Luis Rubio

For every action (force) in nature there is an equal and opposite reaction. Newton’s Third Law of Motion is similarly applicable to physics and politics. Governments define their objectives and means to achieve them and the population has to deal with the consequences: nothing and no one can avoid this elemental principle. The situation becomes worse and deepens when the distance between the rhetoric and the world of concretion widens till all sense of reality is lost, which is what daily early-morning press conferences are all about. When the President utters his famous retorts –“I have other data” or “I am not going to fall into provocations”-  he disqualifies any criticism or alternative view, confirming his self-centered attitude. The results of his administration -or the absence of same- and his inability to build a consensus will not be long in coming.

The consequences of a government that resides in its own stratosphere will have to be paid for by each and every Mexican, but there are three that seem to me especially transcendental due to their harshness, preeminence and seriousness. The first of these has to do with destruction of human capital inherent in the Fourth Transformation. The strategy of the government has consisted of eliminating all of the technical capacity that it had; promoting a brain drain; the termination of an enormous amount of research projects; the cancellation of scholarships to students and to those studying abroad (and thousands of others that will no longer have access to this); the judicial prosecution of scientists; and, in general, a prodigious waste and the spending of resources on unnecessary and retrograde projects, such as that exemplified by the president himself on promoting his famous juice-producing sugar mill similar to those invented in the 17^th century, clearly an already surpassed technology and one that would not contribute, before or now, to diminishing poverty or to improving the population’s standard of living.

The second consequence derives from the distraction of the governmental monies toward undertakings and budgetary items that are not only not profitable, but that in many cases imply systematic and long-term losses, reducing resources for future administrations. The cancellation of emblematic projects such as the airport, the brewery and, more recently, the exclusion of the Talos Energy enterprise from exploiting the Zama oil field are all cases-in-point of decisions on the part of the present government that sent the unmistakable message that private investment, national as well as foreign, is not welcome. In addition to this, the insidiousness and contempt for the importance of the relationship with the United States triggers decisions and brings impacts, perhaps not immediate, but undoubtedly unmistakable.

Each of those decisions will entertain its explanation and political rationale, but all will have consequences, and all imply additional expenditures as well as a cost of opportunity. The price of the airport will be double: on the one hand, what was lost and what is owed to bond holders and other participants; and, on the other hand, the new investment in an airport whose successful operation will be difficult. The case of Zama will be infinitely greater because of the income that the government will cease to perceive, as well as the indemnities that will have to be paid to Talos, as well as the resources required for an attempt to develop the oil field (for which Pemex has no experience). This concerns a self-inflicted cost that generations of Mexicans will defray in the future. Worse yet, a totally unwarranted cost.

The third consequence, the one that the President pretends does not exist, is that of the destruction of any source of long-term certainty, that which engenders trust among the citizenry, avoids extremisms and generates opportunities for economic development.  The president may believe that his words and his clienteles are enough to create a promising future, but he is wrong: as you sow so shall you reap and, in his case, the latter occurs more that the former. Not by chance has he fired the head of his project of manipulation and political control after the election, thus confirming that his priority is not development but control and the permanence of his personal agenda. The president may be bringing new talent to his Cabinet but, in that his words and actions convey the contrary, the benefit gets diluted and what is left is closed-mindedness, polarization and disdain.

The students who saw their studies truncated will seek other options, many will not return and all will end up frustrated and resentful. Mexican scientists, professors, researchers and social leaders -those of today and those of the future- will see this stage as what it is: one of destruction and the cancellation of opportunities. The Americans will not stay with their arms crossed.

The project that he promised would end poverty, corruption, violence and inequality will conclude in accentuating each and every one of these scourges. The applauses of today will be the burnt fingers of the future: the eternal history of Mexican administrations. Instead of improving the reality, it will have worsened.  Another six-year term lost, but worse.

