Luis Rubio

The roof was falling in, the leaks had disappeared and were replaced by holes more than 30 centimeters in diameter where the rain, snow and trash came through. One would think that this was about an abandoned property in the middle of nowhere, but it was one of the Mexico’s most important embassies abroad. Confronted by the inexistence of funds to repair the roof, the ambassador had gone ahead with the only alternative left to him: close the upper floor and pretend that the problem did not exist, aggravating the situation and making the later repair process much more costly. The notion that one needs to budget in order to maintain existing assets goes against the grain of Mexicaness…  Even worse if it involves planning for the future.

The deterioration of the country’s physical infrastructure is visible in all its ambits: it can be observed in the Mexico City Metro, in multiple condominiums throughout the country, in the scarcity of water in diverse regions, at the Mexico City airport, and, as illustrated by the case of the referred embassy, in many governmental buildings. The problem is not limited to the government: condominium owners are reluctant to pay the fees for the maintenance of the buildings in which they live.

The water crisis in the Mexican city of Monterrey laid bare an entire sewer of criticisms, political stances and attacks regarding the heavy users of the precious liquid. Crises always present opportunities to draw political advantage, but few take time to realize that this does not concern a situation that came about all of a sudden, but instead one that it is the consequence of not having done the work required, in this case, that of infrastructure, for decades. Since it cannot be seen, politicians prefer to circumvent the need for building capacity in anticipation of upcoming growth: everyone wants growth, but no one is willing to invest for it to be transformed into a great benefit for all.

A few decades ago, a comparative study was conducted[i] on water management in two similar cities -Phoenix and Tucson- both localized in a desert with very little access to natural water sources. The study arose from the extraordinary difference in water consumption per inhabitant that characterized two cities separated by little more than one hundred kilometers in distance.  While in Tucson an average 640 liters of water were consumed daily per household, in Phoenix average consumption was 1,040 liters. The difference lay in the management of the water: while in Phoenix water was seen as a human right, in Tucson it is considered a scarce resource. The inhabitants of Tucson pay dearly for their water, but they never confront problems of water scarcity, which does happen in Phoenix. The same is true in the northeastern Mexican state capitals of Monterrey, Nuevo León, and Saltillo, Coahuila, cities typified by like physical circumstances and geographies, except that in Saltillo water is never scarce. In Monterrey the administration of water is governmental, in Saltillo a company responds to the citizenry.

As the population grows (and, during these years, the economy less so), problems of infrastructure will increasingly beset Mexicans. More inhabitants imply more streets, more water, more communications, schools, hospitals, etc., all of which entails investments in infrastructure and funds for the maintenance and improvement of what already exists. However, none of that is evident in the criteria driving the annual governmental budgets or in plans for development. In technical terms, this is called entropy, i.e., the gradual deterioration that leads to disorder, the absence of predictability and, potentially, chaos. As Héctor Aguilar-Camín[ii] pointed out a few days ago, “the government’s decisions on the airports have placed Mexico City in a Kafkaesque dilemma: the more airports you have, the fewer airports there are that function.” Chaos.

The present government has distinguished itself by its total contempt for anything that could produce economic improvement for the population or the country, but the deterioration it inherited and that its apathy accumulates does nothing other than magnify the situation, as witnessed by the botched handling exemplified in its response during the pandemic. Rather than a coherent plan for modernizing the institutional structure of the health sector, the elimination of popular insurance in Mexico happened at the worst possible moment and without a duly articulated plan of action to replace it. The chaos that it caused was not particularly distinct to that of its predecessors, but its indolence exacerbated the predicament due to the government’s indisposition to act in the face of a critical situation. Lack of investment in basics and their maintenance.

When a (system of) government refuses to prevent these extremes, chaos becomes inevitable. Steven Pinker[iii] says this in an exceedingly clear manner: “Closed systems inexorably become less structured, less organized, less able to accomplish interesting and useful outcomes until they slide into an equilibrium of gray, tepid, homogeneous monotony and stay there.” Whoever watched the recent scenes of the Morena elections for its congress will appreciate this in its maximal expression…

                                                                Luis Rubio

Those who play with fire, goes the saying, get burnt. That is how the Mexican government is presently operating regarding the issue of the trade dispute with the U.S. and Canada. Of course, the government seeks to defend its vision of the electricity industry, the grounds for the USTR action, but the president’s natural tendency to politicize everything and to convert it into a wedge issue entails risks that he has clearly not evaluated.

As always occurs between neighboring nations, relations between Mexico and the U.S. entertains dual dynamics: that of the daily reality and that of their political leaders. The reality derives from the constant, growing and frequently conflictive interaction that takes place at every level of the vicinity. It has ever been thus and there is no doubt that it will continue being so in the future: the exchanges move in both directions and each moment is different; suffice to illustrate this with the fact that Mexico was key in sourcing arms to both sides in the U.S. Civil War.

