The Plan México Project

The nitty-gritty specifics needed to get Sheinbaum’s industrial policy right.

A good industrial policy should, in the immediate term, upset more people than it pleases. A bad industrial policy is thought of as a broad subsidy for the whole economy as opposed to what it really is:

Picking winners and losers.

It’s a phrase that has historically been used to criticise government meddling in the economy. Industrial policy was seen not only as unfair, but worse, as an inefficient deviation from the market’s true wishes. And the market is always right, said a breed of classical liberal economists currently outnumbered by the pandas at Mexico City zoo.

Industrial policy is back; embraced by left, right, and centre across the world. The question before governments now isn’t whether to get involved in the economy, but how. It was a question that concentrated the attention of the attendees at a conference moderated by The Mexico Political Economist at the Metropolitan Autonomous University (UAM) in Mexico City this week.

The economists from across Latin America present broadly concluded that specificity was at the heart of any successful industrial policy. The art of knowing how to pick and choose the industries and sectors that present the biggest opportunities for development and growth. They must be areas where Mexico already does or could excel at, innovate in, and scale up—bringing desperately needed economic growth and jobs through productivity rather than subsidies.

In theory, president Claudia Sheinbaum’s administration has already done this in the form of Plan México—the country’s flagship industrial policy to 2030. On paper it covers the basics. It identifies sectors and industries where the State, the private sector, and civil society can work to boost economic growth, development, and prosperity.

The issue is that the Plan is far too broad. The sprawling sectors it describes, when combined, add up to what could be defined as “the Mexican economy.” And the steps it outlines, though laudable, are so vague as to mean nothing. The Plan’s promises of updated processes, simplified regulations—all smattered with buzzwords like “digitalisation” and “AI”—really don’t say much of anything.

To make matters worse, as the Plan has been implemented, every bit of economic news has been said to be happening “within the framework of Plan México” without explaining how the government’s industrial policy enabled or will enhance, say, the planned expansion of an appliances factory.

And that’s when there is clarity to the announcement. Oftentimes, the government promotes “actions” like awarding 100 startups the ability to stick a “Made in Mexico” label on their products without saying much else.

Mexico’s government has yet to pluck the courage to actually pick its champions. All the while, investment in the country sinks.

Get to Step Two already!

It feels that Plan Mexico hasn’t really got off the ground yet.

Of course, one has to start somewhere. That is especially true given the new economic era the world is currently entering. Economic policies and trade agreements are now being re-imagined in ways never previously conceived. It makes sense that conversations with, say, Canada—a country with which Mexico has been in a trade agreement for over three decades—feel like they’re starting afresh, with declarations to start planning to have a plan for the bilateral relationship soon.

But Plan México was published in January and little more detail has been added. Look at its official website and the most updated version of the Plan is one still clearly labeled “First Draft”. It is far past time Mexico got working on the next one.

Plan Mexico needs two main updates as it moves from blue sky thinking to action:

• More specificity of sector

The tariffs and a crackdown on illegally imported shoes last month were celebrated by the Mexican apparel industry. Unfortunately, when the government turned to them and asked if they could replace the imports immediately, their answer was no.

Not only that, Mexico’s footwear industry would need to import most of the components—from the plastic tip on the shoelace to the cotton in the padded sole—to actually make a shoe. It would turn Mexico into something Sheinbaum says she wants to avoid: A low-wage, low-value-added maquiladora (assembly plant).

To truly advance and ensure higher wages and productivity, the government must chose which parts of the sector they want to boost in a way that will have the biggest return on investment. Mexico can’t and shouldn’t try to replace all footwear imports. It is a waste of scare government resources and of genuinely profitable opportunities.

Repeat this brutal yet necessary process of selection across all sectors. Choosing a specific sub-sector within an industry to support to the exclusion of others will upset the vast majority of the that industry’s members, but that is the only way the Mexican government can exploit its limited capital and coordinating power to immediate effect.

What this approach would look like in, say, the pharmaceutical industry would be as follows:

Instead of trying to subsidise the whole sector, government, business, and academia would come together on trying to research, create, and manufacture the generic versions of the wave of upcoming patent expirations on the horizon.

There’s no need to imagine this as a fictional thought experiment; its actually how India built its world-class generics industry. Today it supplies 20% of the world’s generic medicines. It did so with an industrial policy that, instead of promising to uplift the entire pharmaceutical sector, developed a policy that honed all the way down to the specific molecules to be cracked.

• More specificity of action

Getting specific around what needs to get done is budget friendly too. Even if you choose a sub-sector, everyone will have different preferences as to what route to take. Good industrial policy has the State acting as the director, wielding sticks and carrots, but also sending market signals to coordinate disparate actors in industry and academia.

Plan México already does well in focusing its energies on building and updating the basic infrastructure that the economy needs to develop—roads, ports, electricity generation and transmission. There will be little money left to hand out to entire industries after that. The private sector will need to pick up the slack.

Unfortunately, Mexico’s conservative private sector is still not budging. Its reluctance is in part because of the uncertainty that has plagued the Mexican market for almost a decade now (since Trump 1.0), but companies have since shown that when very specific demands are made of them, they can get on-board despite the risks. Just look at how Mexico’s biggest businesspeople are investing in the country’s less than ideal oil-sector at the government’s behest.

So, after identifying the ultra-specific opportunities Mexico is best placed to exploit, these should be ambitious actions that to excite and incite business—and academia too—to jump on the bandwagon.

Wasted opportunities show us where very specific concerted action could have resulted in great returns for little government investment. Take semiconductors:

Mexico could leapfrog past starting at the bottom pile, and instead of becoming a glorified assembly plant for chips, it could leverage its existing industrial prowess to get into chip research, design, and implementation. To do this, the government could work with the academics already designing chips towards the specific aim of designing a Mexican semiconductor to be integrated into a Mexican company’s product.

These would not be Nvdia-style AI chips but the sort of hardware that can turn on a fridge light. It would still be a risk for the company in question, but with specific targets and conditional incentives, a firm currently investing hundreds of millions of dollars to manufacture goods in Mexico could be compelled to replace imported semiconductors with locally designed ones.

This might seem outlandish until one realises Mexican academics already had a semiconductor prototype ready to go. They were just missing the relatively small amounts of capital—possessed by the State and the private sector—to get it to the next level. Proper vision, coordination, and $30,000 dollars were all that was missing.

A plan to herd cats

Specificity at a large scale isn’t easy. When thinking big, it’s difficult to gather all the right stakeholders, movers, and shakers in the same room to sing to the same tune. The conference that The Mexico Political Economist moderated, and which diligently told the government to get specific, was endowed with the magnificently sprawling title of “Global macro-trends and challenges for development”.

At a conference, there simply was no time to drill down into each sector and discern what is needed at each step to get them to achieve lift-off. And had the clock not run out, the right cross-section of experts wouldn’t have been there. And even if they had been there… Excuses abound.

That is what The Plan México Project intends to address. Over the next months, The Mexico Political Economist will seek to delve into each sector of Plan México in detail. It will talk to the policy makers, experts, and businesses to identify which sub-sectors need boosting and what actions are needed to boost them.

Don’t worry, it won’t all be industrial policy—The Plan México Project will be spaced out among the other content you’ve come to know and, hopefully, love. However, as the the age of government intervention rages on, it’s time to get past the first drafts on paper and on to specifics. The Mexico Political Economist will do its part.