“There are some things,” wrote Hemingway, “that cannot be learned quickly, and time, which is all we have, must be paid heavily for their acquiring.” Time lost has no substitute and this government will have delayed the development of the country much more than the six years corresponding to it, all for merely scratching the itch of trying to reinvent the wheel, that which in the XXI century is digital. Nothing more distant to it than the much-alluded-to sugar mill.

www.mexicoevalua.org
@lrubiof
a quick-translation of this article can be found at www.luisrubio.mx

https://www.wilsoncenter.org/article/expert-take-usmca-rules-origin-disputes

 WILSON CENTER
MEXICO INSTITUTE

By Christopher Wilson, Francisco de Rosenzweig & Luis Rubio on September 23, 2021

The USMCA Rule of Origin for automotive products not only sets a high threshold of regional content to qualify for tariff-free treatment (75 percent, up from 62.5 percent in NAFTA) it also adds requirements specific to steel, aluminum, and labor value content. Auto companies protested when U.S. officials claimed a stricter formula for tallying content than the firms, the Canadian and Mexican negotiating teams, and many Members of the U.S. Congress had understood when the USMCA was approved. The U.S. position on the automotive rule of origin, if adopted and implemented, would require dramatic and expensive changes to current supply chains, and some companies argued that it would drive them to abandon the USMCA and bring components across the border paying the WTO bound tariff of 2.5 percent. In August 2021, the governments of Mexico and Canada formally requested consultations with the United States on the issue.

This dispute marks an important test of the USMCA and its mechanisms for resolution.  Challenges to requirements could lead to disruption of the North American automotive industry. To highlight the importance of this dispute and the implications for coordinated economic policy, the Mexico Institute presents insight from our global fellows Christopher Wilson, Francisco de Rosenzweig, and Luis Rubio.

• Analysis from Luis Rubio

NAFTA was born out of a geopolitical imperative and its content, practices and interpretations fit that point of departure. USMCA was born out of a wish to restrict trade and investment across the US-Mexico border and that thrust, conceived of by Trump, has remained part of the Biden agenda. The issue is not whether there are differences of interpretation among respectable trading partners, but that these differences are taking place at an extremely sensitive moment in Mexican politics, just the scenario for which NAFTA was sought after in the first place.

NAFTA came into being with two contrasting objectives which sealed its fate. For Mexico, NAFTA was meant to be the end, the seal of approval as it were, for a series of reforms that had been carried out over the previous decade (mid-1980s to 1994). For the United States, the trade agreement was meant to be the beginning of a process of a thorough Mexican transformation (which never happened), but for which the US was willing to invest major political capital. It is no wonder that the results of greatly increased integration, as transcendent as they were for Mexico two decades later, were underwhelming for the US, which made it possible for Trump to call for its demise.

Mexico’s objective in NAFTA was to provide certainty to Mexicans and foreigners that there would be no unwarranted changes in the rules and no capricious expropriations, regardless of who governed Mexico in the future. The goal was to initiate a new era for the country, an objective with which the American government not only identified but saw as in the best interest of the US. A prosperous Mexico would be the best guaranty of a strong southern border.

The problem with NAFTA was that it was replaced with a very different type of trade arrangement, one devoid of the geopolitical thrust of the original, at the precise time in which Mexico’s government was taken over by a president who would rather distance Mexico from the United States and, to the extent possible, diminish trade and investment interactions.

The consultation on rules of origin for the automotive industry is a critical issue for Mexico, for it involves the largest share of the country’s exports, which themselves constitute the main engine of growth of the economy. A decision to accept the American interpretation of these rules would greatly affect exports and, in so doing would impoverish Mexicans. How such impact manifests itself would depend on the specific circumstances, but there is no question both nations would be harmed.

Where are the statesmen when they are most needed?

• Analysis from Francisco de Rosenzweig

The USMCA Parties agreed to overhaul the NAFTA’s rules of origin for automotive goods, largely in response to the United States’ push to limit the amount of foreign content in vehicles that receive duty-free treatment.  In addition to requiring that a higher percentage of a vehicle’s components originate in North America (75% under USMCA, versus 62.5% under NAFTA), the USMCA requires that a vehicle’s “core” components, such as its engine and transmission, qualify as originating in order for the vehicle to benefit from tariff preferences. 

The dispute between the United States and Mexico concerns the interaction between these requirements.  In Mexico’s view, when “core” components qualify as originating in North America, the entire value of the core component should count as originating when determining whether a finished vehicle meets the 75% threshold – even if the core component contains some content from outside the region.  The United States considers that a core component’s foreign content should not count towards a finished vehicle’s regional value content, even if that core component contains enough North American content to qualify as originating itself. 