Certainly, it would be possible to improve what exists were the ideal institutional arrangements in place, but dynamism does not depend on the moods of the political leaders; instead, it derives from the true forces of the economy and of the human exchanges. Trump attempted to cancel NAFTA and AMLO would prefer it not to exist, but both had to cope in the face of the inexorable reality.

The conflict of the moment concerns the politics of the current government in matters of electricity. The treaty in force, the US-Mexico-Canada Free Trade Agreement (USMCA), establishes that the parties must afford equal treatment to all economic agents, regardless of their nationality. It also impedes modification of the rules of the game without a negotiation taking place, in that the objective of a contract of this nature is precisely that of conferring certainty on the potential investors. In this regard, there is not the least doubt that the Mexican government has been modifying the rules in electricity matters, formally (with the law approved in 2021) as well as in practice, with the extorsion to which the Federal Electricity Commission (CFE) has submitted private companies, coercing them to cast aside private energy suppliers. What is up for grabs in the procedure initiated by the U.S. government and seconded by the Canadian one is whether Mexico backs down in these practices or is sanctioned through the mechanisms that the trilateral treaty foresees.

The rationale of having negotiated in the nineties and re-negotiated the North American Free Trade Agreement (NAFTA) during the last five years lies in having established the rules of the game that oblige the three governments to abide by procedures that exit and that are known by all. This happened because as soon as commercial liberalization materialized in the eighties, a massive number of commercial clashes was untethered. NAFTA was conceived to avoid those disputes, to facilitate commerce and to make possible bourgeoning productive-investment flows toward Mexico.

NAFTA was born from an understanding between Mexico and the U.S. with respect to the relationship, the future, and their coexistence, a condition necessary to institute a base of trust for two nations that one hundred thirty years ago prior had been at war.  The agreement consisted of the development of a common vision concerning the direction of the incremental interaction that had been coming into being and that was sustained in shared fashion until Trump arrived at the U.S. government and, two years later, AMLO at that of Mexico. Both would have preferred to annul the geography and the reality of the burgeoning exchange.

From the Mexican perspective, the key to the original NAFTA (1994) resided in the implicit political guarantee that the U.S. Government conferred on investors. It did not do this with charitable aims, but instead due to its recognition that U.S. national security would be strengthened by way of a good relationship with a successful and prosperous Mexico.

USMCA no longer enjoys that political element (except for services), therefore a commercial conflict at this moment could be devastating for the Mexican economy.

The disappearance of a common vision has implied the degradation of the mechanisms of interaction between the two countries, the growth of sources of discord between the governments and the increasing indisposition to address their problems in common. The conflict on electricity is potentially major due to three reasons: a) because of the enormous amounts of investment at play; b) because of the transcendence of energy for the long-term growth of the economy; and c) because of the energy transition that the world is undergoing and, in particular, that of the most prominent industry in Mexico, the automotive. If something comes out wrong in that negotiation, these factors could place the stability of the Mexican economy in doubt.

The Mexican government has two options: the ideal would be to take seriously the challenge that this entails devoting itself to negotiating an exit, as it did with the gas pipelines in 2019, before time -or the reality- wins out. The other option, its natural inclination, would imply distracting the public and persevering in its nationalistic rhetoric, literally in the face of the tremendous opportunity that the U.S.–China conflict represents for Mexico. Proceeding via the rhetorical and satirical route would be equivalent to playing with fire.

Unlike the pipeline issue, the point in time of the political cycle and the already unleashed process of presidential succession guarantees an immense volatility that in no way are of benefit to the government and even less so to the country.

www.mexicoevalua.org
@lrubiof

Luis Rubio

Paraphrasing Marx and Engels, a specter haunts the world, the specter of populism. This is a struggle among different models of development and ways of conducting politics. Today two models that embrace economic orthodoxy are head-to-head: the democratic-market model that characterizes most rich nations around the world, with the model of Chinese authoritarian capitalism.  But there is another dispute, that of the political leaders: there are heads of state who follow institutional rules (those which Weber denominated “legal domination”), while others have instituted charismatic profiles, whether of the Left or the Right (Trump, Bolsonaro, Chávez, Erdogan), all of which fall under the rubric of populism. Behind all this is a battle between two radically distinct modes of conceiving of the world and of adapting (or not) to the prevailing international and technological milieu.

