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Canada's auto industry has freaked out a bit about jobs being lost to Mexico. And it's true: Mexico has been attracting automotive jobs much faster than Canada has. It's not that existing plants are moving to Mexico, so much as it's that new ones are locating there.

Lower wages alone wouldn't induce companies to Mexico to assemble cars. Productivity is good – ask Bombardier, which has a plant in Mexico. And the North American Free Trade Agreement means that parts and finished products can move freely across the continent.

Before Canadians throw themselves off a cliff about being unable to compete with our NAFTA amigo, pause and reflect about the hills Mexico still has to climb to become a middle-income country, let alone a prosperous one. Those hills are many and steep: The convulsions Mexico is going through today are about those hills.

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Where to start? Luis Rubio, one of Mexico's sharpest analysts, says the country's fundamental need is for the rule of law. In Canada, we take rule of law for granted. It's deeply ingrained in our political and social cultures.

Not so in Mexico. In a recent paper, A Mexican Utopia, Mr. Rubio argues that although this or that policy change might be important, underpinning everything must be deep respect for the law and the institutions that enforce it. Too much power has always rested in the hands of Mexico's presidents.

The "system," which has prevailed in Mexico at least since 1929, revolves around presidential discretion rather than institutionalized law. Even with competitive democratic politics, getting around the law, seeking presidential discretion and looking for favours erodes respect for the law.

Mr. Rubio puts the challenge directly: "To the extent that the governor can say 'yes' or 'no' according to his own personal, political or party calculations and without concern for whether that decision violates the law, the rule of law does not exist." Newly successful countries – he cites Chile and South Korea – have understood this imperative. Mexico has not.

NAFTA gave Mexico the rule of law for trade and, as such, was among the agreement's most important benefits. It will take a revolution of thinking – a change of political culture, really – for the rest of Mexican society to inculcate the rule of law into every aspect of society.

The Organization for Economic Co-operation and Development recently underscored Mr. Rubio's analysis. It cited the World Justice Project survey that put Mexico fourth from the bottom among 39 countries for adherence to the rule of law, ranking it above only Venezuela, Bolivia and Russia.

Mexico is introducing many reforms in criminal justice and creating new institutions to root out corruption in the public sector. It needs to do both, because as the OECD observed, the country has had a "traditionally weak criminal justice system" and "high crime rates." According to the Corruption Perceptions Index from Transparency International, Mexico was seen as the fourth-most corrupt country of the 45 examined. Only Venezuela, Paraguay and Russia were perceived as more corrupt.

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Mexico is also a very unequal society, with wide income gaps and an inadequate social safety net. To the country's credit, government programs are trying to help, such as Oportunidades, a conditional cash transfer to the poor that began in 2002, and a program to help people who need food.

Then there's the education system, dominated and distorted for decades by corrupt teachers' union leaders. Spending on education is shockingly low. A much higher portion of what is spent goes to teachers' salaries than in other OECD countries.

The roots of the education problem are deep and numerous, but the results are clear. Mexican students do very poorly on international comparative tests. Results for the top quintile of Mexican students are bettered by the lowest quintile of Canadian students on these tests.

In fairness to Mexico, arguably no country is trying more fundamental reforms on as many fronts simultaneously: constitutional, legal, economic, educational. Not all of the Pacto por Mexico, signed by the three major political parties, was going to work, but it was stunningly ambitious.

Alas for Mexico, just when it appeared that energy reforms would boost that critical sector, the international oil price dropped. Liberalization of that sector will help spur growth, but the fruits might take longer to appear.

Changing tax and energy policies, as Mexico is doing, is hard enough. Constitutional change, as Canadians know, is always hard. Reforming the education system and, most important of all, implanting the rule of law will be harder still, and will take even longer.

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