These interpretations reflect divergent views about the optimal level of regional content requirement for promoting North American automotive production.  Rules of origin must strike a balance between ensuring that an agreement primarily benefits regional producers and, on the other hand, providing enough flexibility that tariff preferences remain accessible, and that producers can manage their supply chains.  The United States considers that its interpretation promotes regional economic activity by encouraging automakers to source core components made mostly or exclusively with North American content.  Mexico and many industry stakeholders believe that this approach will have the opposite effect.  That is, by penalizing the use of components that contain any foreign content (even if they are manufactured in the region primarily from North American content), the US interpretation will make it costly and difficult for vehicles to qualify for USMCA benefits.  This may prompt some automakers simply to import core components, paying the relatively low most-favored-nation duty rates, rather than undertaking the complex sourcing and monitoring process that will be necessary to qualify for the USMCA tariff preference.  Some may even believe that they can lower their costs by paying the import duties, rather than pay the higher prices for regionally sourced components. 

The resolution of this dispute will have important implications for producers throughout the automotive supply chain, who may see demand for their products rise or fall depending on which interpretation prevails.  More broadly, the outcome may affect the competitiveness of the North American industry as a whole, particularly when compared to Asian and European competitors whose trade agreements utilize more flexible rules of origin than the USMCA.  

• Analysis from Christopher Wilson

The normal US tariff (MFN rate) for car imports is just 2.5%. This affords the countries of North America very little room for error in the articulation and implementation of the new USMCA rules of origin for the auto sector. The rules are meant to encourage suppliers to beef up their supplier base within North America, but if the rules become too stringent—too complicated and expensive to meet—the opposite could easily happen. Once companies decide to forgo USMCA benefits and simply pay the 2.5% rate, they are free to grow their supply chains wherever they like, including Asia or Europe.

If there is little room for error in an economic sense, the same is true for the politics of the situation. The USMCA was groundbreaking in attracting union support for the trade deal, and U.S. unions are now holding the Biden administration’s feet to the fire when it comes to issues of compliance. The United Auto Workers union has voiced support for the stricter interpretation of the auto rules of origin put forward by the U.S. Trade Representative, making movement from its initial stance more difficult for the U.S. Government.

Despite the challenges, there are two main reasons to be optimistic. First is the timeline. The difference in U.S. and Mexican interpretations have to do with the calculation of regional content once the transition period ends in July, 2023. This gives the countries of North America ample time to find an amicable solution before turning to formal dispute resolution. The second and more important cause for hope takes us back to the economics of the situation. While we’ve grown accustomed to seeing the U.S. and Mexico haggle over rules and compete for investment in the auto sector in recent years, in a much more important way the U.S., Mexico and Canada are all on the same team. A smooth transition from NAFTA to the USMCA will encourage greater investment across North America and a more competitive North American auto sector, creating jobs and growing exports from all three countries.

https://www.wilsoncenter.org/article/expert-take-usmca-rules-origin-disputes

ABOUT THE AUTHORS
 Christopher Wilson
Global Fellow, Mexico Institute

Francisco de Rosenzweig
Global Fellow;
Partner, White & Case LLP; Former Undersecretary for Foreign Trade, Ministry of the Economy, Mexico

Luis Rubio
Global Fellow;
Mexico Institute Advisory Board Member; Chairman, México Evalúa; Former President, Consejo Mexicano de Asuntos Internacionales (COMEXI); Chairman, Center for Research for Development (CIDAC), Mexico

Luis Rubio

Alexander Pope, a XIX-century English poet, penned the phrase “fools rush in where angels fear to tread.” Mexico’s relation with the United States is, was and will be complex and variegated as long as Mexicans do not resolve the fundamental problems of their own development, which would presumably raise their standard of living, thus rendering irrelevant the majority of the matters that make current interaction difficult. Just like Canada. But from that to having to confront a dilemma concerning the country’s foreign policy priorities -the United States or Latin America, for example- is simply ludicrous or, as the initiated would say, a non sequitur.