The conflict presents itself at two levels: on the one hand, the yearning of innumerable politicians to break with the impediments imposed by the globalized economy and the constriction of the world due to the technological advance. On the other hand, the irrepressible logic of the decentralized production both far and wide, the pervasiveness of information and, especially, the revolution of the expectations deriving from the latter two factors. The key question that every political leader comes up against is whether there is really an option. Margaret Thatcher inaugurated the phase “There is No Alternative” (TINA) to explain the imperative need to reform the British economy. Whether or not one agrees with the philosophy of the so-called “Iron Lady,” the phrase that she employed sums up the nature of the dispute that still depicts today’s world

Ernesto Laclau* wrote that “normally it tends to be left to globalization to justify the TINA dogma and the most common assertation is that the fiscal constrictions that governments confront comprise the sole realistic possibility of a world in which the markets do not permit even the most minimal deviation from the neoliberal orthodoxy.” From this approach, Laclau proposes passing over the republican institutions to transform the reality.

So attractive is this overture that countless political leaders worldwide and of ideologies as diverse as those mentioned previously have attempted to pursue the route of breaking with the institutional framework as proposed by Laclau. Trump’s war cry was “drain the swamp,” a notion not distinct, in a conceptual sense, from what Podemos advocates in Spain or the Kirchners in Argentina, Correa in Ecuador or López Obrador in Mexico have procured.

The problem with voluntarist projects, those in which the ruler defies the orthodoxy and tries to ordain his own preferences and rules, is that these hit a wall, also known as reality. Mexico underwent severe crises in the past century precisely because diverse presidents felt free to do as they pleased. The same would happen were the government to adopt a collision course in the matter of the consultation on electricity that the American government has launched.

The phenomenon has worsened in the knowledge era for two reasons: first, with a couple of exceptions (such as Cuba and North Korea), the world has become integrated due to communications, which has rendered it supremely difficult for a country to abstract itself from the rest of the world. Formerly, when those circumstances did not prevail, presidents celebrated the entire production of automobiles or refined oil products in their nation, without any need to mention the global context. That is impossible today because there no longer are plants that manufacture the totality of a product and, more importantly, the population demands high-quality and immediate satisfiers. The idea that it is possible to ignore what is happening in the rest of the world is unthinkable not because of the pejoratively mentioned neoliberalism, but instead because the electorate no longer tolerates it; contrariwise, it expects answers here and now.

Laclau’s approach and that of his followers is very appealing in political and emotional terms, but all the same it is dysfunctional in the real world. The only certainty that can be stated of the voluntarist projects (those not constrained by the institutions’ strength, as in the case of Trump) is that these have been a disaster regarding economic growth and poverty reduction. Although many of the governing group consider the Venezuelan regimen a success, evidence of the disaster that is that country is overpowering. The rhetoric can be generous, but the reality is absolute.

As Jan-Werner Mueller has argued,** the evidence shows that citizens who sustain voluntarist-populist governments are not a Silent Majority, but rather a Vociferous Minority. Therefore, practically all intents at defying reality in the knowledge era end up badly. Bill Hicks, the late comic and grouch, dreamt of a political party for “people who hate people.” He just couldn’t get them to come together in the same room. The great egoist movement was undone by its central principle. Reality cannot be defied and that is what ends up terminating these unsustainable voluntarisms.

*Hegemonía y estrategia socialista; **The Myth of the Nationalist Resurgence

www.mexicoevalua.org

@lrubiof

Luis Rubio

A Palace of Versailles guide once said that Louis XIV built the palace, Louis XV enjoyed Versailles and Louis XVI paid for it. Mexico is at a stage in which President López Obrador is enjoying the economic and financial structure bequeathed by his predecessors, those damned neoliberals. The key question after the 2024 election is over is how to pay for what’s been done, and for what hasn’t been done, during the current administration to begin constructing something new and functional with an eye to prosperity and development.

In all the governments I have observed, what distinguishes the current presidential term is the absence of a project for the country’s development. Some of the prior administrations’ strategies were too ambitious, others merely ideological; in some what was noteworthy was the absence of ambition, while others were unreal for their unviability. But none lacked a schema oriented toward greater prosperity and better life levels.

For President López Obrador development is achieved virtually by osmosis: his government concentrates all the power and the rest comes to pass automatically. Instead of strategies, investments or legislation, what there has been here is a narrative devoted to nurturing an electoral base and three investment projects that not only are not ambitious but that also do not entertain any strategic sense or for the regions where they have been installed. This is about a political project, that is, one of power, and not one of development.

Beyond the excuse supplied by the pandemic to justify everything not done and undone, the evolution of the current administration that little by little draws closer to its end has been possible thanks to two decades of building institutions that yielded a financial structure for stability, a comfortable debt profile for the treasury, funds and trusteeships for cases of emergency, periods of recession or natural phenomena.

