Why Don’t We Just Improve The Economy Of Mexico?

By David J. Stoddard

October 9, 2006

How often have you flipped the channels or tuned your radio and found some talking head with the brilliant idea about how to solve the illegal alien invasion by improving the economy of Mexico? Usually this expert has the stellar qualifications to comment on these solutions because he spent his Spring vacation in Cancun some ten years ago. Or, perhaps he is an expert because he likes to eat at Taco Bell? Nonetheless, he is presented as an expert by the media.

Anyone who believes this is a simple solution displays an abysmal lack of understanding of Mexico and all things Mexican.

First of all, this year, there will be at least 23 billion dollars sent to Mexico by Mexicans in the United States, most of whom are living and working in an illegal status. The amount sent to Mexico has been increasing by around 10% to 15% per year for the last decade.

If billions of dollars withdrawn from the American economy and sent to Mexico every year hasn't improved the economy of Mexico, what will? I assume that these talking heads are thinking of opening businesses in Mexico and subsequently employing Mexicans thereby improving the economy of Mexico. This is a noble gesture, and if it were not for the Mexicans themselves, it might just work.

The border is strewn with relics of failed enterprises attempting to do exactly what these talking heads recommend.

But there are a number of reasons why Mexico has not become an economic power through foreign investment.

One of those reasons is that Mexico's law is under the Napoleonic system. If one is accused to committing an illegal act, he must prove himself innocent under Mexican law. Stated another way; If one is accused of an illegal act, the burden of proof is upon the accused to prove himself innocent.

Another reason is that under Mexican law, a business enterprise is required to be at least 51% owned by a Mexican. The logical answer to that is to take in a Mexican partner and set up shop, which is what many have done.

Under Mexican law, property located within 100 km of any international boundary cannot be owned by a foreign national. So this means, after taking in a Mexican partner, any real estate must be put into the partner's name. The solution is to find a trustworthy partner and have him listed as the legal owner of the property.

What if you buy commercial property beyond the 100 km zone? You can but it must still be in the partner's name because you are not legally immigrated into Mexico and it is virtually impossible to do so because Mexico's immigration laws are so exclusive.

But let's assume that a potential businessman with money to invest finds a Mexican partner and suitable real estate. The next thing to be done is to get the required permits and licenses. Mexico operates under the mordida system. This means that every step of the way you must bribe public officials, often paying thousands of dollars just to get the business licenses and permits. Then you must pay more mordida to get utility hookups and other services needed just to open the doors of the business.

Finally, the day arrives and you have official permission to conduct business and the necessary services are acquired. You will next need employees. You will need to pay the government of Mexico a year's salary for each employee. This money is allegedly set aside as severance pay in the event the job is eliminated. Then, there must be a fund for the employee's social security and income taxes, all to be paid by the businessman up front, just in case. Then there will be property taxes, sales taxes and a myriad of other fees and stipends.

So now you and your Mexican partner are in business. You will have bought the necessary office furniture and equipment to manufacture widgets. Or, in the event you have a moneyed Mexican partner you have paid for half of all that.

Now you are open for business and making pesos. After the business becomes established and doing well, you will likely, every so often, have an employee strike for more pay and benefits. Strikes are a way of life in Mexico, and Mexican law is slanted to benefit the worker. Expect and plan for periodic strikes.

Then, as a fact of conducting business in Mexico, you will have employee thefts. It is expected and accepted. The thefts may be from the cash register, in merchandise or services. There will be employee thefts, guaranteed. It is a cultural thing; “It is alright to steal from the patron as long as you don't steal too much.” Employers of illegal aliens in the United States are all too familiar with this cultural idiosyncrasy.

(There are employee thefts in the United States as well, but it is considered a crime and when discovered, dealt with severely. In Mexico it is considered a cost of doing business and, more often than not, gets a wink and a smile from officialdom).

So, now a business has been established. Equipment, real estate, machinery and merchandise have been bought. The permits, licenses, fees and mordida has been paid. The business has been doing fine and everybody is making money.

The next pitfall is where thousands of well meaning and sincere U.S. businessmen have been destroyed in Mexico.

Your Mexican partner decides that he doesn't want to be a partner anymore. He wants the whole business for himself. Does he feel the need to buy you out? You better hope so. But usually what happens is he accuses you of defrauding him and files suit in a Mexican court under Mexican law.

Remember you are a foreigner? Remember that your partner owns 51% of the business and the property is in his name? Remember also that you are under the Napoleonic system of law? Can you prove that you did NOT defraud your “partner”?

You will go to court with a civil/criminal complaint filed against you by your partner. The judge will be a Mexican. There will be no jury. (There are no jury trials in Mexico.)

Even if you get an honest and sincere judge, Mexican law, being what it is, weighs heavily in favor of your partner. This exact scenario has played out time and again in Mexico. The end result is that the gringo is booted out of the country and the business becomes the sole property of the Mexican.

So, to all those talking heads who say so glibly, “Let's just improve the economy of Mexico”, I invite you to go to Mexico, open businesses so you can employ Mexicans and improve their economy.

2006 David J. Stoddard – All Rights Reserved