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The Christian Faith and the Financial Crisis
Part Two: The Financial Crisis (5)
BRIAN GRIFFITHS IN MEXICO
The main focus of Griffiths's interest was on banking and in the early 1970s he published two books - or rather a book and a pamphlet - on the banking systems in Mexico and in Britain. Griffiths went to Mexico as an adviser to the Bank of Mexico in 1969 and in 1972 he published Mexican Monetary Policy and Economic Development. (5)
(5) B.Griffiths: Mexican Monetary Policy and Economic Development, New York and London, Praeger publishers, 1972.
After the almost hallucinatory violence of the first twenty years of the Mexican revolution, from 1910 to 1930, the forty years from 1930 to 1970 are widely regarded as having been economically successful. There has been talk of the 'Mexican economic miracle.' Griffiths, dealing with the period 1940-70, begins by saying that it has been 'hailed by many as the outstanding success story of Latin America and the whole underdeveloped world' (p.3). The success could be measured in terms of relative stability, in the sense that people weren't killing each other in large numbers as they had been, growth rate, growth in manufacturing and in the necessary infrastructure, together with, especially from 1955 onwards, a relatively low level of inflation. Griffiths doesn't contest all this but it was nonetheless achieved largely by means of which he disapproves. The book is written in a very neutral, technical manner and the disapproval is expressed politely but we may guess from his other writings that it must have been quite strongly felt.
The policy was essentially protectionist. Imports required licenses which were issued free of charge but only for goods that were not being adequately supplied from within Mexico. 'Efficiency', Griffiths observes 'in terms of the advantage of producing the good in Mexico, compared to some other country, has been largely irrelevant' (p.51). Interestingly, exports were also discouraged through the imposition of an export tax.
The government policy was, so far as possible, to finance its expenditure, and especially its support for local industry, out of bank deposits, rather than taxation. This would be supplemented by foreign loans, preferably from foreign government rather than private funds, but the government was anxious to keep the foreign involvement to a minimum. People were encouraged to save and the banks were obliged to hold substantial reserves and to lend to socially desirable enterprises at low interest rates. Hayek would presumably at least have approved the emphasis on real savings as opposed to Keynesian incentives to encourage spending, but Griffiths comments that the policy amounted to a tax on the banking sector: 'the Mexican policy' he says 'has the effect of not paying the holder of banking system liabilities the real rate of return.' (p.7)
In his final conclusions Griffiths says: 'the rates of return to investment would be artificially distorted because of the policy of protection and the lack of a strong antimonopoly policy. This would suggest the phasing out of these policies inasmuch as otherwise the investment may be inefficient, the goods produced being available elsewhere at a cheaper price.' (p.133)
This is not an article about Mexico but it may be noted that Mexico was widely admired while it was pursuing these 'inefficient' policies. Since phasing these policies out in accordance with Brian Griffiths's recommendation it has ceased to be widely hailed as 'the outstanding success story of Latin America and of the whole underdeveloped world.'