Mexico has its future strongly structured with its neighbors to the north not only by dint of the obvious proximity, but also through a contractual mechanism that guarantees the access of Mexican merchandise to its markets, converting exports into the principal motor of its economy. No one in their right mind would place in doubt such a cardinal relationship even though its administration will not always be easy, and the priorities will nearly always be those of the more powerful partner.

In the four decades since Mexico opted for converting the bilateral relationship into a lever for its development, no government, including the present one, has stopped recognizing the complexity of the alliance or has failed to address the problems that come into play along the way. President López Obrador, whose government is the only one since 1982 that surely would have preferred greater distance instead of greater closeness, not only adjusted to Trump’s demands when in May, 2019 -and in frank violation of the North American Free Trade Agreement [NAFTA] in force at the time-, he threatened to link migration with exports, to the detriment of Mexico, but rather proceeded with negotiation on the ratification of the new treaty, the USMCA, until its fruition. That is, beyond the rhetoric, all the governments from the eighties to date have accepted and ratified the transcendence of the relationship with the United States and have done whatever necessary for it to work.

But the propinquity with the United States does not imply distance with respect to Latin America or restrictions regarding Mexico’s framework of action in that region. Of course, it is common sense that there be congruence in the exercise of a country’s foreign policy with its essential values, as well as recognition of the real factors of power inherent in the geopolitical situation of each nation. From that perspective, much of what is frequently discerned as contradictory or offensive (and as such untouchable) for preserving the relationship with the U.S., is nothing more than self-imposed constraint. In other words, there is no reason that compels choosing the OAS or USMCA over CELAC, the Community of Latin American and Caribbean States.

Mexico has a long history of a relationship with countries such as Cuba without that constituting an element of affront or conflict with Washington. Likewise, today’s government elected to withdraw from the so-called Lima Group, which united nations critical of the Venezuelan regime, without this translating into hostilities toward the north. As long as the foreign policy does not contravene the direct interests of the United States in the region, or assumes infinite tolerance on its part, the margin of action is quite broad. Just as an example, promoting the Independence of Puerto Rico or excessive closeness with China would imply a head-on confrontation. Same if Mexico continues to ignore the issue of migration. On the other hand, it is functional for Washington for Mexico to urge negotiations among the Venezuelans, as it did previously with the Salvadorans. As Jesús Reyes Heroles would have said, “if you’re not against it you’re for it.”

The ever-changing Latin American panorama, where the region’s governments often experience great veers from one extreme to the other, forces frequent definitions and redefinitions in regional alliances, just as long as there is no confusion between dictatorships and democracies. A week ago, Mexico’s government crossed the line when it provided Diaz-Canel, Cubas’s president, with a preeminent platform, which proved the decisive moment that derailed the CELAC meeting on which López Obrador had bet so much. Mexico’s national interests do not require choosing between north and south, but Mexico must acknowledge, and make good, the enormous differences that divide the continent, starting from the fact that Mexico is a democracy, albeit an incipient one.

Defending democracy and not accepting impositions. Trump not only put the original NAFTA at risk, but also menaced with closing access to the nation’s exports. Being able to count on a treaty such as USMCA -yet with the limitation of its requiring periodic renegotiation- entails a wide latitude of freedom. The notion that it is necessary to choose between one region and the other or between head and heart is devoid of meaning. As long as no lines are crossed.

The foreign policy of a nation is a pivotal component in its development and should be conceived as a means of advancing the interests of the country, simultaneously reducing its vulnerabilities. The key does not lie in choosing between friends and enemies or near or far, but in securing the country’s development, which should be its chief objective. Decidedly advancing on this road would eliminate conflict and exigencies stemming from the north, as these would no longer be perceived as necessary. When Mexicans achieve that, they will have attained integral development.

www.cidac.org
@lrubiof

Luis Rubio

In New Zealand, the Maoris engage in a ritual at the start of rugby games called “haka,” which consists of a series of grimaces, exaggerated gestures and movements –ranging from sticking out the tongue to jumping and making all kinds of menacing noises- with the object of scaring their opponents. Their competitors are familiar with the rite and appreciate it as art but, after years of practicing it, no one feels intimidated. I wonder whether, after Trump and now Afghanistan, the world will get accustomed to the new international reality implicit in the ongoing changes within the nation that led the world and kept it in balance from the end of the Second World War.

