A taco chef works at a roadside stand on the outskirts of Tijuana.

N. Parish Flannery. Instagram: @NathanielParish

The clicking, clanging, and hissing of the assembly line at the Minerva brewery in Guadalajara, Mexico are the sounds of success for one of the main nodes of Mexico’s 21^st century manufacturing economy. In addition to nurturing the creation of a start-up tech scene, Guadalajara is building off its decades of experience in industrial manufacturing, and entrepreneurs and executives are looking for new ways to add value and succeed in new markets. The presence of relatively well-paid engineers, consultants, and other professionals has created a growing consumer class and helped turn Guadalajara into one of Mexico’s new craft beer hubs. The stately, colonial-era city center in Guadalajara is now surrounded by new developments, cranes, and construction sites. Middle and upper income residential areas are abutted by shopping malls and rows of new restaurants and shops. But, Jesus Briseño, Minerva’s founder and CEO, continuously worries about his company’s survival. He runs Mexico’s largest independent beer producer but knows that he’s competing on a very uneven playing field.

“We can’t stay small because the market will eat us,” he told me.

Jesus Briseño, the founder of Mexico’s most successful independent brewery, makes a delivery in… [+]

Nathaniel Parish Flannery. Instagram: @NathanielParish

Mexico is the world’s number one beer exporter but that success is largely based around the anti-competitive practices of a duopoly that whose founders’ established a burly bouncer’s stranglehold on Mexico’s beer market before selling their empires to global beer giants Heineken and Anheuser-Busch Inbev. For years Grupo Modelo and Cuauhtemoc, the producers of Corona and DosEquis beer, signed exclusive contracts with vendors, and restricted independent producers from selling their beer in most stores, bars and restaurants. Minerva fought a legal battle against exclusive contracts to win a place for his beer on the shelves and taps in stores and bars in Mexico. Jesus works every day to expand his reach to new parts of the country and targets urban professionals with disposable income to spend. He knows that the big brands dominate the sprawling lower-middle class districts on the fringes of Mexico’s cities. Overall, Grupo Modelo controls over two thirds of the beer market in Mexico. Minerva now operates out of a football-field-sized factory but faces slim odds of becoming a true competitor to Mexico’s beer giants. Every day Grupo Modelo produces more than ten times as much beer as Minerva could produce in an entire year.

The company’s struggles illustrate the broader plight of Mexico’s independent business owners and help explain why Mexico is a country with more than a dozen billionaires and no real middle class. Part of the problem is that Mexico is still an inauspicious location for entrepreneurialism even though the 2018 World Bank Doing Business Index ranks Mexico as the number one country in Latin America for operating a business.  On paper, Mexico’s regulations make it an ideal market for starting and building a business. Unfortunately, the World Economic Forum ranks Mexico 123^rd out of 137 countries in terms of institutional strength. Mexico scores particularly poorly in the categories of public trust in politicians and influence by organized crime. Mexico also ranks as one of the countries where monopolies exert the most power and where corruption is most prevalent. Transparency International places Mexico at 135^th place, ranking it as one of the world’s most corrupt countries, behind Liberia, the Philippines, and Russia. In order to dodge taxes and avoid attention from government officials who may seek bribes, most business owners prefer to stay small and preserve family ownership. Entrepreneurs who do want to expand face plenty of obstacles.

An indigenous boy crawls in front of a hand-painted mural advertising Corona beer in a small… [+]

Nathaniel Parish Flannery. Instagram: @NathanielParish

In Mexico bank lending accounts for barely a third of GDP, about on par with banking activity in most of Sub-Saharan Africa and far behind most of the world’s industrial economies. Banks such as Banco Azteca, Inbursa, and Interacciones are owned by billionaire families. These banks lend conservatively and at high interest rates, a boon for the bankers but an obstacle for the economy as a whole.

Beer isn’t the only market in Mexico that’s dominated by the oligarchs. During the two and a half decades since Mexico, the U.S., and Canada signed the North American Free Trade Agreement (NAFTA) in 1994 a small group of elites consolidated giant companies in Mexico. In the two decades after NAFTA was signed Mexico’s sixteen wealthiest families saw their fortunes increase fivefold while the overall economy expanded by an average of just 0.6% a year and the country’s minimal wage stagnated even as the cost of living increased. Mexico’s nominal per capita GDP is over $10,000 but this figure misrepresents a country where nearly half of the population lives in poverty. Today, Mexico’s wealthiest families control their own mini-fiefdoms in different sectors of the economy. Cinemex and Cinepolis control 90% of Mexico’s movie theaters. Carlos Slim single-handedly controls 80% of Mexico’s fixed line telephones and 70% of the mobile phone market. Bimbo controls 90% of the market for baked goods.

There are many monopolies in Mexico but beer is a particularly apt example. The companies that produce Corona and DosEquis control 99% of Mexico’s beer market. The country is just starting to experience a new boom of craft beer but even observers with a “glass half-full” mentality have to admit that the glass is filled with big brand beer. Independent producers barely account for a squirt of foam on the top.

Cans of beer rumble down the conveyor belt at the Grupo Modelo brewery in Guadalajara, Mexico.

Nathaniel Parish Flannery. Instagram: @NathanielParish

What Mexico lacks is successful mid-sized companies. The country’s corporate giants can’t create middle-class employment for the masses. Like a generous serving of meat heaped into small tortilla, most people fall out to the side, and seek employment in Mexico’s sprawling informal economy. Over half of Mexico’s workforce is employed in the informal economy, an amorphous categorization that includes street vendors, house cleaners, taco stand operators, and a variety of other off-the-books individuals who receive cash salaries and don’t pay taxes.

An even more shocking and less discussed fact is that overall, nine out of every ten businesses in Mexico operate in the informal sector. There are just ten thousand formal sector businesses with more than fifty employees in the entire country. By contrast there at least three million informal micro-businesses that operate out of permanent locations and hundreds of thousands of additional informal businesses operating in Mexico’s smallest and most isolated villages. If there’s one type of small business that best represents Modern Mexico, it isn’t a tech sector start-up or a high-tech, aerospace manufacturer, it’s the omnipresent informal sector taco stands that permeate from the country’s urban centers all the way out the most remote mountain outposts.

Mision 19 in Tijuana serves some of Mexico’s best, and most expensive, tacos.

Nathaniel Parish Flannery. Instagram: @NathanielParish

In the border city of Tijuana a new group of gourmet restaurants have helped turn the city into a destination for foodies looking for some of the world’s best tacos. At Mision 19, for instance, chef Javier Plascencia, serves an appetizer of small pork tacos for $8. Unfortunately, few of the city’s residents can afford a meal at the sleek new taquerias. Many factory workers earn less than $5 a day. Tijuana is held up as an industrial border city that successfully transitioned away from manufacturing TVs and clothing to high-tech technology in the medical, automotive, and aerospace sectors. What Tijuana, has not produced, however, is a strong middle class. In the entire state of Baja California, 67% of residents earn between $1,222 and $6,110 a year. There are only 14,881 residents, less than 1% of the total population, who earn more than $12,220 a year.

In Mexico food trucks are a modern iteration of traditional informal sector taco stands. Overall,… [+]

Nathaniel Parish Flannery. Instagram: @NathanielParish

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