The Economics of the Rio Grande

If you stand at the border and look north, you will see Nogales, Arizona, which is located in Santa Cruz County. The average household income there is about $30,000 per year. Most teenagers attend school, and most adults have completed high school. Even though many people argue that the U.S. health care system has problems, the population is generally healthy, with a high life expectancy compared to most countries in the world. Many residents are over the age of sixty-five and have access to Medicare.

This is just one of many services provided by the government that people usually take for granted. These services include electricity, telephones, a sewage system, public health services, and a road network that connects the city to nearby areas and to the rest of the United States. Most importantly, there is law and order. The people of Nogales, Arizona, can live their daily lives without fear for their safety and without constantly worrying about theft, loss of property, or other dangers that could harm their homes or businesses.

Just as important, the residents of Nogales, Arizona, believe that the government represents them. Even though the government is sometimes inefficient and corrupt, people see it as working on their behalf. Citizens can vote to remove their mayor, members of Congress, and senators, and they can vote in presidential elections to decide who leads the country. Democracy is a normal and accepted part of life for them.

Life just a few feet south of the fence is very different. Although Nogales, Sonora, is located in one of the more developed parts of Mexico, the average household income there is only about one-third of that in Nogales, Arizona. Most adults in Nogales, Sonora, have not completed high school, and many teenagers do not attend school. Mothers worry about high infant death rates. Because public health conditions are poor, it is not surprising that people in Nogales, Sonora, do not live as long as their neighbors to the north.

Residents of Nogales, Sonora, also lack many public services. Roads are in poor condition south of the fence. Law and order are weaker, and crime rates are high. Starting a business is risky. Business owners not only face the danger of robbery, but they must also deal with complicated rules and bribery just to get permission to open a business. Corruption and poor leadership are part of everyday life for residents.

In contrast to their northern neighbors, democracy is a recent experience for the people of Nogales, Sonora. Until political reforms in the year 2000, Nogales, Sonora, like the rest of Mexico, was under the long-term control of the Institutional Revolutionary Party, known as the PRI, which was corrupt and abused its power.

How can two parts of what is essentially the same city be so different? The difference cannot be explained by geography, climate, or disease. Germs move freely across the border, so the disease environment is the same on both sides. The differences in health are not caused by nature, but by poor sanitation and lack of proper health care in the south.

Perhaps the people themselves are different. Could it be that the residents of Nogales, Arizona, are descendants of European migrants, while those in the south are descendants of indigenous peoples such as the Aztecs? This is not true. The people on both sides of the border have very similar backgrounds. After Mexico became independent from Spain in 1821, the area around the two Nogales cities was part of Mexico. It remained so even after the Mexican-American War of 1846–1848. The border only moved after the Gadsden Purchase of 1853.

It was during a border survey that Lieutenant N. Michler noticed the “pretty little valley of Los Nogales.” Over time, two cities grew on either side of the border. The people of Nogales, Arizona, and Nogales, Sonora, share ancestors, eat similar food, enjoy the same music, and have very similar traditions and culture.

There is a simple explanation for the differences between the two Nogales cities: the border that separates them. Nogales, Arizona, is part of the United States. Its residents benefit from the economic institutions of the United States. These institutions allow people to choose their jobs freely, gain education and skills, and encourage businesses to invest in better technology. This leads to higher wages and better living standards.

They also benefit from political institutions that allow citizens to take part in democratic processes. People can vote, elect their representatives, and remove them if they misuse their power. As a result, politicians provide basic services such as public health care, roads, and law enforcement because citizens demand them.

The people of Nogales, Sonora, do not enjoy these same advantages. They live under different institutions, which create weaker motivation for people to invest, start businesses, or improve productivity. These institutions shape behavior and economic outcomes, leading to lower levels of prosperity.

Why are institutions in the United States much better at supporting economic success than those in Mexico or much of Latin America? The answer lies in history. During the early colonial period, societies in North and Latin America developed very different systems of government and economic organization. These differences created long-lasting effects that continue to shape life today. To understand these differences, we must go back to the very beginning of colonization in the Americas.