The triumph of Donald Trump as President of the United States surprised the world not only due to the fact of his winning, but also above all because he did not moderate his discourse on assuming the presidency. Biden has devoted himself to dismantling the Trump legacy, but nonetheless shares a common objective with his predecessor: modifying the premises that characterized the United States at least since 1945. Trump won the 2016 election largely due to the imbalances created by the globalization era, but also to the speed with which technology has made headway and the “shrinking effect” that it has brought about on curtailing distances and on engendering new vulnerabilities –or, in any event, the sensation of vulnerability- where formerly there was no reason at all for it. Biden won the 2020 election largely in reaction to Trump, albeit with a similar agenda: an inward looking vision which, beyond the rhetoric, withdraws the US from the global arena.

The peculiarity of the moment, a phenomenon that could well have enormous implications for Mexico, is that these changes take place in parallel with the rise of China as a world power. China has adhered to a transformative process that has not only permitted the accelerated growth of its economy –to the point of rivaling in size that of the U.S.- but also its leadership is buttressed by a strategic vision that has become exceptional in today’s world. In contrast with U.S. presidents of the Cold War period, the two most recent presidents do not even perceive of the need to think strategically, reacting suddenly and viscerally to circumstances as they materialize, as recently demonstrated by the chaotic exit from Afghanistan: maybe a deserving objective, but pathetic in its execution.

The Chinese ascent, and its construction strategy of a logistic empire, constitutes what Parag Khanna described as the re-creation of the old British Empire, not with colonial possessions but with a network of highways, railways, ports and communications that allow integration of the entire Asian region within itself and with Africa and Europe. This concerns the most ambitious geopolitical project that has been conceived which, without doubt, embodies a threat to the might of the U.S., now saddled with a leadership that does not have the capacity for, but even less so the interest in, understanding or on to what to react.

For many, this constitutes an opportunity to diminish the depth of Mexico’s ties with the U.S. and to embark upon a diversification in its commercial relations. And, doubtlessly, as Luis de la Calle argues,* the commercial and political conflict that characterizes the two powers opens teeming possibilities for Mexico to “reaffirm its position as a credible competitor in the two leading economies,” substituting for Chinese imports in the U.S. and attracting novel sources, and lines, of foreign investments. The opportunity is immense, but requires a concerted strategy on the part of the Mexican government to poise Mexico in the enviable position of being the natural alternative with respect to these two nations; but the window will not be eternal: on not being taken advantage of, it will be lost.

In the broader framework of Mexico within the changing international environment, it is fundamental to reflect on the implications of China’s rise and the potential political changes in the U.S. in the coming years, for the interaction between the two will determine the panorama in which Mexico will be able to move. China has exceptional strategic leadership, an extraordinary capacity of adaptation and its political nature permits it to have associations that democratic nations would not even contemplate.

On the other hand, it is not possible to minimize the challenges that China will confront in economic as well as in political spheres in the coming decades. On its part, Americans lack a similarly enlightened leadership and are undergoing great political polarization that makes it possible to visualize marked shifts in their internal politics before they recover, as so many times in the past, their traditional strategic clarity. It is easy to underestimate the Americans, but their open political system empowers them to regenerate fast. Nothing is written in stone.

Mexico has remarkable opportunities if it intelligently takes advantage of the fissures that are today paramount on the U.S.–China relationship, but this will require a great exercise of leadership and vision, something that has not been one of Mexico’s most noteworthy trademarks. On the other hand, the rapidly advancing disappearance of the liberal vision that, at least in concept, was the centerpiece of the recent decades’ economic policy, constitutes a formidable impediment for seizing this opportunity.