The administrations preceding the present one occupied themselves with strengthening the foundations of economic stability to avoid relapsing into the crises of the past that destroyed everything –families, savings- in their wake. Without those antecedents, the current government would never have been able to divert so many resources that once were committed to the promotion of investment (infrastructure, the generation of electricity, etc.) in the direction of its favorite clienteles. Because although the president holds forth on austerity, the latter does not exist: resources continue to be spent, only now the criterion is electoral and political profitability, not economic development.

Thus, the most generous prospect that can be computed for the future is that, at the end of 2024, only one presidential term would have been lost and nothing more. The most optimistic calculations inform that the economy will return to the 2018 level toward the end of 2024, when the population will have grown by several million Mexicans. And those are the optimistic calculations.

Today the imperative is to place ourselves in time at the first of September, 2024, the next president’s inauguration day, to start to envision the panorama that awaits Mexico, as if that day Louis XVI were to take possession. In addition to depleted coffers, but hopefully public finances not in crisis mode, all of that for having squeezed those finances to the utmost with the disappearance of the stabilization funds and various trusteeships, the country will find itself with a new government without useful instruments and with a great crisis of confidence.

Whoever the president may be, man or woman, in 2024, their options will be very limited for at the least three reasons: first, because no one will enjoy the vast support that the president achieved in 2018 nor will they be able to count on possessing his abilities or history for preserving the base that their predecessor created. None of the obvious precandidates, on both sides of the aisle, enjoys that exceptional situation. Second, the present-day government will have exhausted the entire fiscal space -resources for undertaking projects- which will obligate them to procure novel wellsprings of financing for even the most elementary governmental operations, without even thinking about matters as urgent and imperative as the security of the population.

Finally, the third reason that the options will be strained is the other side of the coin of President López Obrador’s administration: just as he built and nurtured a broad electoral base, he alienated the rest of the population. Instead of uniting, he divided and polarized, exacerbating the environment to the point of provoking impulsive and visceral reactions by those who supported him as well as by those who ended up hating him. The person assuming the Mexican presidency in 2024 will have to deal with that contradiction and start springing into action to build bridges, diminish tensions and develop institutional and sustainable sources of support. As in the old PRI system, the next government will have no alternative other than to reproduce the pendulum of yesteryear: correct the damage and start over.

This will be the main challenge: the great virtue of the NAFTA was that it furnished reliable sources of confidence that transcended the sexennia. That vanished due half to Trump and half to López Obrador. The prodigious task will be to find or erect a new platform that guarantees certainty, blunted by this government so distraught about the immediate (the electoral) but disdainful of the transcendent, development and peace.

www.mexicoevalua.org
@lrubiof

Luis Rubio

Disproportion, or the sin of pride, which the Greeks called hubris, consists of believing oneself to be more than other humans, failing to recognize and trespassing imprudently beyond the limits of our condition, forgetting one’s insuperable finiteness. This disproportion, or lack of moderation, says Aníbal Romero, includes disdain for the costs that the loss of the sense of scale can exact from others, in terms of anguish, pain and disillusion. A government devoted to capriciousness without an iota of concern for the tie-in between penalties and potential benefits is an inexorable example of disproportion.

Propensity toward disproportion is a constant in human nature. In The Iliad, Homer depicts the diverse forms in which Helene, Achilles and other personages lose their sense of reality. That is what occurs every time a government makes decisions according to myths, dogmas or preferences without repairing on the obvious: the resources it uses are not theirs. Governments utilize resources from the taxes they levy on the population; and they are, or should be, accountable to it. This clearly has not been the case of the present government of Mexico.

Governments, driven by their immense size, allocate their resources as they consider best, impacting daily life by commission but also by omission. The current government designed three emblematic projects whose cost should be measured in two ways: first, by the investment itself and the alternatives available; equally important it is indispensable to assess the consequences of the projects. There is no better example than the Felipe Ángeles International Airport (AIFA): the cost of constructing it, the cost of destroying the New Mexico City Airport (NAICM), which already entertained a nearly 40% advance, and the cost of having to build a new airport in the future because the combination of the two airports presently in operation, the AIFA and the Mexico City International Airport (AICM), is dysfunctional and, in any event, insufficient.

The government has distinguished itself by its opacity in the management of public investments, so all the available information leads to mere estimates, but published calculations suggest the following: the cost of AIFA was 5 billion dollars; the cost of demolishing the Texcoco Airport, including repayments to bondholders, borders on some 16 billion dollars. In addition to this, as all users of the old airport know, but that remains a secret for the President, is that sooner or later a new airport will be required to replace the present one (AICM) and that the new one will never be the one in Santa Lucía. The new airport will cost at least another 16 billion dollars. In sum, the president’s stunt will turn out to cost some 37 billion dollars.

