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Gus Van Horn blog

Reblogged:Mexico Does to Its Whole Economy ...

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... What the U.S. Does to Education (Well, not exactly, but bear with me a minute.)

Economists Santiago Levy and Dani Rodrik considerwhy Mexico's economy, despite some recent loosening of controls, hasn't grown more rapidly than it has. One distinct possibility has something to do with government-mandated "social insurance":
A large part of the answer has to do with the Mexican economy's extreme dualism -- a problem that has been called the "two Mexicos." The bulk of Mexican workers remain employed in "informal" firms -- especially firms in which employees are not on salaried contracts -- where productivity is a fraction of the level in large, modern firms that are integrated into the world economy. [link added]
And later:
... Firms and workers in the formal sector must pay for health insurance, pensions, and other employee benefits. But, because workers undervalue these benefits, the result is pure tax on formal employment.

By contrast, when firms and workers are informal, workers receive a similar bundle of health and pension benefits for free. The result is that formal employment is unwittingly penalized, whereas informal employment is subsidized.
So... Mexico's government subsidizes an inefficient part of its economy, in the process making it more attractive on price for individuals, even if it might serve them better to do business with more efficient competitors. The situation for "formal" employment in Mexico and private schools in the U.S. is somewhat analogous, with our system funding government schools on everyone's backs, including those who can afford or would prefer a private alternative. The analogy is hardly exact, but people in both countries would do well to consider, as individuals, the usual rationalizations for the policies behind both situations. How does it help me personally to foot someone else's bill? How does it help my quality of life, or that of anyone I care about, to give financial support to practices that hold everyone back? By what right is the government squandering my money, let alone taking it from me in the first place?

-- CAV

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