*http://consejomexicano.org/index.php?s=contenido&id=5700

www.cidac.org

@lrubiof

Mexico Today
Luis Rubio 

It has been nearly three years since Andrés Manuel López Obrador became president of Mexico. His administration has clarity of purpose, but no other aim than to impose it dogmatically, relentlessly, and unsparingly. Circumstances are changing, but the president does not waver, oblivious to the consequences. Wasn’t that what the López Obrador himself and his followers claimed the previous Mexican technocratic governments did? Didn’t they said that the technocrats wanted to make reality fit their theories? Three years into the López Obrador administration it is already possible to glimpse what’s coming for Mexico, and it’s not a pretty picture. As US economist Thomas Sowell wrote in 1995: “Dangers to a society may be mortal without being immediate.”

The damage to the country is tangible. In the immediate term, the seriousness of what Mexico is experiencing can be seen by comparing 2018 figures and 2021 figures. Mexico’s household income fell 5.8 percent, while GDP is down 4 percent in the first quarter. The damage to the Mexican economy is enormous and it began with López Obrador’s decision in 2018 to shelve the construction of Mexico City’s new international airport. In a world in which information flows instantly, every action (and every statement) of a head of state has consequences. For Mexico, the president’s actions have all been detrimental to the growth of the economy and, therefore, to achieving his goals set in terms of economic growth along with inequality and poverty reduction. The only thing that has cushioned the fall of the economy has been the rise in remittances from Mexican migrants in the US, thanks to the hefty stimulus checks distributed by the US government as a result of the Covid-19 pandemic downturn.

The damages to Mexico’s political institutions are also tangible, but are, to a large extent, the result of the confrontational governing strategy that has been president López Obrador’s hallmark. Convinced that his way is the only way, López Obrador has not deemed it necessary (or useful) to open negotiations with opposition parties or other social actors. Although he publicly acknowledges from time to time the shortcomings that his strategy has caused (like when he spoke of crime as the country’s greatest challenge or when he met with Mexican businessmen to foster private investment), the López Obrador’s overall project has not changed one iota.

President López Obrador does not recognize that it is impossible to isolate one act from the totality of actions and that, in this age, everything impacts everything else, meaning that there has to be complete agreement between the administration’s discourse and its day-to-day actions. The lack of coherence means that everything in Mexico remains paralyzed, with ensuing economic, political, and social damage. Many, particularly the Mexican president’s acolytes, may think that these are minor tolls on the road to redemption or that there are factors (i.e. the Covid-19 pandemic) that have prevented the sweeping change promised. But no one can avoid seeing the worsening decline. Again, as Sowell says: the damage can be fatal even if it goes immediately unnoticed.

 The key question for Mexico is how to deal with the consequences of this period of systematic, clearly self-inflicted decline. Mexican citizens gained effective freedoms, particularly in terms of freedom of expression in 2000 when the party in power changed for the first time in 70 years. Today, such freedom has been somewhat diminished by the day-after-day intimidation of the press from the Mexican president’s podium. Of course, many of those freedoms are somewhat abstract for those Mexican families living day-to-day and needing basic essentials. Add to this, the administration’s information overload that has generated expectations that are impossible to be met, especially when instant satisfaction is the cry of the day. What will happen when the expectations raised by López Obrador fall short?

The president has launched a campaign to “win back” Mexico’s urban middle class, the ones he has labeled as “ignorant”. López Obrador does not realize that their dissatisfaction cannot be solved with his patronage tactics. Given that the president’s goal is the subordination of all sectors of Mexican society, López Obrador is simply unable to use tools to win over the urban middle class.

The contradiction, and paradox, is glaring: those Mexicans who pride themselves to be middle class have achieved a minimum economic stability that allows them not to rely on the government. This is why trying to win them over with freebies is counterproductive. How can you attract this sector of Mexican society? Providing a truly safe environment, better public and health services, schools that allow social mobility and effective actions against corruption.

López Obrador may find it very appealing to attack Mexican presidents going back four decades. However, the memory of most Mexican citizens doesn’t go back further than his predecessor, Enrique Peña Nieto, and who López Obrador protects. The contradictions remain archetypal.

López Obrador has devoted three years to trying to recreate an obsolete and unrepeatable Mexican system of social and political control. They have been three years of systematic deterioration. There are three more years to come. The damage to the country will be unfathomable. It is possible, but not certain, that the president will prevent Mexico falling into a financial crisis, but not the outcome of a presidential term full of potentially mortal damages.

