history was the Mexican Carlos Slim, who at the time of the calculation could hire 440,000 Mexicans with his income (not with his wealth). That’s a huge amount of people. By comparison, John Rockefeller could hire about 116,000 during the Gilded Era. Bill Gates could only hire a paltry 75,000 workers at the peak of his wealth.
How has that changed since the publication of Milanovic’s book?
Gerardo Esquivel, a Mexican economist, did a similar calculation for an Oxfam Mexico report launched yesterday in Mexico City. The methodology is slightly different in Esquivel’s calculations. But see how it’s changed in ten years. In 2004, Carlos Slim could hire half a million Mexicans. Ten years later, he could hire 2 million (or about the number of officially unemployed people in the country). And just to be clear, this analogy does not try to vilify Carlos Slim but to highlight a skewed system that allows this enormous disparities.
The report has lots of new findings. Another interesting one: using tax records to calculate the share of income going to the richest 1% (as Piketty and other have done in several countries) Esquivel finds that the top 1% in Mexico take 21% of total income. That’s the highest share for all the countries with available information.
Mexico is a vastly unequal country in a vastly unequal region (despite some recent progress) so there is no real surprise there. The shock is just how fast the wealth at the very top continues to grow while salaries stagnate and the economy tumbles with skeletal per capita growth rates. In other words, the Mexican economy is not working for anybody except a privileged few. For instance, in 1996, the wealth of the 16 billionaires was $25.6 billion dollars. Today, the same group controls $142.9 billion dollars. In the same period, poverty has remained stubbornly constant – in its broadest definition, the poverty rate in Mexico has been hovering around 50% for the last two decades. There is wealth creation in Mexico, but it’s going into a small number of hands. Mexico is experiencing a sort of trickle-up economics.
The report argues that, this is the consequence of different failures in public policy in Mexico. On tax policy:
“One of the big problems is that our tax policy favours those who have more. It is in no way progressive and the redistributive effect is almost non-existent. By taxing consumption—over and above income—poor families end up paying more taxes than the rich, since they spend a higher percentage of their income. The marginal income tax rate—one of the lowest among OECD countries—the fact capital gain in stock markets is not taxed and neither is inheritance, among other things, are examples of how the tax system benefits more privileged sectors”
There is also a close relationship between wealth and political influence that skews the system in the favour of the affluent. On this, the report says:
“The constant inequality and political capture by elites have serious economic and social consequences that are
Mexico City
also exclusionary. The internal market is frankly weak. When facing the scarcity of resources, human capital is curtailed and the productivity of small businesses is jeopardised.”
Mexico is a good example of the failure of trickle-down economics, just as the IMF also highlighted last week: per capita growth rates have been low but positive, between 1992 and 2012 they averaged 1.17%, but official poverty rates are back to where they were in the early 1990s.
So there is a huge task ahead to ensure that the economic and political system in Mexico delivers for Mexicans. The report suggest some initial steps: a genuine social state; a more progressive fiscal policy, improved targeting of expenditures, better wage and labour policies and enhanced transparency and accountability mechanisms.
There is nothing radically new in the proposals. What’s new is to have these conversations in a country with a long history of socioeconomic inequities. Wealth creation is necessary if the poor, vulnerable and marginalized are to improve their lot, but wealth creation that goes only to a few billionaires is unacceptable.
Buena Suerte with sorting that lot out, Ricardo. Will you be approaching Carlos for funding?