Dateline: Cancun, Mexico
I arrived here in Cancun yesterday to prepare for our annual Passport to Freedom event. Speakers and guests are flying in from literally all over the world and there’s a lot of work to be finalized.
On a side note, this conference is a great way to force me to relax for a few days. I wouldn’t flock to Cancun for many other reasons, but I have to say that sitting in a big chair overlooking Yucatan’s best beach and watching the waves rush in – margarita in hand – is quite relaxing.
As a capitalist, I frequently point to examples of places that started out as nothing and became something huge as government stepped aside to let the free market come in and build something great.
Singapore. South Korea. Hong Kong. And now places like Georgia.
You might think Cancun would be on that list. After all, some forty years ago, the narrow strip of land that now houses the city’s Hotel Zone was vacant.
The beach was unkempt, and even a bit dirty, and unemployment was high since industry in the region had practically dissolved.
However, it would be unfair to say that the free market built Cancun. Central bankers did.
Cancun was selected out of more than a dozen cities scouted out and pitched to the Mexican government by their own bankers as a way to bring in tourist revenue. The bankers saw massive potential for Caribbean-style resorts targeted at gringo American tourists.
Once the island stretch here was selected, the government got loans and built an airport and even a golf course. They constructed and owned a few hotels, financing others at special interest rates.
You can imagine it was crony capitalism at its best. Even today, that spirit lives on in the fact that there are only two taxi companies at the airport. It’s a monopoly.
However, there are several important lessons to be learned from “Cancun capitalism”:
1. Momentum is important.
While I’m no fan of central banks printing money, or governments borrowing it, to fund pet infrastructure projects, the momentum is on Mexico’s side in this case.
Once Cancun became a success, the government got out of the hotel business. Private businesses now own the resorts that run up and down mile after mile of sandy beach. Our hotel, The El Presidente, was one of the first in Cancun and occupies the best stretch of beach in the entire city.
While the government still plays a role in Cancun, including after the hurricane several years ago, centrally planned Cancun has become less and less centralized over time. That is in contrast to western countries where more and more things are being centralized.
And at least Cancun became a success. I recently read a story about the bath the government in Phoenix, Arizona is taking over building a Sheraton convention hotel at the bottom of the economy. Even getting out of the project will cost them money.
As the manufacturing of goods like automobiles leaves the United States and moves to Mexico, central planning is becoming less prevalent south of the border as The Land of the Free becomes more and more socialist.
2. Cancun and Mexico know where their bread is buttered
Again, setting aside the fact that a government getting into the hotel or golf course business is ridiculous, Cancun proved to be a lesson in smart business: know your market and build to it.
Cancun was all about attracting Mexican tourists to a place where the rules were looser and sand, sun, and fun were cheap. It was well defined and well-targeted. The infrastructure was so well-kept and the airport so modern that many Americans – even to this day – believe Cancun is not even part of Mexico.
When a country can shatter the unfounded prejudices about traveling to Mexico and build a global super resort capable of supporting an economy of 600,000 people, that’s a success.
I’m not crediting the government, but you must admit that at least the Mexican government’s projects serve a need, attract a clientele, build a good reputation and make money.
All of that happened because they cared about serving an audience the way a business would, not making life difficult for tourists the way the United States does. In fact, Cancun is now the world’s largest spring break destination.
Paul Krugman and his friends at the New York Times recently sloughed off the idea that eased travel restrictions for US persons will turn Cuba into the next Cancun. I’ll share more of my thoughts on Cuba as a future “safe haven” for investment soon.
For now, Cancun may be a centrally planned success, but at least – compared to many other government debacles – it’s a success. While Mexico isn’t a top “safe haven” yet, they’ve shown more resilience than their neighbor to the north.