* Luis Rubio is chairman of México Evalúa-CIDAC and former chairman of the Mexican Council on Foreign Relations (COMEXI).  A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. 

 Twitter: @lrubio

https://mexicotoday.com/2021/09/07/opinion-three-years-of-lopez-obrador-where-to/

www.mexicoevalua.org

@lrubiof

Luis Rubio

The key to development lies in the joint action of millions of individuals exercising their freedom and making their own decisions, within the framework of rules established by the State. When those rules are coherent and, above all, derive from the recognition of human nature as it is and not how some politician would prefer these tenets to be, development is attained and flourishes. There is perhaps no better way to exemplify this than the contrast between Mao and Deng: Mao devoted himself to persecuting and impoverishing his population; Deng made it possible for his nation to thrive. In Deng’s words, “it doesn’t matter whether a cat is black or white, as long as it catches mice.” The difference: Deng accepted human nature instead of attempting to adapt it to his political or ideological predilections.

Deng recognized that people are in quest of their personal benefit and that the sum of millions of persons making decisions in economic matters translates into an enormous collective benefit and in that fashion, the development of his country advanced. The decisions of those millions of citizens over time -intertemporally- contribute to development and are rendered possible to the degree that there is an environment of certainty to which those individuals can adhere. The difference between Mao and Deng ended up being that Deng, on discerning that facet of human nature, dedicated himself to creating the politico-normative fabric that would make it flourish. The result was that the Chinese government created a milieu of trust for its population, the most integral explanation for the prodigious success of the past decades.

The lesson of this for Mexico is obvious: the country has prospered at times when there is certainty and has stagnated or retracted when this disappears. For many decades, that trust depended on each sexenio, the six-year presidential term of office. If one were to observe Mexican economic cycles, these always lasted six years: the first year was recessive because investors and savers awaited signals from the new government and sought to understand how it would attempt to reinvent the wheel; when the rules of the game were clear, the upward cycle began, only to wind down toward the term’s sixth year, when the process started again. That is, everything depended on the president-in-turn, in that his power was (is) so vast that he could change the rules at any moment. That is the reason why the trust factor in the governor acquired such great transcendence.

This method of functioning entailed three evident costs: first, long-term projects were never developed; second, the propensity for recessive cycles to become sharper was huge; and third, everything depended on the president, each of his expressions would take on cosmic dimensions, for good as well as bad. The lack of factors of long-term certainty led to the crisis era of the seventies, eighties and nineties and it was not until the North American Free Trade Agreement (NAFTA) was consolidated that the country underwent, for the first time since the Mexican Revolution, an era of stability and clarity of rules, at least for part of the economy.

An intelligent government, one capable of perceiving the deep-rooted nature of the phenomenon, would have extended the rules regime inherent in NAFTA to the whole economy and to the entire national territory. However, as things turned out, the nation entered into an epoch of two Mexicos and two velocities that allowed for there to be great growth in one part of the country and stagnation in another. On top of that, Trump came along, the first President of the United States during the NAFTA period who had no knowledge about and much less interest in the political relevance of NAFTA for Mexico, removing the existing “safety pins” from the entire framework.

The United States-Mexico-Canada Agreement (USMCA) has many virtues but does not give rise to the same wellspring of trust as the original NAFTA and to that one must add the rhetoric of President López Obrador, which has had the immediate effect of undermining certainty and generating mistrust in a broad spectrum of the population, as could be appreciated in the recent electoral processes. In contrast with the PRI-era presidents whom he seems to admire, López Obrador has not the least intention of engendering a framework of trust for investment. His discourse and treatment as adversaries (when not as enemies) of all those not in agreement with him have resulted in economic stagnation.

In these times of the ubiquity of information, political and private messages are indistinguishable because they immediately become part of the political process and yield a binary result: either they occasion trust or there is none. The strategy of confrontation, expressly designed to divide, whets social animosity, closes the spaces of potential dialog and spawns uncertainty. Instead of forging a milieu of peace and tranquility, crucial for attracting investment and savings, this becomes impossible.