Something similar happened with the Refinery and the Maya Train. The most recent estimates indicate that the Refinery will cost nearly 18 billion dollars and that the Maya Train will reach an amount of approximately 11 billion dollars. As with the airport, the calculation must be twofold: what the projects will cost and the potential benefits that the latter will come to supply. If current trends in matters of electric automobiles materialize, the best that could be expected would be that a refinery conceived to function for decades (the refinery that Pemex acquired in Texas was constructed more than a century ago), will operate for a maximum of 10 years: from the mid-twenties to the mid-thirties. That is, another enormous waste. The Maya Train constitutes a wager yet more rash, in that it does not even communicate the peninsula’s three important cities: it does not touch either Mérida or Campeche.

There are many ways to quantify disproportion, but the fundamental one is that deriving from dogmas, which never underwent any sort of screening process. I don’t know whether the Texcoco Airport was localized in the best place, but I have no doubt that the two airports existing today share the same airspace and therefore, do not add to, but rather subtract: a zero-sum game. All of this was to demonstrate Who Decides Here, as the title indicated of the book that the President placed near his armchair the day he announced the cancellation of the Texcoco airport. It’s all about power. Thanks to the absence of checks and balances, Mexican presidents wield enormous power during their term of office and exhibit a tendency toward the excesses noted herein, but none like the present one.

Arrogance and arbitrariness mix to produce not only excesses, but also devotion to each other, the best measure of hubris, that very Mexican capital sin so costly to the country throughout its history. For many years, today’s President criticized, with full legitimacy, the excessive cost of the bank rescue of the 1990s, estimated at around 12% of the GDP. The cost of his investment projects will tally close to 6% of the economy. The difference is that excessiveness in the past was the product of a poorly managed crisis; this one was intentional and self-inflicted.

President Benito Juárez portrayed beforehand the events that would take place about one hundred and fifty years after death:  “A democratic system and eminently liberal, such as that which rules us, has as its essential base the observance of the law. Not the whims of a sole man, nor the interests of certain classes of society, form its essence. Under a noble and sacred principle, it bestows the most perfect liberty, while repressing and punishing licentiousness… It is therefore evident that in the name of liberty it is never lawful to commit the least abuse”.

www.mexicoevalua.org
@lrubiof

Luis Rubio

The world of the last three decades was a historical anomaly: the end of the Cold War seemed to freeze the planet due to the existence of a superpower that made irrelevant the traditional zones of influence, where each regional power imposed its law. Regardless of the specific way the invasion of Ukraine ends, the only thing that is certain is that the so-called “world order” will have changed. We are at an inexorable turning point, just as President López Obrador goes to Washington.

Beyond sanctions and calculations about the end result of that conflict, what is directly relevant for Mexico is what will change in the US-Mexico bilateral relationship, be it with the Biden administration or with whoever follows it.

It is easy to underestimate Uncle Sam, as did the Japanese in 1941, the 9/11 terrorists, and the Russians in the Ukraine. Biden has not been a particularly successful leader, but it is not the person, but rather the superpower that he represents, that Mexico must deal with.

Seen from Mexico City, especially given the enormous capacity that AMLO seems to believe he has developed to influence internal decisions within the US, it is easy for him to imagine that he can impose his agenda on Biden, as he did with the Summit of the Americas a few weeks back. However, historical experience shows that betting against the Americans, as indeed the Mexican government has been doing, is not a very smart strategy.

In an interview when Russia began its assault on Ukraine, Natan Sharansky, a political prisoner in the Soviet era, explained Putin with the following metaphor. “The ringleader in the cell,” he said, wasn’t the one who was physically strongest but the one ready to use his knife. “Everybody has a knife, but not everybody is prepared to use it… Putin believes that he is willing to use his knife and the West isn’t —that the West can only talk even if it is physically stronger.” Putin has spent years assessing the West, especially the United States, and his reading of this led him to conclude that he could invade Ukraine and get away with it. The verdict on this is not yet in, but the fact of having conducted this invasion changed history and this entails enormous implications for Mexico.

President López Obrador is operating under the framework that existed prior to the invasion of Ukraine. Regardless of that nation, it is impossible not to recognize that the world will return to the logic of zones of influence where the world powers – two or three, depending on what turns out- will begin to make their priorities and preferences felt. What China and Russia have already been doing in their zones, each in its own way, will sooner or later be reproduced in the Western hemisphere.

Mexico is the first line of fire in this logic and will undoubtedly be the first to feel the weight of the power of the region. From the US perspective, Mexico has been adrift for years, especially in terms of security, but also because of its inability to solve elementary problems that impede the growth of its economy. For some time since the end of the eighties, when a series of seminal agreements were reached on the principles that would govern the bilateral relationship, the United States was an active and willing factor in supporting the long-awaited internal transformation, the NAFTA being the main fighting horse to achieve that goal. Over time, however, the lack of results and action on the Mexican side ushered in disillusionment in the US. which increasingly limited itself to guarding its border, abandoning the expectation that Mexico would achieve integral development as proposed forty years before.

