Small Wars Journal

The Threat Of Mexico's Massive Underground Economy

Sun, 08/17/2014 - 7:59am

The Threat Of Mexico's Massive Underground Economy by Fernando Chávez, Worldcrunch

Informal, underground, black, "hidden." Economists have used a range of terms for economic activities that basically yield no taxes and don't contribute to bankrolling government services. Strictly speaking, the millions toiling this way in Mexico — and they account for more than half the workforce — are operating on the margins of the law and arguably working themselves into a social vacuum.

In fact, there is new data about the scale of Mexico's underground economy, providing insight into its evolution over the past decade. The research, from Mexico's National Institute of Statistics and Geography (INEGI), shows that the shadow economy accounted for 25% of GDP in 2012, and employed 60% of the working population, around 31 million people. This is clear evidence of a serious imbalance in the Mexican economy…

Read on.

Categories: El Centro


Geoffrey Demarest

Thu, 08/21/2014 - 2:46pm

Dr. Bunker, I don’t know what to make of this. I’m not sure I follow exactly what the threat is. I have to say I wish Milton Freedman were here to help me with my doubt, and maybe Hernando de Soto or one of his disciples will jump in. As a fellow Red-Teamer it occurs to me that maybe there is too much underlying prejudice in your expression toward government provision of material well-being. I admit being partial to the idea that evidence of ownership should be formalized (made increasingly immutable) so as to create equity, so I want to agree with you that the vast extent of underground industry might be a sign that something is amiss. At the same time, I don’t see how the benefit of formalization resides in the ease of taxation it carries with it, or in the funding of government programs. Were you wanting to imply that Mexican government programs are incorrupt, efficient, just providers of Mexican progress? Hmmmm. Maybe it is exactly Mexican governance that is causing the bloat of the underground economy by still placing barriers (including corruptocrative barriers) in the way of formal entrepreneurship. I suspect that is what the de Sotoistas might find. No? I know facts are slim these days as they pertain to the demographics of the recent surge in migration into the United States, but from what I can tell most of the migration is from beyond Mexico, that Mexico’s economy is not so bad that there has been an acceleration of economic migration north. Perhaps it is therefore a bit disrespectful to suggest that Mexico has turned into an economic or social hell-hole just because so many people there make a meager living off-grid.