Foreign Affairs, September/October 2006
By Luis Rubio and Jeffrey Davidow
Summary: The July 2 Mexican election was about more than picking a president. It represented a choice between continuing the liberalization of recent years or returning to the past. Neither alternative, however, offers a solution to the country’s problems. To address those, the next president must not only deepen reforms but also extend their benefits to the many Mexicans who have been left out of the process.
Luis Rubio is President of CIDAC (the Center of Research for Development), in Mexico City, and a co-author of “Mexico Under Fox”. Jeffrey Davidow is President of the Insitute of the Americas and the author of “The U.S. and Mexico: The Bear and the Porcupine.” He was U.S. ambassador to Mexico from 1998 to 2002.
A WAKE-UP CALL
Mexico’s July 2 election was not only a contest to select a president and a new Congress. It was also a referendum on the future of the country, and voters recognized it as such. The national question essentially came down to whether Mexicans wanted continuity with the reforms of recent years or a return to the past — whether the country should keep pursuing the political and economic liberalization that started in the mid-1980s or go back the state-driven development model of the 1970s.
The first choice was represented by Felipe Calderón of the conservative National Action Party (PAN), the second by Andrés Manuel López Obrador of the left-wing Party of the Democratic Revolution (prd). Although Calderón seems to have edged out López Obrador for a victory, both received about one-third of the vote. (López Obrador rejected the results and took his protest to the streets and the courts.) But neither Calderón’s promise of continuity nor López Obrador’s reactionary populism offers a solution to Mexico’s deep and abiding structural problems.
Calderón’s appeal — most evident among the better educated and the better off and in the northern half of the country, where the North American Free Trade Agreement (NAFTA) and economic reform have had the most beneficial effects — rested on his argument that the financial stability, social peace, and moderate economic growth of recent years were too important to risk with a return to the policies and governing methods that had not served the country well in the past. López Obrador spoke more to the less educated and the less well off and to the center and south of the country, where the reforms of the past two decades have produced considerably less positive change. He rejected Mexico’s current governing doctrine, which holds that the nation is best served by the internationalization of its economy, the reduction of state controls, the creation of independent, counterbalancing institutions, a greater play of market forces, and a decreased role for politics and parties in the running of daily life. López Obrador argued that the country has been heading in the wrong direction since it broke away from its tradition of strong government and a subordinate economy. During the campaign, Calderón attempted to distance himself from fellow PAN member President Vicente Fox, who had canned him from the cabinet. He argued for more effective and expansive social programs. But in fact, Calderón’s message was an endorsement of Fox’s policies and the recent trends in Mexico’s economic and political development. His campaign was oriented toward the future; López Obrador looked to the past.
Nostalgia for a simpler time played a strong role in López Obrador’s campaign. As mayor of Mexico City, he “got things done” — a new highway and city beautification projects — in a way that suggested that he was a throwback to the power brokers of the long-ruling Institutional Revolutionary Party (PRI) before that mammoth became hopelessly mired in the tar pits of corruption, cronyism, and economic crisis. (Rebels such as López Obrador abandoned the PRI to form the prd.) He also capitalized on Fox’s inability to meet the inordinately high expectations that he had created. (Probably no politician could have met those expectations, even one much more skilled in political infighting than Fox proved to be.)
López Obrador’s greatest strength was his ability to exploit Mexicans’ sense of victimization and disillusionment. He spoke to and for those who see themselves as the losers in the process of modernization. With a campaign appeal more blatantly class-based than anything recently seen in Mexican politics, he turned a passive population of poor and middle-class people who have remained on the sidelines of economic growth into a social movement demanding to play a role in the transformation of their society.
Poverty in Mexico remains endemic. Neither the old PRI approach to development (which in this election was espoused by López Obrador) nor the more recent attempt to modernize the economy through limited market-based policies has succeeded in reducing inequality in any significant way. In fact, Mexico never really liberalized its economy and politics to the extent necessary for a modern society: some reforms were ambitious, but many favored cronies, and under the PRI governments that preceded Fox, reform left the old political system and its vested interests untouched. As a result, the benefits of reform have been less than expected, and many people were wounded and left wanting: the peasants, workers, and small-business and factory owners overwhelmed by international competition and displaced by the forces of a modern economy. It was from these groups and their sympathizers — the intellectuals and social activists of the left — that López Obrador constructed his movement. He reinforced their belief that now more than ever success in Mexico depends on having the right parents rather than on effort and merit, and that there is an imbalance not only of wealth but of opportunities kept in place by the rich and the powerful.