It was Mao himself who affirmed, in an interview with Edgar Snow, that to govern requires “A popular army, sufficient food and the confidence of the people in their governors.” “If you were to have only one of the three things, which would you prefer? asked Snow. Mao replied, “I can do without the army. People can tighten their belts for a time. But without their trust it is not possible to govern.”

www.mexicoevalua.org
@lrubiof

Luis Rubio

Inequality is one of the most powerful grievances and complaints that President López Obrador has raised and that enlivens many in his base. There are good reasons for that, which does not mean that the president is advancing toward their diminution: rather, everything he does has seems to be oriented toward heightening it. Inequality comprises without doubt one of the characteristics of Mexican society but, instead of developing programs to resolve it, the government has devoted itself, as in everything that it does, to identifying the guilty more readily than the solutions. Better to transfer the responsibility than to assume the challenge of creating conditions for the phenomenon to diminish and eventually disappear.

The issue is not new. In recent years, the call to attend to inequality has been raised, in great measure, paradoxically, because headway in this matter has been substantial, but slower than people would desire. The paradox here is key because the president exploits social differences as an instrument of polarization without recognizing the nature of the phenomenon: the great majority of the population has gotten ahead in the last decades, but some much more rapidly than others. That is, the reforms that the president so resoundingly rebukes permitted nearly the entire population to rapidly improve their livelihood, but the fact that some became rich along the way generated expectations of swifter progress for all, which certainly has not come about. The question is why.

No less important is the focus for which the government has opted: in place of seeking to solve inequality, it has dedicated itself to putting its finger on supposed causes and guilty parties. Michael Novak said that understanding the roots of the backwardness and poverty is interesting, but more relevant yet (and, might I add, more powerful) is to ascertain the origins of the wealth. It is evident that it is politically profitable to find the guilty than to procure solutions, but what the president is doing is accelerating the inequality, impoverishing those who were already poor, but above all those who had been achieving sensitive advancement in their standard of living and their capacity as consumers, the most vulnerable part of Mexican society and, not a small irony, a sizeable source of electoral support for the president.

Three phenomena have occurred in recent decades: first, a large proportion of Mexican society raised their living standard and consumption capacity, the incipient middle class; second, the explosion of the Internet, social networks and, in general, the ubiquity of information, inciting a revolution in the expectations of the people: everyone sees who have become rich and they want to be and to have what they have, and they want it now. This wellspring of aspiration is also an enormous source of frustration, thus easy prey for traffickers in resentments; and third, another segment of society, particularly in the South of the country, has been left behind not due to a lack of aspirations or abilities, but more accurately to the cacique-like political and union bosses who impede prosperity in places such as Oaxaca and Chiapas.

The leading innovation of the Morena party and their leadership lie in their wishing to sort out these problems by impoverishing the whole population: better to raise taxes, expropriate, thwart the installation of new enterprises (and their consequent employees) than to clear up the structural causes of the inequality, which would entail the generation of novel growth sources, a more productive economy and one with better competition and less obstruction by dodgy politicians and  leaders who live off the permanent pillaging.

This debate is engaged in worldwide, in each case with its particular biases. For example, in the United States the idea is discussed of compensating for the evil engendered by slavery through making financial amends to the descendants of slaves. The ethical, moral, and practical dilemmas deriving from these approaches are immense and the reason why this issue has been on the stage for decades without advancing much. The complexity of coping with a fountainhead of such great bitterness, sufferings and passions is vast, but I bring up here this issue because there’s a gamut of innovative and creative solutions being proposed that could well be adopted in Mexico.

Instead of demanding that today’s citizens, who have nothing to do with the slavery of two centuries ago, pay reparations to persons who were never slaves, the idea is to engage in investments directed toward those enduring the inequality of the direst poverty, whatever its origin. Specifically, a widespread program is advocated for the construction of schools with the best teachers and living complexes for the most destitute communities with the express purpose of breaking the vicious circle of poverty–inequality–lack of opportunity.

In Mexico, the union and cacique mafias such as the CNTE, a teachers’ union, give themselves over to the preservation of ignorance, consequently to inequality and the lack of opportunity. Perhaps there is no worse vice than that of the inequality caused by these mafias who are also Morena-party operators and whose objective it is for the people to continue being poor, submissive, and ignorant. Inequality is the product of the system that Morena yearns not only to perpetuate but to strengthen.

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