Two Observations About Mexico I Cannot Entirely Explain

I have been in Cancún the past week on my honeymoon (even though we've been married for two-and-a-half years - long story). She's off at the spa, so I thought I'd take this chance to write a blog post. My wife and I took a day trip to Chichén Itzá - if you ever get the chance, you absolutely HAVE to go. I don't think I have ever said how on earth did they do that? or how on earth did they KNOW that? as many times as I did that day. The fact that our tour guide was a locl that has an M.A. in history and could explain the site in great detail to us helped. Even if he is a Red Sox fan.

Anyhow, there were two things I noticed on our 2 1/2 hour (each way) bus trip that I could not entirely explain. They are as follows:

1. The vast number of abandoned buildings in Quintana Roo

They are everywhere you look - lots of shelters that are clearly abandoned. I spent my summers in Southwestern Ontario, so I'm used to seeing abandoned barns. Often what would happen is that a farmer would build a new barn on his field without bothering to tear down an existing barn. At first that's what I assumed was going on - a family built a new house on a plot of land without fully demolishing their previous house. Except there were no other structures on the land. So that wasn't it. In some cases, brand new projects were clearly abandoned mid project. Not just houses - in one case we passed an industrial park that was 80% complete - but it did not appear any work was underway to complete it, as the outer structure looked quite weathered.

There must have been some kind of real estate bust here, as there was in places such as Arizona. But did it have the same cause? If so, why were property owners (banks?) not able to have others come in and complete the projects? And where did all the homeowners go?

2. Mexican election signs are more interesting and of vastly higher quality than Canadian ones

This one I have real trouble explaining. There appears to be some kind of local election going on here, as there are hundreds of billboards and signs promoting various candidates for office. We went through one small village, where large, full-colour (with photographs!) election signs are posted on the side of houses. Some signs were at least 4 feet by 8 feet - in Canada, such a sign would cost in the hundreds of dollars to print.

At first I assumed the signs were only on houses that were clearly visible from the main road. For the most part, the majority of them were. As we wandered through one village, however, we found several houses that were 'off the beaten path' that also had large signs.

These villages are obviously quite poor by North American standards and I would not be surprised if a single sign was worth at least a week's pay by local standards. How could (presumably, the party) generate enough money for such signs, and can they possibly be a cost-effective way of promoting the party?

Comments

[Nick Rowe]

1. Classic Austrian Business cycle theory? Half-completed capital projects.
2. ? Ummmm. Supply and demand?? (That's supposed to explain almost everything.)
Have a great time!

[Kosta]

1. There are a remarkable number of half-completed buildings in Greece as well. Undoubtedly, regulatory vagaries play a role with some builders staring projects before all the permits are obtained and subsequently being shut down. But I think the bigger cause is that in Greece, many projects are started before funding is complete, with the intent of obtaining further funding after the initial funds run out. Then, the additional funds are never obtained, leaving the project half-complete. I know people in Greece who've built additions to their houses in this way, putting up the foundations one year, and then a few years later adding walls and so forth. By the time the project is complete, it's lost its original purpose.

It could be the remnants of a culture averse to saving (because of either inflation or bank failures), resulting in people building with extra funds, rather than depositing those funds in the bank. It could also be an indicator of poor availability of loans and/or mortgages. This is particularly true for the countryside where if the bank repossesses a house or barn in a village, it won't be able to sell it for very much. Finally, it could also be indicative of low disposable incomes (declared). If a farmer wanted to obtain a loan to extend his house, it might be tough for him to demonstrate to the bank that he could support the loan, especially if part of his income is cash and undeclared.

[Frances Woolley]

Where you saw the large signs, what % of people would have TV? Are TV ads permitted?

These wouldn't be Egyptian-style half completed buildings, would they? In Egypt, because partially completed buildings pay a lower tax rate, it's very common to leave the last story of the building unfinished.

[adjacent]

maybe not what you are talking about, but a lot of mexican buildings 'look' half-completed when they are in use. builders leave exposed rebar and use that to extend the buildings if possible.

