Luis Rubio

Not by chance do monopolies predominate in Mexico or, more appropriately, monopolistic practices. Everything in our system, and in the practices deriving thereof, leads to forms of action and response that go against competition, reduction of costs or consumer service. The abuse that citizens perceive on the part of suppliers, whether governmental or private, is the product of an institutional reality that grants privilege, thus making this conduct inevitable. The fledgling reforms do not address this reality.

The key to the functioning of an economy resides in the way that it is governed. If what governs it are perfectly defined rules and practices largely accepted by all of the actors, then the participants in the economic activity -investors, entrepreneurs, savers, consumers- will accept a lengthy time horizon for attaining their objectives. Contrariwise, when there are no established rules, procedures that make complying with them obligatory and an authority that requires adherence to them, and is capable of enforcing them, the time horizon of all of those same economic agents changes radically.

When a potential investor trusts in the permanence of the rules of the game, his expectation of profitability is lower than when that permanence is doubtful. Although it might appear paradoxical, this difference reflects contrasting assumptions and expectations. If the perception is that everything depends on a determined governor, the investor or entrepreneur will expect immediate and very grand results; if his perception is that the governor in turn is irrelevant to that performance, his vision will be long term, thus he will adjust his expectations of net profitability.

The way that they repave the streets never fails to surprise me. Instead of going block by block and cause less bother to motorists, the contractors break up the pavement of the entire trajectory from the first minute, although it will take them months to finish the work. The reason is very simple: once the pavement is broken up, no one will dare to cancel the contract. The behavior of the contractors may seem abusive, but it is absolutely rational: it’s the only way they’re guaranteed the whole job. The problem is trust in the authority and the solidity of contracts.

Now, in the light of the possibility of a new era of bidding for government contracts in the matter of energy, the issue gains exceptional relevance. While many of the typical contractors are in the loop for a-one six-year government and their jobs are nailed down in the backroom, the potential bidders in energy matters are first-world companies disposed to fight to the eleventh hour for what’s theirs.

The matter came to mind a few weeks ago when I read about the conflict between the concessionary of terminal 2 and the Mexico City Airport Authority concerning the concession awarded for its construction and its exploitation for a determined period and under certain profitability conditions. I have no idea who’s right, but the argument is not new. Some years ago something similar occurred with the water concession in Aguascalientes with the change of governor and is now happening with the railroad operators. The theme is one of permanence and trust in (and enforcement of)  the rules.

What’s relevant are not the particular cases but rather the absence of guarantees for the fulfillment of the contracts, a circumstance that inevitably generates distrust but, above all, gives rise to anomalous behaviors. A mobile phone company entertaining doubts about the permanence of its concession is going to charge the maximal fees possible for providing its service in order to achieve its revenue objective in the shortest possible term. Everything after that is frosting on the cake. From this perspective, what a consumer may perceive as abusive behavior is absolutely logical and rational for the service provider.

Of course, the great paradox is that, while the entrepreneurs expect a high and immediate benefit because they do not trust in the permanence of the rules, many times the rules, or the concessions or contracts, do last, which implies not only exorbitant earnings, but also interminable user and client abuse. Nothing is by chance in the country: the penchant for monopolistic practices and abuse are an inherent part of the political reality.

None of this is new, but it acquires particular relevance within the context of the energy opening. In its propaganda, the government promised lower electric tariffs and lower prices at the gas pump.   Independently of the economic viability of these promises, no doubt remains that the government’s veracity, or its possibility of success, depends on the manner that it guarantees the credibility of the contracts that come to be awarded.

In its origins, NAFTA was the way that the then government found to create an investment environment above all for foreign manufacturing. The objective was to discover a mechanism that would confer credibility on the permanence of the rules. What was impacting, then and now, is that no form was found in Mexico that would render this possible. The great challenge of the energy reform lies precisely in that: to find a way for the contracts to be credible in order for the investment to be fruitful. In addition, it is crucial for these guarantees to be sufficiently solid so that expected profits that potential investors will expect would not be superior to international averages.