AMLO has spent months provoking the US government, threatening and snubbing its president and, more recently, offending its population with the grandiose idea of ​​destroying the statue of liberty, one of the few symbols that still unites all Americans. I have no doubt that, geography permitting, López Obrador’s preference would be to distance Mexico from its northern neighbor, but since he cannot, he does everything possible to degrade and diminish the relationship, probably hoping to achieve the same goal, regardless of the cost.

Perhaps the president thinks that he has an inordinate ability to impose his preferences on the Americans, but everyone who knows them knows that, as a sometimes-reluctant superpower, they will sooner or later draw the line on him and impose their rules. Biden may not be able to force Mexico to confront the violence and extortion to which Mexicans are subjected or to improve their living standards, but, as Trump showed, the Americans will not tolerate one offense after another.

The president claims respect and speaks of sovereignty, but this is a chimera in the era of globalization. Respect, to exist, must be mutual and López Obrador has not been characterized by that virtue towards Biden. As for sovereignty, it is achieved and ever strengthened by turning Mexico into a great nation, not by its growing submission to organized crime and with the endless construction of barriers to economic development. The relationship with the US can help on both fronts, but not when the Americans are used as patsies.

www.mexicoevalua.org
@lrubiof

Luis Rubio

 “The future is already here, wrote the novelist William Gibson, it’s just not evenly distributed.” The change that the world is experiencing is unstoppable and is taking place on all fronts, some benign, others exceedingly risky. In recent weeks a series has accumulated of news reports and studies that, taken together, present an overly complex scenario (and, in many senses, contradictory) that obliges one to visualize the potential of the alterations in the panorama that has come to materialize over the most recent months.

A first approximation to the changing scenario is that which China provides. If one were to extrapolate the tendencies of the most recent years, China’s economy will exceed that of the U.S. by decade’s end, to become the new pole of economic and, potentially, political attraction. A study presented in Visual Capitalist[i] illustrates graphically the way the world economy evolves, and the changes anticipated for the main world economies (and that, in passing, reveals Mexico’s growing deterioration on the international horizon, suggesting future problems).

The study is built on direct extrapolation and does not take into account two elements that could  modify these tendencies:    on the one hand, there is speculation around the world concerning the veracity of China’s official statistics;  on one extreme, there are those who maintain that China’s total population is sensibly lower than that previously estimated,[ii] which would lead to the possibility that, instead of growth, China is initiating an accelerated process of contraction. Of course, this would in no way change the extraordinary performance of the Chinese economy and its enormous potential, especially because of its great advance in matters of digital technology and artificial intelligence, which would place China at the world-leadership level in the most promising industries.

A second factor in this equation comprises the dispute over the way of governing that characterize the U.S. and China, the former with a dysfunctional democracy, the latter with an autocratic system that has been capable of dislodging from poverty hundreds of millions of its citizens. Behind the conflict between the two powers are evidenced the strengths and weaknesses relative to the two nations precisely when the pandemic has yet to be resolved, inflation starts to wreak havoc and the interminable debate persists on the viability of the Chinese political system. Ian Bremmer[iii] speculates in his new book on the possibility that one of the great myths of our times (the superiority of the U.S. political system vis-a-vis the superiority of the Chinese economy), ends up being the reverse of this: that the flexibility of the U.S. economy wins while the Chinese political system proves itself more robust and sustainable.

The third element in this panorama is that of the growing inflation, for which none of the western nations appear to possess a convincing answer, threatening to plunge the planet into a recession with no obvious way out. The recent performance of the financial markets further adds to this scenario, above all the extent to which this political moment is particularly delicate in the U.S., with legislative elections at the end of this year. The inaction of the Biden government, its dubious priorities in economic matters, and its colossal loss of prestige sharpen the intricacy of the moment.

The panorama is acquiring complexity in all ambits, which does not augur well for a tranquil future for Mexico. In the last two years Mexico has enjoyed an unusual situation not thanks to the government’s strategy, but rather to the generosity of the U.S. government.  On the one hand, our exports have multiplied thanks to the exceptional growth of the U.S. economy, creating an encouraging environment for the domestic markets; on the other hand, the transfers conferred by the U.S. government on its inhabitants to mitigate the harmful effects of the economic paralysis caused by the pandemic translated into a monumental growth of the remittances of Mexicans living in the U.S. to their families back home  (which increased from 1% to 4% of GDP). None of these phenomena is attributable to the Mexican government: strictly speaking, it has been the U.S. economy that has been instrumental in avoiding an economic and social collapse in Mexico.

