Government Support for Businesses Derailed

Last week, there was a sense of relief in the corridors of government in Mexico. It turned out the dreaded imposition of tariffs from President Donald Trump was a bargaining chip after all … for now! This provided the Mexican government with a one-month window to start putting its house in order, from controlling migratory and drug flows to the United States to disassociating itself from the sticky, and now very public, image of cartel collusion. Mexico’s President Claudia Sheinbaum additionally has the burden of managing a stagnant economy, which suffered negative quarterly growth (according to recent data from the National Institute of Statistics, Geography and Information, (INEGI).

As governments throw their weight around by imposing tariffs, making threats and counter-threats, declaring war, playing around with the legislative framework – all to keep their voter base happy – we are seeing that business, and even economic interests, are being swept under the carpet as democratically elected politicians are using these issues as concessionary items in a negotiation to push their agendas. Those who pay the price, as always, are consumers, workers, and small and medium-sized businesses. 

In the case of discriminatory tariff imposition, recessionary symptoms start to set in sooner or later: consumers and B2B buyers are faced with higher prices, exporters lose clients, workers their jobs, and suppliers their contracts as export orders are canceled.

For some reason, we then look to the government, the guilty party, as the designated problem-solver. The head of state will then call on cabinet members to create strategies to head off the looming crisis; this team is seen as the authority for solving matters of international trade policy. I often ask myself the humble question of where these officials get their analytical capacity to make these decisions if they have not majored in international business, economics, or something related; let alone do they hold post-graduate degrees in a similar field.

The reality is that it is business that creates trade by spotting opportunities overseas, promoting, negotiating, distributing, and generally opening up markets; and it will be business that will solve the problems by diversifying export markets through searching for new markets, striving to lower risk, finding greater efficiencies in logistics, and developing more competitive products. Governments, despite their (at times) good intentions, too often get in the way.

In the particular case of Mexico, we can cite an opportunity, however. We know the federal government’s intended ideology is that of being supportive of the ailing agricultural sector. If that is really the case, there should be a budget set aside for supporting these small producers to become more competitive as Mexico looks to diversify international markets. Importers in the United States are not as choosy as those in Europe or Japan, for example, and fresh Mexican merchandise requires strict quality certification beyond that of FDA requirements. The small Mexican producer also needs to learn more collaborative and productive techniques in order to fulfill demanding import orders from diversified export markets. This is where the government needs to play a key role by facilitating institutions and providing incentives – going beyond talking, of course!

There are a series of public and private agencies, chambers, certifiers, data bases, among others, all there to support the agricultural exporting sector; however, they all work in isolation and there is no formal network between them, leaving the grower/packer detached, with no real option but to export through an unfair system of intermediaries. This leaves the productive sector behind, with problems of low productivity, no contact with international supply chains, poor quality standards, and with little incentive to form collaborative agreements to benefit from economies of scale.

The Ministry of Agriculture, for example, could take the mantle and formally coordinate these different supporting bodies, increasing the competitiveness of producers by promoting their services in a more organized fashion. This way, the traditional governmental support services of providing data bases of international buyers, organizing trade missions, or manning trade fair booths begin to reap more tangible results as growers begin to generate truly internationally competitive produce for overseas markets.

Unfortunately, the present Mexican government is, of course, taking a different direction in terms of economic development. It is expecting larger companies to tow the line and support grand industrial projects, such as the development of electric cars and semiconductor chips, both of which are projects that can easily be performed independently by the private sector without public direction. Neither of these require governmentally backed R&D or other support, as their basic technological requirements have already been developed. Governments need to support real innovation where it is needed in order to facilitate solutions for tomorrow.

If governments want to be the real heroes of international trade, they would do better to work closely with SMEs. Negotiating, and then breaking up, free trade agreements are all-too-often the answer offered by our heads of state to international business woes. Let’s get back to small government, which truly helps businesses become competitive and solve problems.