Economic Growth, Macrostability do not Translate to Equality

For Gabriel Casillas and Alejandro Padilla, Economists from Grupo Banorte, macroeconomic stability does not necessarily lead to more growth nor does it reduce inequality. Moreover, for Casillas and Padilla, for economic growth to happen, the country needs to strengthen rule of law and implement public policies that lead to better income distribution.

In their podcast, Norte Económico, Casillas mentioned that the key to a better income distribution lies in a “profound and integral fiscal reform, where paying taxes becomes easier and those who have the most are not benefitted. Instead, those who need it the most are put front and center, with justice for everyone.” According to Casillas, better income distribution can lead to opening up spaces so everyone can have a real opportunity to improve their socioeconomic conditions.

According to Casillas and Padilla, there is this belief that macroeconomic stability can lead to growth and thus a reduction of inequality. However, this is almost never true. As an example, both economists mentioned the Chile case, a country that has experienced superior growth rates thanks to a solid rule of law but that also continues to experience social inequality. For Mexico to grow more, it needs a solid rule of law, says Padilla. But that will not lead to a direct reduction of inequality.

Though President López Obrador has claimed that reducing inequality is one of its core missions, the COVID-19 pandemic is threatening to produce even more inequality. According to BBVA Research, between 12 million and 16 million people could fall into a poverty situation given their income and between 12.3 million and 18 million could fall into extreme poverty. The effects of the pandemic have already been felt in the job market. According to INEGI, the COVID-19 pandemic has left 12 million Mexicans without income.

Nevertheless, economic authorities seem confident that the Mexican economy will pick up in the next few months. After Arturo Herrera, Minister of SHCP, economic recovery will look like a V with one side more extended than the other. Many experts and analysts said that the minister’s previsions were extremely positive, however. Despite the criticism, in an interview with newspaper El Universal, Herrera remains confident that the economy will start recovering soon. “It will be a few months to recover what has been lost. There are diverse characteristics of this crisis that make it notoriously different and one of them is how abrupt this is.”