López Obrador’s supporters were unconcerned that much of what the candidate advocated — stronger state control, more subsidies, greater government spending, lower international reserves — had been tried before and failed, often resulting in monumental financial crises for the country. Nor were they particularly troubled that his approach might lead to a more heavy-handed and intolerant and less open government. He seemed to promise a return to a purified, powerful, but this time honest and competent PRI (although he never explained his vision in that way).
Optimism characterized Fox’s 2000 campaign: the expectation that the alternation of parties in government would open up a world of possibilities for the country and its citizens. Although an understandable thirst for social justice motivated many of López Obrador’s followers, that desire was heavily mixed with feelings of disappointment, resentment, bitterness, and jealousy, which were so apparent in the masses of people who came to the streets to protest the electoral results. The deep divisions that marked the campaign and the postJuly 2 reaction do not bode well for Mexico. When he is inaugurated on December 1, the new president will have to deal with a challenge that neither continuity nor a return to the past can successfully overcome.
AN INCOMPLETE TRANSITION
To deal with the disaffected and the dispossessed, Mexico’s economy needs to deliver more benefits to more of its citizens, and its government must become more effective, open, and honest. This will require deep reform of government institutions, bureaucratic procedures, the tax and educational systems, many laws, and even the constitution. Mexico’s political and economic leadership has not seriously taken on this challenge, preferring the comfortable status quo. And although both López Obrador and Calderón talked incessantly of change during the campaign, they provided little evidence that they clearly understand the depth of the problem.
The path that Mexico started down 20 years ago is not the wrong road: it has simply not been well enough traveled. The country’s principal goal should be to put the economy into a high-growth orbit and to make the leap from the pack of struggling second-tier economies into the developed world.
Mexico’s economy has sustained its hard-won stability for the past dozen years — no mean feat after 25 years of inflation, crises, and devaluations. But it has not grown fast enough to absorb the supply of labor or to tend to the serious social tasks that the country has been postponing for decades. Fox promised to deliver seven percent annual gdp growth and to create over a million new jobs a year. He managed only three percent annual growth and an average of only 100,000 new jobs a year. True, he was hobbled by the effects of a lackluster U.S. economy for much of his term, but this government’s failure to meet its goals was mostly due to its inability to bring about important structural changes that could unleash the Mexican economy and provide opportunity to many of the people who would come to vote for López Obrador in 2006.
These failures were all symptoms of a more fundamental problem: the inability of Mexico’s institutions to work effectively. For seven decades of PRI rule, the institutions of government were secondary actors. The party conferred on the president an extraordinary ability to influence all events through its wide web of extragovernmental control. With the defeat of the PRI in 2000, the “new” presidency became much weaker, for Fox had only his constitutional powers to manipulate. This change, along with both a PRI attitude that saw Fox’s failure as its ticket back to power and Fox’s own political inexperience, led to a six-year period of governmental paralysis that added strength to López Obrador’s campaign.
The ineffectiveness and the political manipulation of the institutions of government have led to widespread distrust on the part of much of the population. López Obrador was able to generate mass support for his rejection of the election results because so many of his compatriots are preternaturally inclined to believe the worst about their government, including, in this instance, the national electoral commission, which is in fact effective, efficient, and honest.
For Mexico to break the vicious cycle of public distrust, resentment, and insufficient development, there must be a reform that matches the new reality of political power with the institutions that are supposed to wield it. In a sense, Mexico’s institutions need to be refounded. An ambitious reform would transform the relationship between the Congress and the executive, the structure of Congress itself, and the party system. Those political institutions served the PRI era well, but they make little sense today. For instance, 200 of the 500 members of Mexico’s lower house represent no constituencies but are political operatives chosen by the party hierarchies. The hallowed Mexican tradition of no reelection of public officials (at least not to the same office) means that many officials pay little attention to their constituents, causing further disaffection. A revision of the relationship between the states and the national government and of the operation of the giant state-owned oil and electricity monopolies are also in order. Even a modest reform, one that would create mechanisms such as a “guillotine law,” which establishes a peremptory period for a legislature to act on an executive bill lest it be automatically approved, would help rebalance the relationship between the legislature and the presidency.
