Mexico’s middle class is struggling

First it was battered by the pandemic, now by the president | The Americas

8/3/2021 12:20:00 PM

In Mexico the growth of a large swathe of people who are neither rich nor poor owes much to NAFTA, a free-trade agreement with the United States and Canada

First it was battered by the pandemic, now by the president | The Americas

.In recent decades Mexico, like many emerging markets, has witnessed the growth of its middle class. Incomes have risen—Maria and Samuel bring in around 20,000 pesos ($1,000) a month, an increase of more than 50% in real terms since they first got together 16 years ago. More people like them have bought cars, fancy

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TVs, smartphones and nice clothes. But recently the middle class, long neglected by politicians, has had two setbacks, thanks to covid-19 and the policies of President Andrés Manuel López Obrador.Class is nebulous. It can be defined by income, profession or aspirations. The markers of status vary. Middle-class Mexicans do not look like their Spanish peers. They are poorer and more likely to work in the informal sector, rather than be a doctor, teacher or other professional. The World Bank defines middle class as earning $13-70 per day in 2011 dollars, adjusted for purchasing-power parity. The

OECD, a club of mostly rich countries, defines it as earning 75% to 200% of the median income of the country where you live. In Mexico almost half the population of 126m meets that definition of middle class. (Some 36% fall below that and 19% are officially rich.)

In Mexico the growth of a large swathe of people who are neither rich nor poor owes much toNAFTA, a free-trade agreement with the United States and Canada. It brought jobs and cheaper goods to the country when it was implemented in 1994. (A renegotiated, more restrictive version came into force last year.) The fact that Mexican consumers have more clout than in the 1990s can be seen in the proliferation of cafés and restaurants in urban areas. In 2019 Mexico City, the capital, had the world’s highest number of songs streamed on Spotify, an audio-streaming service. Mexico is one of the five biggest markets globally for Uber, a ride-hailing firm. In April

IKEA, a Swedish furniture giant, opened its first store in the country.Going placesThe middle class is a vital part of any economy. In Mexico, many of its members own the small- and medium-sized businesses that provide most of the jobs in the country. “They may start with a

puesto[stall] on the street and then invest in starting a fixed restaurant that goes on to employ other people, too,” says Javier Lazarín ofFESAragón, a university.Aspiring types tend to press governments to provide better services such as health care and education, because they rely on them more than the rich, who can buy what they need. Better education can often lead to better public debate, too. Middle-class citizens are also thought to be good for democratic stability, since they are keen to protect what they have. Nonetheless, membership of the middle class in Mexico is far more precarious than in richer places. An economic shock—a family illness or a recession—can send people tumbling back into poverty. Today several forces are battering Mexico’s middle masses.

The most immediate threat is covid-19. The World Bank reckons that, by its measures, last year a net 4.7m Latin Americans fell out of the middle class. In 2020 Mexico had its worst recession since the Great Depression, with the economy shrinking by 8.5%. (It normally grows by around 2-3%.) Mr López Obrador’s fiscal hawkishness, sensible in good times, appears to have been a liability. His government provided very little financial support, deepening the pandemic’s impact. By contrast, handouts in Brazil were so generous that the World Bank says they reduced by 12m the number of people falling out of the middle class.

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Miriam Corona works as an accountant at an office-furniture shop in Mexico City. Her salary of 16,000 pesos a month was cut in half when the pandemic started, she laments from her living room in Pantitlán, an eastern neighbourhood of modest houses, restaurants and shops. Ms Corona and her son, a university student, have got by only because they live with her brother and mother. “We limited what we spent,” she says. Neither she nor her company received extra handouts last year.

Even before covid-19, government policies were hurting people like Ms Corona. “In a country with so much poverty, the middle class is often not appreciated,” says Armando Regil, who runs anNGO. The rich are undertaxed in Mexico and the poor have little spare cash, so middle-class Mexicans pay more than their fair share. They pay for public services and, since these are patchy, for private substitutes too.

Mexico ranked 56th of 78 countries in the most recentPISAranking, a test of 15-year-olds’ skills in science, maths and reading. According to a survey in 2017, less than half of Mexicans were happy with the state of public health care. Services, and access to them, have improved in the past decade but not by much. One-sixth of Mexicans lack effective access to health care.

When asked about their spending priorities, middle-class Mexicans are most likely to mention private schooling and private health care. If she had more cash, Maria would send her children to a private school—and buy them swimming lessons.Despite his populist rhetoric, Mr López Obrador has not done much to improve matters. Since coming to power in 2018 the president has focused on the poor, doling out funds for social programmes to support them. Meanwhile, his lackadaisical approach to foreign investment, which fell in 2019, has hurt the slightly better-off, says Luis Rubio, an analyst and co-author of a book on Mexico’s middle class. One of Mr López Obrador’s first acts in office, for example, was to cancel a big new international airport, spooking investors.

Now the president is verbally chastising the middle class. Mr López Obrador blames them for his party’s losses in Mexico City in the elections in June. He has called middle-class Mexicans “individualist” and accused them of wanting “to be like those above and climb as high as possible with no scruples”.

The president conceded that people should want to “improve” themselves, but clarified that they should “not become selfish and aspire to be snobs”. Such messages are off-putting to many middle-class folk. “He talks about the richness of culture and family but not about finances—and those matter, too,” says Luis Castellanos, an academic.

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Viri Rios, an analyst, reckons that taking into account the limited access to public services, a Mexican needs at least 16,000 pesos per person per month to live comfortably—what Ms Corona earned before the pandemic. A report from 2019 by McKinsey, a consultancy, talks of two “missing middles” in Mexico: robust mid-sized companies and a middle class with more spending power.

“If you don’t fight to move ahead, you don’t move ahead,” says Carla, a freelance consultant (and Mr Castellanos’s spouse). If public services improved, middle-class Mexicans could spend their money on other things—and more people could climb the ladder, too.

Read more: The Economist »

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