We Don’t Learn

Luis Rubio

Insanity, said Einstein, is doing the same thing over and over again and expecting different results. Thirty years ago, within the context of a severe recession, Mexico opted to undertake the course toward economic liberalization as a means for recovering the growth that, since the end of the sixties, had been in short supply. In that first era of reforms a broad number of enterprises were privatized (telephony, banks, television companies, steel, fertilizers). The result was not to the liking of part of the population: while some of the privatized enterprises prospered uncontrollably, others (mainly the banks) ended up collapsing and generating an enormous cost defrayed by the taxpayers. But more important for the current debate is that many of those that did prosper became oligopolies that hindered the creativity of the population, reducing the potential for growth of the economy. Unfortunately, everything indicates that in the reforms now being discussed the country is advancing in exactly the same direction.

Countries that have been successful in opening their economies –above all in liberalizing protected markets, especially those dominated by state-owned companies- share a common characteristic: they all built competitive schemas for the functioning of the specific market. That’s what happened in England and Chile, two successful cases according to any measure. In Mexico this proceeded in a distinct manner: the property of the old monopolies was transferred to private investors without creating a competitive market in which transparency and competition comprised the determining factors of the result.

I remember a panel at the end of the eighties on which there was a prominent member of the team that was responsible for privatization in the Mexican government, as well as the man who had been in charge of privatizations in the Chilean government some years previously. The Mexican functionary explained the rationale that the Mexican government was pursuing on the process of privatization and what lessons they had learned. With regard to the former the Mexican participant affirmed that the most important criterion was for the highest bidder to win because that guaranteed the transparency of the process. About the latter he explained that experts in the matter had recommended that they begin with small businesses to acquire experience but what they had observed was that they would rather proceed with big ones to send a solid signal to investors. The Chilean functionary had brought with him a long presentation but he stood up and said that he had understood that the process had not yet begun and that thus he would not present what he had prepared because he did not want it to appear to be a criticism of what the Mexican functionary had expressed. He concluded his commentary –which lasted inside of two minutes- by saying that in Chile the criterion had not been money but the structure of the market that would remain after the privatization because the important thing for them had not been the collection of revenue but rather the subsequent development of the industry. His critique was short but devastating. The following years showed that he was right, there and in Mexico.

A quarter of a century after, the current debate in Mexico reveals that nothing has been learned. Instead of deliberating over how the energy market will be left after the opening of the sector, everything of import seems to be to what extent the state monopoly should be preserved; instead of seeking the way to create a vibrant and competitive energy market, the discussion centers on ensuring that the so-called sovereign fund continues being an interminable source of unaccounted-for money for obvious purposes. The same is true for the recent electoral reform, in which the last thing important for the esteemed legislators was competition for power; the only thing relevant was maintaining the control of the process among the three big parties and the monies involved. In the case of telecommunications, the rumor mill –the only market that indeed does work in the country- affirms that all kinds of arrangements are being made under the table, through personal concessions, in some cases not to the companies but to the functionaries on an individual level. That is, Mexicans are continuing with the traditional logic of patronage, influence, control and corruption. Einstein would say there’s no reason for expecting a different result.

The experience of both historic moments suggests that there’s something in the DNA of the Mexican politician (and many activists, whether legislators or not) that impedes him or her from doing things openly and transparently through competitive markets, betting on the creative capacity of the Mexican and, above all, abandoning the tradition of utilizing the public sector as a source of personal enrichment or as a vehicle for purchasing wills as a means for accessing or maintaining power; in other words, slush funds.

We all know that the learning curve is always costly. In this perspective, these mistakes would be explainable had there been no prior experience. The problem is that this isn’t the first experience and, in contrast with the former one, the evidence today is overwhelming. What resulted from the Mexican privatizing process of the eighties and nineties as well as that of other nations is more than convincing that only a competitive and transparent market would permit achieving the objectives set forth by the constitutional reforms. The case of telecommunications –both television as well as telephone- is particularly revealing: there it is, in living color, the most brutal evidence that oligopolies are contrary to growth. Unless, that is, the objective is distinct from the one made public.