Why Is Extortion Booming in Mexico?

Despite the high cost to entrepreneurs, workers, professionals and consumers, Mexicans continue to tolerate widespread extortion as if no option exists. (Image: Pixabay)
Despite the high cost to entrepreneurs, workers, professionals and consumers, Mexicans continue to tolerate widespread extortion as if no option exists. (Image: Pixabay)

Summary

Rule by theft isn’t a matter of ‘culture.’ It’s the result of institutional failure.

Mexico City: For a New Yorker like me, the word “extortion" conjures up images of Paulie the hit-man collecting from trash haulers for the protection racket run by his mafia boss. But here in Mexico, shakedowns are too often practiced by judicial authorities, monopolies, government bureaucrats and law enforcement as well as by criminal organizations.

The problem goes a long way in explaining why, more than three decades after the country’s opening to economic and political competition, some 36% of Mexicans still live below the poverty line. In this election year it could become an issue.

Beyond the violence and lack of trust, pervasive extortion suppresses investment, growth, job opportunities and economic mobility. Yet despite the high cost to entrepreneurs, workers, professionals and consumers, Mexicans continue to tolerate widespread extortion as if no option exists.

In his 2020 book “La Economía de la Extorsión," Mexican economist Luis de la Calle argues that ending this long tradition of impunity is both possible and necessary if the country hopes to generate faster economic growth. A crucial step for Mexicans, he writes, is to recognize that there is nothing normal about swimming through life victimized by extortionists and denied the right to life, liberty and property.

Seventy-one years of a one-party corporatist state conditioned Mexicans to expect that government funds would be stolen and contracts padded. But financial coercion of the citizenry also became ordinary, something to be expected when transacting with state officials. From there it has metastasized.

Park your car on the street and cough up a fee to have it “guarded," cross the palm of a policeman to avoid a ticket, get a city permit in a reasonable time by sliding a little something extra through the window. Today organized-crime syndicates “tax" businesses and professionals in good neighborhoods and bad. Most Mexicans have learned to live with extortion, and few people want to talk about it. Citizens have thrown up their hands and accepted it as a cultural norm.

Mr. de la Calle strongly objects. In a 2019 English-language book summary published by the Mexico Institute at the Wilson Center, he writes: “In a society that uses the argument that illegality is cultural, fighting against it becomes even harder. Accepting that Mexican people are corrupt because of ‘cultural’ reasons becomes the perfect excuse to justify corruption and impunity: it means consenting to a simplistic explanation for the problems we face and tolerating mediocrity to the point of assuming that Mexico will always be lagging because that is the nature of its citizens. Nothing could be further from the truth."

The trouble instead, he posits, is that “crime exists because it can, because the system tolerates it, and because it is founded on a profound institutional weakness."

Mexico has done a lot right since it began to reform in the late 1980s. Commercial opening and deregulation have led to booming trade with the U.S. and Canada. Domestic air travel, cellphones and dining out, once within reach of only the upper classes, are affordable now for a wider number of consumers. Near-shoring investments and remittances support a strong peso. Real Mexican wages are rising, and the north and center of the country are increasingly modern.

Yet Mexico isn’t growing at its potential, and its per capita gross domestic product was only around $22,000 annually (using purchasing power parity) in 2022, according to World Bank data. One big reason is the absence of a rule of law that protects honest people. To avoid becoming targets of extortionists, small and medium-size businesses prefer to remain in the informal economy, dealing only with those they know. Large formal companies are forced to factor in the extortion premium in setting prices and calculating returns. Extortion, Mr. de la Calle explains, “hurts the relationship of trust that feeds productivity" and “affects consumption levels, curbs the development of human capital and the flow of equity, hinders political participation and savings, and slows down a company’s development and innovation."

Cartel power has swelled under President Andrés Manuel López Obrador’s pledge to make peace with criminal groups—what he describes as “hugs not gunshots"—roaming the nation with impunity. His six-year term is on track to finish in September with a record number of homicides. Many are linked to organized crime.

Yet Mexico’s rule-of-law crisis predates this government and it may be hard to solve without a paradigm shift in civil society. “The first step toward understanding the extortion phenomenon consists of knowing that its prevalence in Mexican society is a result of it being socially acceptable," says Mr. de la Calle. “While the practice is accepted as part of how economic agents behave, it is not the result—as some state—of a cultural need." Instead, it’s an institutional failure that Mexicans have the power to correct.

Write to O’Grady@wsj.com.

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