Question

An article in the Economist on the Mexican economy noted, "A huge, unproductive informal sector and general lawlessness also drag the economy down." If these factors were the main barriers to more rapid economic growth in Mexico, would that be good news or bad news for the Mexican government's attempts to increase its economy's growth rate? Briefly explain.

Short answer

The huge informal sector and general lawlessness slowing down Mexico's economic growth is generally bad news for the Mexican government's attempts to increase the growth rate of its economy, as these issues present significant challenges. However, recognizing these issues can also be viewed as the first step in addressing them, thus potentially turning it into good news.

Step-by-step solution

Understanding the Informal Sector

The first part to examine is the concept of the informal sector. The informal sector consists of businesses that are not registered or recognized as legal entities and usually don't pay taxes. It includes activities that are not covered by formal labor protections and don't have access to benefits or regulatory systems. Though it can contribute to job creation, it is typically associated with lower productivity and quality of jobs than the formal sector. Therefore, a large informal sector signals that many workers are engaged in unproductive labor, which can hinder economic growth.

Understanding Lawlessness

Lawlessness refers to a state of disorder due to a lack of law enforcement or non-adherence to the rule of law. In economic terms, this can lead to unpredictable business environments, discourage investment, and eventually slow down economic growth. Disorder and crime can disrupt daily operations, increase costs, and create uncertainty, which are not conducive for businesses to thrive.

Impact on Economic Growth

Given the constraints presented by the unproductive informal sector and lawlessness, it can be interpreted that these factors are indeed barriers to more rapid economic growth in Mexico. As we know, economic growth is boosted by productive labor and a favorable business environment, among other factors.

Evaluation for Mexican Government

It can be seen as bad news for the Mexican government's attempts to increase its economy's growth rate, as these factors present challenges that need to be addressed. Tackling these issues would require significant effort and resources, including implementing policies to formalize the informal sector or improve law enforcement. However, recognizing these issues is the first step towards addressing them and improving economic performance. On the other hand, the government now has identified areas to focus on in order to enhance growth, which can be viewed as good news.

Key concepts

Informal Sector

When we talk about the informal sector, we're referring to all the economic activities that operate outside of the official government regulatory framework. This includes everything from street vendors to home-based businesses that don't formally register with the government bodies or pay taxes. While it might sound like a small part of a nation's economy, in places like Mexico, the informal sector is a significant player.