Path-Dependency, Persistent Inequality, and the Role of Power

Key Insight

The institutional patterns established during colonial times in Mexico, characterized by extractive practices, have persisted through path-dependent change, shaping its trajectory into the modern era. Even as globalization emerged in the late 19th century, Mexican elites like Porfirio Díaz adapted but did not dismantle these institutions, instead enriching themselves through raw material exports while the majority remained excluded, sometimes through brutal means like the enslavement of thirty thousand Yaqui people for henequen plantations between 1900 and 1910. Similarly, access to newly valuable 'open frontiers' in Latin America disproportionately benefited the politically powerful, unlike the more egalitarian land distribution in the United States through acts like the Homestead Act of 1862.

This persistent institutional pattern has led to enduring economic stagnation and political instability in Mexico and much of Latin America, manifested in revolutions (e.g., Mexico 1910, Cuba 1959), civil wars, coups, and widespread expropriation of assets. Such instability was often accompanied by mass repression and human rights abuses, with examples including 2,279 political killings in Chile during the Pinochet dictatorship (1973-1990) and estimates of up to 200,000 murders in Guatemala between 1962 and 1996, illustrating the severe human cost of these entrenched political and economic systems.

The contrasting paths of Bill Gates and Carlos Slim highlight these deep-seated institutional differences. Gates, through innovation, built Microsoft, but faced legal challenges from the US Department of Justice for monopoly abuse, demonstrating that even the powerful are constrained by US institutions. Slim, in Mexico, built his fortune largely through political connections, acquiring the privatized Telmex telecommunications monopoly and using mechanisms like the 'recurso de amparo' to cement his market dominance. When Slim ventured into the United States, however, his typical tactics failed, as evidenced by a $454 million fine in a Dallas court, confirming that his success was deeply intertwined with Mexico's specific institutional landscape, where power and political influence often supersede fair competition and equality before the law. This demonstrates how political institutions, by determining the distribution of power, ultimately shape economic institutions and the prosperity or poverty of nations.