[Kyle]

4x8 election signs full colour on plastic (chloroplast) costs around $80 in Canada. Campaigns would make more of them if:

a) people were willing to put them up at their house (there are some houses that get the full treatment in Calgary)
b) sign bylaws let more of them stand in public areas.

The second is likely the main cause - as a Calgarian I was surprised to see the myriad of utility poll election signs when I have been in Quebec during elections. Local ordinance wins the day.

[Neil]

1. With buildings that appear to have been abandoned while under construction, this is often just a method of financing construction. In developing countries, credit is much more difficult to get, particularly in quantities large enough to build with (a proliferation of NGOs have made it much easier to get microloans in recent years). So people tend to buy homes "on layaway," where they'll get a bit of work done when they have the money, eventually adding up to a complete building. I expect this makes rational sense, as saving in cash is likely to lose ground to inflation.

The owners are likely living with parents, in small rental places, or are away working, and sending home money to put into the house). I'm not as familiar with the situation for commercial property, but I imagine the lack of financing is still a driving force.

2. Printing costs are almost certainly lower in Mexico. Also, remember that the wealthy and politically connected in Mexico make as much or more than their US and Canadian counterparts. So I find it likely that political parties should be able to raise comparable amounts of money, and have a lower cost structure since supplies and worker drones are dirt cheap.

I suspect there's also greater payoff to having visually pleasing signs in a country where literacy and education are much lower (and therefore a larger chunk of the electorate is unable to differentiate candidates based on issues).

[Geoff NoNick]

With respect to point two, printing costs are labour-driven rather than materiel driven. With a labour-force making cents an hour, it costs relatively as much in Mexico to print as it does for us here. Ink and paper just aren't that expensive.

[t9Word]

--> Geoff

Except relatively, people paying for the posters are of much higher income than those making them, relatively.

How about some corruption/buying influence? I'm sure money would flow from interest to politician much more easily in Mexico than it does up here. Or am I just prejudiced?

[Just visiting from Macleans]

Do any of the election signs look like huge cheques with the party's logo in the upper left hand corner?

[Finance]

One issue is that there are no property taxes in Mexico, and assets are split between all family members, xo it can take years for estate to settle, that's why so many building are virtually abandoned. As for the election signs, they are hand painted.

You should knave visited ek-balm too

[Scott Proudfoot]

Actually you could buy a political sign like that in Canada for $15 to $30 depending on colour and images. Signs are still an important cost element of political campaigns in Canada and that is because they provide good promotional value. May have greater importance in Mexico because of Literacy issues, ie.may be more effective than direct mailing or door to door delivery of brochure. Likely much cheaper than radio and TV. Strategically placed at key interesections and feeder streets you have excellent chance to catch the attention of a majority of voters. In Canada, there is a ceiling on campaign expenditures - around $90k avg. So you have to apportion costs in a campaign. It is not unusual to spend $15 to $20 k on signs but it is hard to go higher because we spend a signifcant amount of money on telemarketing to ID and get out potential voters. May be less relevant or possible in Mexico. You have to look at the overall cost structure of their campaigns to understand their choices. I have always thought that Quebec Campaigns tend to be a little more sign heavy than the 'Rest of Canada' campaigns. Perhaps it is something in the Latin Character that likes signs more. You may have to consult with a sociologist.

[Greg Ransom]

There were uncompleted new houses bulldozed in the Los Angeles area last year -- and thousands of such homes in Las Vegas.

In the LA area, the builders ran out of money and customers .. and it was cheaper to bulldoze the houses than to complete them.

This fits in with Hayek's account of the boom / bust cycle, actually. Good economics. It actually explains stuff.

"There must have been some kind of real estate bust here, as there was in places such as Arizona. But did it have the same cause? If so, why were property owners (banks?) not able to have others come in and complete the projects?"

[Greg Ransom]

Here's a guess -- the government pays for the election signs.