This situation should be held up in contrast with the clouds that could be approaching for the world economy. For Mexico, the key factors of its economic stability are exports, interest rates in US dollars and the remittances.  A severe recession in the U.S. would pose a direct threat against these three factors, inverting the panorama that has characterized the economy in recent years.

The absence of a strategy of development, the unnecessary polarization and the alienation of the U.S. government as well as of investors desirous of diversifying themselves on confronting the conflict of the U.S. with China, now become a huge risk of recession and impoverishment, not exactly the panorama promised to Mexicans while the president was campaigning back in 2018.

Americas Quarterly
Mexico
BY LUIS RUBIO
JUNE 29, 2022

 Mexico’s president thinks his penny-pinching has kept the peso afloat, but the real support has come from across the border.

MEXICO CITY – Mexico’s president is obsessed with the peso-dollar exchange rate. Looking back at Mexican history, Andrés Manuel López Obrador is certain that a president who oversees a devaluation in the currency will soon see a different kind of devaluation—that of his own popularity. And he may be right.

But how to avoid such a devaluation is a more difficult question. So far, a key factor keeping the peso, and AMLO, afloat hasn’t been the Mexican president’s much-touted austerity—but rather the U.S. government and economy. That support may dissipate in the months ahead, leaving AMLO’s future unclear.

AMLO’s view is that what went wrong in the 1970s, his principal point of reference, was high deficits. Hence his obsession with keeping Mexico’s budget balanced. Everything else—economic growth, jobs, inequality—has become secondary. This stance was more than evident during the pandemic, when he refused to spend to support families that suddenly lost their sources of income. In retrospect, particularly when one looks at the dire fiscal situation of countries like Peru or Brazil, AMLO wasn’t wrong. In contrast with those nations, Mexico still has some fiscal room to maneuver, which also explains its standing with the rating agencies.

That has also helped the peso hold roughly steady against the dollar. But what AMLO doesn’t account for is that it is the U.S. that has so far made this equation possible, in two chief ways.

One is the rapid growth of the U.S. economy. Since Mexico’s main engine of growth is exports, whatever happens to the American economy has a direct impact on Mexicans’ welfare. Exports are easily traceable and go up or down according to the performance of the US economy. And they are especially important because of very low levels of private investment, which AMLO discourages with his rhetoric, by undermining energy contracts and trust (the basic ingredient for investment) with rash decisions like canceling the new Mexico City airport contract.

The other is remittances of Mexicans living in the U.S. to their families in Mexico, which show a highly revealing trend. Remittances have risen from 2.8% of Mexico’s GDP in 2017 to 4% in 2021, a quick pace of growth. This figure is extraordinary and resembles the growth of similar transfers to Indian and Central American recipients. It tells the story of the U.S. government spending heavily during the pandemic to support workers and companies at an exceptional time, and a U.S. economy that experienced an extraordinary (and unexpected) recovery during 2021 and early 2022. Mexico has thus been an unwitting beneficiary of American largesse.

It’s impossible to say how López Obrador might have fared without these remittances, but there’s no question that he has greatly benefitted from them. But now the president, in the fourth year of a six-year administration, is beginning to lose control of events. Although he has been intent on centralizing power, he does not control key variables that may well determine how his administration ends, like a potential U.S. recession, U.S. interest rates and remittances to Mexico, now that cash transfers in the U.S. have ended. Nobody seems to know who he’s working for.

It’s also worth noting that AMLO’s self-presentation as an austere president is misleading. He has been extremely careful not to run a fiscal deficit, true, but he has also drained funds from the core functions of the government (security, health, education and the like) to channel them through direct cash transfers in the president’s name (rather than the government’s) toward his political base, as well as to a set of big infrastructure projects that have become notorious for their low multiplier effect and which don’t seem to be built to last.

The new airport for Mexico City is no substitute for the existing one, the Maya train project in the southeast does not run through either Campeche or Merida, two of the three main cities in the Yucatán peninsula, and the Dos Bocas refinery is set to come online just as oil consumption begins to wane. The president invests heavily in his electoral base and nurtures his popularity as the core objective of his administration, but without incurring into a large fiscal deficit or excessive debt. All this is about ensuring political succession, the measure of a government’s success or failure.

Were the election to be held today, AMLO’s anointed candidate would most likely win. But elections aren’t until two years from now, a very long time in politics. As time goes on, circumstances beyond AMLO’s control, especially the U.S. economy, will become paramount.

The political outlook is complex. It’s not inconceivable that there will be more than one candidate running from his Morena party. Equally important is that the opposition parties have yet to show their hand. Potential opposition candidates would have to be politically suicidal to raise their hands at this point, because AMLO would stop at nothing to erode their standing and, if possible, destroy their reputations.