Some of the most glaring dysfunctions of the Mexican system are well known and frequently discussed. But little has been done to change them, because the status quo benefits important vested interests. Evasion and loopholes in the tax system mean that the government collects too little of Mexico’s national product to allow for adequate growth-stimulating redistribution through social programs, infrastructure development, and education. The need for serious fiscal reform is paramount, and will be even more so as pensions become ever more costly for an aging population. In addition, the labor market remains inflexible. Excessive protection for workers translates into fewer jobs: industries are unwilling to hire new workers because they cannot release them when an economic downturn takes place. Labor reform is an important key to economic growth. Mexico also shares shame of place with North Korea as the only two countries that still prohibit private risk investment in oil and gas exploration. This restriction limits the potential for energy growth at a time when Mexico (the United States’ second-largest source of foreign oil) sees its oil production declining and gas imports from the United States increasing. Legal and constitutional changes are imperative if Mexico is going to be able to exploit its vast energy resources.
Attaining higher levels of economic growth will require a combination of foreign and domestic investment and a more competent government. In some sectors, such as energy, attracting more investment will be dependent on significant legal or constitutional changes. But in all cases, increased investment will demand a much more effective government, less cumbersome regulations, a fair and transparent judicial system, more consumer-conscious public utilities, improved infrastructure, and a concerted effort to promote competition by limiting the power of private and government monopolies and of public-sector unions, all of which profit from keeping things the way they are.
The enormous social gaps that the country faces and that López Obrador effectively spoke to in his campaign must be addressed with greater vigor. The overarching perception is that many people (perhaps a majority) have been left out of the development process. Many of these are not the poorest of the poor but rather those who face unsurpassable obstacles in their daily lives while watching wealthier Mexicans do well and boast loudly. The administrations of Ernesto Zedillo (19942000) and Fox developed professional, high-quality programs to address poverty. These programs (which have even been copied in other countries) actually made a considerable dent in Mexico’s level of abject poverty, but the percentage of those considered to be poor still hovers around 50 percent.
These programs use the educational system to help children of today’s poor stay in school, thereby disrupting the cycle of poverty. But the educational system as a whole is in profound need of investment and reform — the latter much fought against by powerful teachers unions. Public education in Mexico has not yet risen to the challenge of converting itself into a vital source of opportunity for the era of the information economy and of Mexico’s introduction into the global market. Changing the system will take much more than new textbooks. A modern educational system geared toward the development of true equality of opportunity would alter Mexico’s social structure radically. Equally important, a modern system to finance education and to fund higher studies for poorer people would create opportunities that today are absent. All of this will require not only the resolve on the part of the new president and the new Congress to carry out changes but the political skills necessary to transform the underlying structures as well.
Mexico’s government must also find ways to lighten the weight of bureaucracy and red tape. Creating a new company in Mexico is difficult and expensive. Maintaining a legal entity and complying with tax and other requirements is so burdensome that millions of Mexicans set up informal, non-tax-paying businesses. Avoiding bureaucracy and tax collectors makes sense from the perspective of the individuals involved, but it does not do enough to create wealth, permanent well-paying jobs, and resources for legitimate government needs. Mexico must expand the modern sector of the economy by developing government competence and entrepreneurial competitiveness while addressing the inequitable social structure of Mexican society. Neither López Obrador’s reformulated PRI-ism nor Calderón’s Foxist campaign promises offer the kind of root-and-branch structural reform that is needed.
Once the new president is sworn in on December 1, he will have to begin immediately to promote both economic growth and greater social equity to provide today’s poor with opportunities to move upward. The new president will have no time to spare. The world is moving too fast. Mexico no longer follows Canada as the United States’ second-biggest trading partner. It has been bumped down the pecking order by China. Unless the next six years bring high and sustained economic growth, millions of new jobs, and accompanying programs designed to decrease social inequality, the country will fall further behind in the global race, and more of its people will become disaffected and disenchanted. The grievances and resentments that played such an important role in López Obrador’s run for power were not created by him. And they will grow unless Mexico enters a period of profound institutional and economic change.
Such reforms are essential, but some are so immense and politically difficult that they have disheartened Mexico’s political leaders and caused them to redirect their energies to softer targets. Mexican politics has been notably sterile and unimaginative in recent years, marked by small-minded games of intrigue and daily point-scoring over opponents. All of the three major parties need considerable internal overhauls. The prd is a collection of tribes, and its moral leader and founder, Cuauhtémoc Cárdenas, is notably uncomfortable with López Obrador’s brand of populism. The PRI, humiliated by its third-place showing, will likely enter a period of internecine warfare. And the PAN will surely recognize that its performance in the election was hampered by an internal division between its more modern, business-oriented wing and the old school of social conservatism.
