Learning to make markets work in a newly opened economy: the mexican experience
1995
Casco, A., International Agricultural Trade Research Consortium, Washington, D.C. (EUA);IICA, San José (Costa Rica)
Mexico has been a pioneer in a mostly unexplored field of economics: the formation of markets. Since Adam Smith we tend to think that once you liberalize a market, the "invisible hand" will automatically begin work, and presto the market is born, which is a costly mistale indeed. You can as the Russians about that when they decided to end with communism. There should be four basic axioms in the theory of markets formation. First, free markets are no panacea for the Economic diseases and uncertainty. Even when you have a free market, something can go wrong, since many agents will not be accustomed to work in this free environment. You must help them to understand that you have to learn to live with risk as part of their lives, and that they can use the market to reduce risk. But again, in a world with uncertainty, you can never win them all. Second, in order to emerge, there is a lot of hard and dirty work to do in order to create the conditions for a stable market to operate. Markets do not grow like mushrooms once the State has decided to reduce its interventions. You have to create the conditions so that the economic agents can freely interact, and you also have to teach these agents how to use market mechanisms in order to manage their risk. Third, the transition to a free market economy should be as gradual as possible, but no so gradual or slow so as to permit the creation of antibodies to the process. And fourth, as a Government you must have the willingness to change an economy that has been unchanged for years. no matter what interests you might hurt. (MV)
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