It’s too early to predict the results of the 2024 elections, but what happens may hinge not on events in Mexico, but on what’s changing in the U.S. economy: a fact that may serve as poetic justice for a president obsessed with Mexican autonomy.

ABOUT THE AUTHOR
Rubio is chairman of the Mexican Council on Foreign Relations. He writes a weekly column in newspaper Reforma, and is the author and editor of dozens of books, including Unmasked: López Obrador and The End of Make-Believe, published by the Wilson Center.
@lrubiof

https://www.americasquarterly.org/article/can-amlos-popularity-survive-a-u-s-recession/

Luis Rubio

In its eagerness to impose its manner of seeing the world, the federal government has gifted us with a true picture of what does not function and what, for that reason, it should not be. Decades -if not centuries- of centralized government with vertical control structures had the effect of stabilizing the country, but not of achieving its development. The decentralization that has characterized Mexico during the last decades did not translate into a generalized renaissance of local creativity, perhaps due in good measure to the enormous weight of the idea of central control that the president intends to recreate. As Marx wrote nearly 200 years ago, what is tragedy the first time, is a farce the second.

Accustomed as Mexicans are to powerful central governments, it is perhaps difficult for them to understand the transcendence of the local governance and, above all, the costs incurred of imposition from “the center.” The great economic successes of the last decades have arisen in states and regions that devoted themselves to promoting growth and they addressed themselves to creating conditions for this to be possible. The boom undergone by the states of Querétaro, Aguascalientes, Yucatán, Nuevo León and others has not been the product of chance, but rather of effective structures of local government.

Contrariwise, the incapacity to eradicate violence, extortion and other forms of criminal activity, as well as the poverty that continues to prevail in many zones of the country, especially in the South, reflects local governments that are incapable or, more to the point, that are dedicated to control and plundering.

The numbers show that the deterioration in matters of security advanced in parallel fashion with the weakening of the structure of centralized control from the nineties and, although there was a certain improvement at the beginning of the second decade of this century, this was not consolidated. The centralized controls of yesteryear became unviable in a country that was diversifying and democratizing, but nothing was done, especially at the local level, to build government capacity, starting with the police, the local judiciary, and mechanisms of interaction and communication between the citizenry and the elected authorities.

With the “divorce” between the PRI and the presidency in 2000, the governors, organized as a syndicate, “purloined” the federal government’s checkbook, but did not employ this sudden wealth of resources to transform their structures with an eye toward the development of their entities, but instead to get rich and/or to promote their own political careers. In manifest confessions of their priorities, the governors found no motivation to protect the citizenry in view of the brutal increase in organized crime.

From that time, we have witnessed two equally erroneous and absurd responses: on the one hand, President Felipe Calderón mobilized the Army to confront the criminals. The value of his radical decision lay in the fact that he recognized the threat that organized crime constituted    and its impact on the destruction of all vestiges of stability and economic viability; but his deploying the Army would not constitute an ideal response: the military, not being policemen, know how to pacify a region, but not to develop capacity for long term security. Aside from a few months of peace, the criminals returned, and nothing changed for the people.

The second response is that of President López Obrador, who has taken the opposite route: arguing that the ultimate causes of criminality must be attended to, he has impeded the National Guard from acting, with which he has in fact promoted a new wave of criminality, which expresses itself in the form of extortion, abduction, protection rackets and all sorts of illicit businesses. Half of the country experiences that terror.

What none of these strategies takes into consideration is that well-being -from security to development- starts from below, from the bottom, from the municipal government. The most successful cities of the world have block or neighborhood police officers who know their residents and who, by their mere presence and the authority that they represent, become guarantors of the population’s peace and security. The attempt to impose security from above has failed for the simple reason that it has never been recognized that the objective, and the raison d’être of the government, is (or should be) the citizenry and its security.

Mexico is too vast and diverse to pretend that it can be controlled from the bastions of the federal government. The thrust of the current federal government in this matter will fail, as occurred in all the previous experiments.

Fixing the security issue can only be possible to the extent that it is recognized that, first, the government’s raison d’être is the population’s well-being and, second, that the latter is only possible with the citizenry’s active involvement and participation. It is possible that in societies with autocratic cultures, or in those under dictatorships, the order can be issued from above, but that is not the Mexico of today and thus all experiments in that regard will continue to fail.

Mexican democracy suffers from multiple shortfalls because the citizenry continues to be held in check, while organized crime flourishes. This set of circumstances has made the country increasingly unstable and its economic potential dwindling. We must start with recognizing the citizenry as the heart of the future and build from below. There’s no other way.

www.mexicoevalua.org

@lrubiof