MEXICO'S INSTABILITY IS A REAL PROBLEM

Don't Discount the Possibility of a Failed State Next Door.

Mexico is now in the midst of a vicious drug war. Police officers are
being bribed and, especially near the United States border, gunned
down. Kidnappings and extortion are common place. And, most alarming
of all, a new Pentagon study concludes that Mexico is at risk of
becoming a failed state. Defense planners liken the situation to that
of Pakistan, where wholesale collapse of civil government is possible.

One center of the violence is Tijuana, where last year more than 600
people were killed in drug violence. Many were shot with assault
rifles in the streets and left there to die. Some were killed in
dance clubs in front of witnesses too scared to talk.

It may only be a matter of time before the drug war spills across the
border and into the U.S. To meet that threat, Michael Chertoff, the
outgoing secretary for Homeland Security, recently announced that the
U.S. has a plan to "surge" civilian and possibly military
law-enforcement personnel to the border should that be necessary.

The problem is that in Mexico's latest eruption of violence, it's
difficult to tell the good guys from the bad. Mexico's antidrug czar,
Noe Ramirez Mandujano was recently charged with accepting $450,000
from drug lords he was supposed to be hunting down. This was the
second time in recent years that one of Mexico's antidrug chiefs was
arrested for taking possible payoffs from drug kingpins. Suspicions
that police chiefs, mayors and members of the military are also on
the take are rampant. In the past, the way Mexico dealt with
corruption was with eyes wide shut. Everyone knew a large number of
government officials were taking bribes, but no one did anything
about it. Transparency commissioners were set up, but given no teeth.

And Mexico's drug traffickers used the lax law enforcement their
bribes bought them to grow into highly organized gangs. Once
organized, they have been able to fill a vacuum in underworld power
created by Colombian President Alvaro Uribe's successful crackdown on
his country's drug cartels. The result is that drug traffickers are
getting rich, while Mexico pays a heavy price in lost human lives and
in economic activity that might otherwise bring a modicum of
prosperity to the country. In 2008, Mexico ranked 31st out of 60
countries studied in the Milken Institute/Kurtzman Group Opacity
Index. The cost to ordinary Mexicans from poorly functioning
institutions has been huge. My colleague, Glenn Yago, and I calculate
that if Mexico were to reduce corruption and bring its legal,
economic, accounting and regulatory standards up to U.S. levels (the
U.S. ranks 13th and Finland ranks first), Mexico's nominal per
capital GDP would increase by about $18,000 to roughly $28,000 a
year. And it would also receive a lot more direct foreign investment
that would create jobs.

And this impacts the U.S. Thanks to Mexico's retarded economic
growth, millions of Mexicans have illegally moved to the U.S. to find
work. Unless the violence can be reversed, the U.S. can anticipate
that the flow across the border will continue.

To his credit, Mexico's President Felipe Calderon has deployed 45,000
members of his military and 5,000 federal police to fight drug
traffickers. This suggests that he is taking the violence and the
threat to civil government seriously.

But the path forward will be a difficult one. Not only must Mexico
fight its drug lords, it must do so while putting its institutional
house in order. That means firing government employees who are either
corrupt or not willing to do the job required to root out corruption.
It will also likely require putting hundreds, or even thousands, of
police officers in jail. For more than a century, Mexico and the U.S.
have enjoyed friendly relations and some degree of economic
integration. But if Mexico's epidemic of violence continues, that
relationship could end if the U.S. is forced to surge personnel to the border.