Much political blood will be spilled in the coming months, but the very instability could provide some new opportunities. Both Calderón and López Obrador made reassuring sounds during the campaign about broadening the base of their governments to include former opponents. Whether they were serious remains to be tested, but in a divided Congress, there will be no chance for movement without political coalitions built on a consensual program of reform.
JOINED AT THE HIP
It is a given that Mexico’s success or failure will have a significant impact on the United States. The two countries are linked by a constant flow of commerce, culture, and people. Mexico’s complex attitude toward the United States defies easy description. It is often contradictory: at times Mexico seems to act like one large Melanesian cargo cult waiting for whatever might fall from the northern sky, and at other times its fears of a loss of sovereignty and its natural prickliness keep the the United States at an unnecessary distance. Mexico has tried to maintain the pride of distance while still enjoying the practical benefits of propinquity.
The relationship is particularly awkward now because of the high tensions in both countries over immigration. Misreading President George W. Bush’s natural Texas goodwill and rudimentary understanding of the issue, President Fox decided to bet his administration’s fortunes on a change in U.S. immigration policy. The two presidents met at Fox’s ranch in February 2001 and agreed to reach an understanding on a new approach within a matter of months. Political operatives in the White House, however, soon put a stop to serious consideration of the proposals offered by the State Department. They argued that liberalizing the law was too dangerous politically so early in the president’s first term. After September 11, this view was set in concrete.
Unfortunately, Fox and his first foreign minister, Jorge Castañeda, could not, or would not, read the writing on the border wall. They blundered by insisting on pushing for solutions that had become politically untenable in the United States and by actively scuttling possibilities for incremental change. Fox and Castañeda made the same mistake that successive U.S. administrations had earlier: they publicly reduced the complexity of the U.S.-Mexican relationship to just one issue; for Washington it had been drugs in the 1990s, and for Mexico City it became immigration. The Mexicans’ absolutist position and misreading of the U.S. political scene gave the White House a way out of taking any action, allowed the immigration issue to fester, and turned what had been a fringe group of right-wing members of the U.S. Congress into the voice of the Republican Party, ultimately resulting in the grotesque House bill passed in 2006 that would declare illegal aliens felons (as if the United States needed 11 million more criminals to track down).
The poorly handled immigration issue also caused both governments to lose focus on the most critical goal: facilitating trade and investment to promote economic growth and greater competitiveness for North America as a whole. This is the true key issue in the U.S.-Mexican relationship. The immigration mess is a direct result of the lack of growth and opportunity in Mexico. The U.S. Congress may pass some legislation that will be touted by its supporters as the answer to the problem, but it will be as ineffective as previous efforts. As long as Mexico remains poor and the lure of opportunity across the border persists, workers will continue to head north. Neither walls nor new laws will stop the flow. But there are immediate steps that the United States could take to make the flow more orderly and humane and, not incidentally, give the new Mexican government an important public victory early in its tenure.
An early test of how willing Washington will be to help Mexico relates to the last stage of compliance with the NAFTA agricultural provisions, which would end the remaining Mexican limitations on the importation of corn, beans, and powdered milk. Previous Mexican governments did not concern themselves enough with preparing Mexico’s poorest peasants to face competition. The new government should create an assistance program directed to that segment of Mexican agriculture, so that the producers can survive, while at the same time negotiating a schedule of compliance with its NAFTA partners. This is one area in which a comprehending U.S. attitude could help immeasurably.
Washington should also focus on how to help Mexico grow its economy. There are several possible steps it should consider. A major fund for infrastructure development to facilitate trade, along the lines of what the wealthier northern European nations created for their poorer European Union colleagues, would make sense and benefit both countries. But it is doubtful that the political mood of the United States would support that or that Mexico could develop the right mechanisms to make the best use of the additional resources. Another initiative, perhaps with a greater chance of political success, might be a massive infusion of funds to improve Mexico’s educational system. Certainly, the United States could end its foot-dragging on some NAFTA provisions (such as opening the border to Mexican long-haul trucks) and try to find a mechanism for NAFTA dispute resolution that is effective and efficient. Energy cooperation with Mexico has been limited, largely owing to Mexico’s sensitivity on the issue, but the new focus on alternative fuels could open some doors for international cooperation. And among the many good reasons for the United States to review and reduce its farm subsidies, an especially compelling one is that these subsidies undercut small Mexican producers, which pushes them across the border to find work.
Nearly 200 years of often rocky U.S.-Mexican relations cannot be totally reversed over the next six years. But a closer working relationship would help both nations address mutual issues. Mexico must provide its citizens with more opportunities. This is a Mexican task, but the United States has a vested interest — and a role to play — in its success.
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