The best way I know to illustrate this is by comparing Mexico and China. Mexico, on paper, seemed perfectly positioned to thrive in a flat world. It was right next door to the biggest, most powerful economy in the world. It signed a free-trade agreement with the United States and Canada in the 1990s and was poised to be a springboard to Latin America for both these huge economies. And it had a valuable natural resource in oil, which accounted for more than a third of government income. China, by contrast, was thousands of miles away, burdened by overpopulation, with few natural resources, with its best labor crowded onto a coastal plain, and with a burdensome debt legacy from fifty years of Communist rule. Ten years ago, if you took the names off these two countries and just gave someone their profiles, he surely would have bet on Mexico. And yet China has replaced Mexico as the second-largest exporter of goods into the United States. And there is a general sense, even among Mexicans, that even though China is thousands of miles away from America, it is growing closer to America economically, while Mexico, right on America's border, is becoming thousands of miles away.
I am by no means writing Mexico off. Mexico, in the fullness of time, may turn out to be the slow-but-sure tortoise to China's hare. China still has a huge political transition to get through, which could derail it at any moment. Moreover, Mexico has many entrepreneurs who are as Chinese as the most entrepreneurial Chinese. Mexico would not have exported $138 billion worth of goods to the United States in 2003 if that were not the case. And you have many rural Chinese who are no more advanced or productive than rural Mexicans. But on balance, when you add it all up, the fact is that China has become the hare and Mexico has not, even though Mexico seemed to start with so many more natural advantages when the world went flat. Why?
This is a question Mexicans themselves are asking. When you go to Mexico City these days, Mexicans will tell you that they are hearing that “giant sucking sound” in stereo. “We are caught between India and China,” Jorge Castaneda, Mexico's former foreign minister, told me in 2004. “It is very difficult for us to compete with the Chinese, except with high-value-added industries. Where we should be competing, the services area, we are hit by the Indians with their back offices and call centers.”
No doubt China is benefiting to some degree from the fact that it still has an authoritarian system that can steamroll vested interests and archaic practices. Beijing's leadership can order many reforms from the top down, whether it is a new road or accession to the World Trade Organization. But China today also has better intangibles-an ability to summon and focus local energies on reform retail. China may be an authoritarian state, but it nevertheless has strong state institutions and a bureaucracy that manages to promote a lot of people on merit to key decision-making positions, and it has a certain public-spiritedness. The Mandarin tradition of promoting bureaucrats who see their role as promoting and protecting the interests of the state is still alive and well in China. “China has a tradition of meritocracy-a tradition that is also carried on in Korea and Japan,” said Francis Fukuyama, author of the classic The End of History and the Last Man. “All of them also have a basic sense of'stateness' where [public servants] are expected to look to the long-term interests of the state” and are rewarded by the system for doing so.
Mexico, by contrast, moved during the 1990s from a basically one-party authoritarian state to a multiparty democracy. So just when Mexico needs to summon all its will and energy for reform retail on the micro level, it has to go through the much slower, albeit more legitimate, democratic process of constituency building. In other words, any Mexican president who wants to make changes has to aggregate so many more interest groups-like herding cats-to implement a reform than his autocratic predecessors, who could have done it by fiat. A lot of these interest groups, whether unions or oligarchs, have powerful vested interests in the status quo and the power to strangle reforms. And Mexico's state system, like that of so many of its Latin American neighbors, has a long history of simply being an instrument of patronage for the ruling party or local interests, not the national interest.