Russia and Mexico: Not Usually Considered as Geopolitical Equals
|Rank||Country/Economy||GDP Nominal (billions of $)|
Table Source via International Monetary Fund April 2016
Mexico and Russia are both dealing with lower oil prices, and each also has significant problems with corruption and organised crime. But only Russia is diverting diminished hard currency income toward expansion of its military, its espionage and disinformation machines, and its global nuclear threat. Only Russia is threatening the world with nuclear holocaust if it does not get its way. [Well, China, of course, but we are talking about Mexico and Russia here.]
In its GDP projections, the IMF neglected to factor in the growing role of Mexico as a manufacturing centre for North America — more and more frequently at the expense of China — and may have thus underestimated near-term Mexican growth. At the same time, projections for near-term Russian growth may overestimate the rate of rise of oil & gas prices in the near future.
Putin promised 15 years ago to reduce Russia’s overdependence upon oil & gas exports, but this vulnerability is worse now than ever. The decline of Russia’s economy began well before the drop in oil prices in 2014 and Putin’s invasions of Crimea and east Ukraine earlier the same year.
Compare near-term future IMF projections with GDP numbers from the past few years:
Recent GDP Performance Trends for top World Economies
Russia’s economy is shriveling before our very eyes, and no amount of happy-happy wishful thinking and denial will soothe the growing levels of suffering which the Russian people are experiencing. Rapid Russian infrastructure decay in housing, transportation, health care, education, internal energy pipelines and more, accompany a demographic decline that cannot be kept hidden for much longer — no matter how good Kremlin propagandists may be.
The Bridge Between Russia and China is Only Half-Built
China is building its half, but Russia cannot afford to match China’s achievement. As Russia’s economic and demographic foundations continue to crumble, the obvious mismatch can only grow more dramatic. Russia’s abilities do not live up to Russia’s pride.
But Then, Not Everything is Coming Up Roses in China
China is being forced to rapidly expand internal debt in a desperate attempt to project an international image of economic stability and growth. This effort appears to be an increasingly futile one.
Actual rate of GDP growth in China may be under 4%, instead of the official 6.7% claimed by Chinese officials. According to the Citi Chief Economist Willem Buiter:
Epoch Times: What’s your estimate of Chinese GDP growth at this moment?
Mr. Buiter: Somewhere below 4 percent. The official figure is still around 7 percent, but those data are made in the statistical kitchen. __ http://www.theepochtimes.com/n3/2115419-citi-chief-economist-names-chinas-three-problems/
China may not have a choice but to continue inflating the economic balloon until
something wicked this way comes something much more dramatic occurs. War or regime change often take such cues to make their entrance.
“Problems facing China’s economy, including a troubled property sector, industrial overcapacity, rising debt levels and the lack of new growth engines, are all connected with each other and piecemeal solutions no longer work. The only way to restore vitality to the economy is to push through reforms.” They aren’t happening.
Instead, central bank officials are calling for fiscal deficits of up to 5 percent to support the economy and they admit traditional monetary stimulus is not working anymore.
“Despite loads of liquidity pumped into the market, enterprises would rather bank the money in current accounts in the absence of good investment options, which is in line with record low private investment data,” Sheng Songcheng, head of statistics and analysis at the People’s Bank of China (PBOC) said recently. __ Source
China is losing foreign investment, and capital flight is once again taking wings.
In the most recent survey from the American Chamber of Commerce in China, a quarter of respondents said they had either already moved or were planning to move operations out of China, citing rising costs as the top reason. Of those, almost half are moving into other developing countries in Asia, while nearly 40 percent are shifting to the United States, Canada and Mexico. __ NYT
Innovating the Future
If you can find Russia on the above national innovation comparison, congratulations! You have very good microscopic vision.
China occupies a higher ranking than Russia on the innovation scale, but virtually all of China’s “innovation” is of the “sustaining” type. Sustaining innovation is incremental innovation, making pre-existing products more competitive in pre-existing markets.
Disruptive innovations, on the other hand, create entirely new markets — even new economic sectors in some cases. Most disruptive innovation originates in western nations, as has been the case for centuries.
Rather than to supply cutting-edge innovation, China and Russia vie with many other emerging and lower-tier nations to supply Europe and the Anglosphere with energy, raw materials, cut-rate manufactured commodity goods, as well as exporting their best entrepreneurs and providing their brighter young and children of elites to western universities.
China and Russia are Butting Their Heads Against the “Command Economy” Wall
Relevant innovation cannot be dictated from the top-down. It cannot be “managed” by government bureaucrats, planners, policy-makers, or propagandists.
The fact that both China and Russia are running into severe economic obstacles — and the flight of foreign investment as a direct result of government bombast and neo-imperialist militancy — suggests that some unexpected plot twists are likely to be introduced within the next decade. China and Russia both want to control Asia, but only one can be the “last man standing.” Eventually the latent and longstanding-but-hidden conflict will come to a head. The autocratic leaders of both nations are experiencing a growing need to take their nations to war in order to quell internal discord. Who would have thought that the coming war would be with each other?
As for Mexico, Signs of Growth Ahead
Mexico may surpass India by 2020 as the sixth largest vehicle producer globally, according to the Mexican Association of Automotive Industry. The automotive industry accounts for 18% of Mexico’s manufacturing sector and 3% of its national gross domestic product. __ http://www.industryweek.com/trade/export-advice-doing-business-mexicos-automotive-industry
US businesses are increasingly choosing to abandon China as a manufacturing location, and choosing Mexico. Business-oriented political leaders in the US are taking the Mexican economy more seriously, and act accordingly.
Earlier this month, Wisconsin Governor Scott Walker spent a week in Mexico. Why Mexico? After all, the border is about 1,500 miles from his home state.
Like 28 other governors, Mr. Walker leads a state in which Mexico is either the number one or two export destination. Last year Wisconsin sent nearly $3 billion in exports south of the border, and in his state alone, 117,000 jobs depend on trade with Mexico.
This is a story repeated across the United States, making Mexico the country’s second-largest export destination, accounting for nearly 16 percent of worldwide sales. Without our Mexico trade, 6 million US jobs would be at risk. __ Source
Mexico is corrupt and violent, like Russia. But unlike Russia, Mexico has a chance for real — although incremental — reforms. Mexico desperately needs foreign investment, and for that to happen on a larger scale, Mexico needs to reform.
Mexico still hasn’t overcome its volatile reputation in financial centers like London and New York — and therefore doesn’t yet have the credit to engage in a big pro-growth investment drive. “Markets aren’t completely sold” on the idea of a more stable Mexico, De la Calle said. “Eventually we’ll get there.”
… the path to faster growth lies partly in reforms passed by President Peña Nieto at the start of his term. Fiscal changes have already helped wean Mexico from its dependence on oil, which accounted for 39 percent of total revenues in 2012 but only 20 percent last year. As a result, Mexico has largely escaped aftershocks from the recent crash in crude prices.
Mexico — like almost all Latin American nations — has a weakness for socialist mind-babble. If Mexicans can understand what happened to Venezuela and other socialist Latin American hellholes, perhaps they can choose a more rational path to the future.
For Russia, the people have no choice. It is all about Putin until that train runs out of fuel. Then the ailing bear will be lost in the wilderness, with only the dragon sitting in Asia’s “catbird seat.” If China can reach that position of near-total Asian dominance without armed conflict, it will consider itself a lucky nation.