Political cost

Years ago, in a rural area near Calcutta, I watched fascinated a Hindu priest leading a worship ceremony of a cow. The devotee spent hours feeding the animal flower petals and washing its body as if it were a deity. It was a touching scene. In Mexico we have many sacred cows -from oil to no reelection, including a whole range of other issues- but perhaps none has had such a high impact in recent years as the famous “political cost” that politicians invoke when they want to avoid deciding on just about anything.


Political cost has become a virtual deus ex machina, an argument out of nowhere that serves to explain and, above all, to justify just about anything. Because of the alleged political cost, nothing can be reformed or changed. By the magic wand of the alleged political costs, fundamental issues such as the rules governing energy or the urgent need to re conceive tax policy are simply untouchable. Although it is clear that many of the actions, decisions and reforms the country needs entail political costs, it is also true that the term has become an excuse for not doing anything.


Any change or reform inevitably affects people and interests; otherwise there would be no issue. The very idea of reform involves changing the status quo and that, by definition, involves changes in the distribution of costs and benefits. Our problem is that everything is focused on the costs and none is focused on the benefits. The consequence of this attitude is that we are permanently betting on the short term. Instead of carefully evaluating the potential benefits of a particular reform or for legislators and government officials to articulate a communications strategy and develop a stakeholder base for reform and, at the very least, to defend their position and be able to act, everything leads to inaction.


Under that logic, the result cannot be any different from the usual one: the preservation of the status quo which, in our reality, implies ensuring that poverty, privilege and other calamities that characterize the country remain forever. James Freeman Clarke coined the famous phrase that “a politician thinks of the next election — a statesman, of the next generation.” Judging with that yardstick, our politicians have become mere echoes of phrases, negotiators of business interests and careful advocates of the existing order. Instead of investing in a different future -personal, partisan and national- they are staring into the rearview mirror to make sure nobody can ever accuse them of affecting anyone not even touching them even with a rose petal.


Conjuring political cost  as a defense of inaction hides not only an unwillingness to act, but also a deep conservatism that borders on reactionary politics. While that may be understandable in established parties of the right, the phenomenon is also observable in the leftist PRD (Partido de la Revolucion Democrática): in sharp contrast to the modern European left, our PRD members oppose any change with the same vehemence that their peers from other parties. Interesting coincidence: all of them swear by paralysis, no matter the cost it entails.


The case of the VAT is particularly striking. PRI members claim they oppose any change in the value added tax because the changes adopted in 1995 (when the tax was raised from 10% to 15% in the middle of a terrible recession) had resulted in the loss of their legislative majority in 1997 and of the presidency in 2000. It might seem clear that if one drew a direct causal line between the decision made on that tax and the profile of votes, this conclusion might be justified. It is also true that the PAN, in one more of its audacious electoral tricks aimed at the very short term, capitalized on the image of PRI members as they partied after passing that law.


However, if one looks at the big picture, the perspective is much more complex. In 1995, when the VAT was approved, the Mexican economy shrank by almost 7% and inflation surpassed 50%. Moreover, these circumstances took place within an exceptional environment in which, for the first time in history, vast numbers of middle-class families had borrowed to buy houses, cars and various consumer goods. The economic contraction resulted in severe loss of jobs and income for millions of Mexicans, while interest rates exceeded 100%. Countless families who felt the country was finally “turning upward” towards development suddenly saw their dreams shattered. Many of these families lost their homes, many others their car and almost all faced all kinds of family disruption.


Politically, the economic crisis came together with a key conflict within the PRI ranks where traditional politicians reclaimed the leadership of the party, displacing the technocrats that had ruled the country since 1982. Although, in economic terms, the development strategy pursued by the Zedillo administration was very similar to that of its two predecessors, the bitter criticism that it aimed at them brought about a deep internal split that only now, without the technocrats, is beginning to heal.



From this perspective, it is absurd to blame PRI’s electoral disaster in 1997 and 2000 on the increase in the VAT. By the mid 1990’s, the PRI had been losing popular support and its legitimacy was increasingly being questioned. For the average Mexican citizen the economic catastrophe of 1995 was infinitely more expensive and imposing than the increased tax rates. As soon as a structure for electoral fairness was put in place (which happened with the so-called 1996 political reform), the population voted against the party which had done nothing but produce one crisis after another since 1970. In all this, the VAT was nothing more than a minor distraction. But for the PRI, the issue of the VAT as the cause of their loss became a myth, a revealed truth that lives on.


For me the obvious lesson of the second half of the nineties is that the governing party increases its vulnerability every time that its actions (or promises) produce a crisis or when the people believe that a crisis can result. On the issue of government finances the Mexican people long ago learned the lesson that fiscal irresponsibility (that the PRI is once again proposing) is much more costly than an increase in the VAT, especially if the rationale for a tax increase is duly and clearly explained and losers are compensated along the road.


The cost of not undertaking the reforms the country needs is every more costly because its absence prevents the economy from growing at an accelerated pace. The paralysis in the country is due not to the VAT but to the myth of “political cost” that serves as an excuse to protect interests and “sacred cows”, both much more pernicious to voters than the risk inherent in reform.