Luis Rubio

The Mexico-U.S. border is a peculiar world: part Mexican, part American and, at the same time, different from both. Above all, it is absolutely different from what it is imagined to be by Washington or Mexico City politicians. The border has come to acquire its own character due to its particular circumstances: the disdain of its central governments, the distance to the respective capitals and, most of all, the mutual dependence that each point along the border has developed.  El Paso could not exist without Ciudad Juárez and both reside in the middle of an inhospitable desert that attracts rather than repels them. The challenge, and the opportunity, for Mexico does not lie in going back to isolating the border zone (which is what the current policy seems to be) but instead to integrating it into the country, while the country integrates itself into the border proper.

In a visionary book, La Frontera: The United States Border with Mexico, Weisman and Dusard describe many borders that typify the line that joins (and separates) the two nations: each region possesses its essential qualities, but the two together maintain similarities deriving from the permanent interaction –and the interdependence- arising from an increasingly deepening coexistence. That book, written nearly three decades ago, was a mere hint of what was to come. The book describes, and illustrates with photographs, the changing natural geography, but also the manner in which the communities interact daily on both sides of the border, with all of the issues and tensions forming an inherent part of the panorama.

Were they to publish a sequel today, these authors would surely describe two new realities: first, the colossal increase in border interaction, principally the product of the growing integration of the two economies, the supply chains that sustain the automotive, chemical, electronic and aviation industries and so many others that are the daily bread of the Mexican economy and that have led to a dramatic rise in trucks, freight cars and persons that cross in both directions every day. On the other hand, the description would most likely include the deterioration undergone by the region as a result of the ever increasing criminal activity, the interminable migratory flows that now have swarmed the Mexican side and the stresses, strains, and conflicts that all this entails.

Despite these ills, the region comprises an increasingly “country” in itself, an area in which communities of both sides coexist as units of both sides and that have features in their everyday lives that are radically distinct from the rest of each of the two countries. It is not by chance that whenever fiscal or regulatory changes are brought about (such as the IVA, the value added tax, or money-laundering) exceptions are created for the border zone because there would be no other way of functioning there. Countless Mexicans attend school in the country to the north, or live on “the other side” and cross the border into the States every day. Mexican workers routinely go to the U.S. side, while U.S. businesspeople come to work on the Mexican side.

Some border states have formalized diverse schemes of cooperation to facilitate the exchanges, others simply engage in them. Perhaps there is no better example than that of the Sonora and Arizona border with its bilateral commission. For the state of Texas, Mexico is its largest trading partner, superior in volume and value than that of the remainder of its exchanges with the rest of the U.S. and its governors, both Republicans and Democrats, dedicate themselves to making the relationship work. The U.S. Federal Government itself has been inventing mechanisms to facilitate border life and to attenuate the growing bureaucratic complexity that distinguishes their security programs, through projects such as Sentry, whose purpose is to expedite the border crossing of previously registered motor vehicles.

For Mexico, the border has always been a challenge. The historical instinct has comprised that of distancing ourselves from Americans, tolerating the inevitable peculiarities that are the trait of those living in that region and forgetting the entire matter. It was with that end that, at mid-XX century, the free zone was devised and, later, the establishment of assembly plants was favored, always restricted to that region. That is, they wanted to isolate the border region in quarantine fashion for health reasons: for the rest of the country not to be contaminated.

That perspective is no longer sustainable nor does it make sense. From the eighties, the border has become the key factor between the economies and the meeting point of Mexico with its main economic engine. Of course, there is no reason for Mexico limiting itself to a sole engine but it is impossible, and would be suicidal, to attempt to diminish or eliminate the elements that make the region work.

In a word, instead of once again isolating that zone from the rest of the country through the re-creation of a free zone, the government should integrate it completely into the rest of the country and, simultaneously integrate the country into that zone. This is not a play on words: the only way of being able to prosper is simplifying, decentralizing and (de)bureaucratizing, all these, a trait inherent to that region.

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Luis Rubio

While Mexico sprints toward an uncertain, irreproducible and, certainly undesirable past, the rest of the world runs at a frenzied speed. It is not only the fact of proceeding in reverse, but also that the inherent risks regarding what is destroyed along the way implies that the country will forfeit the possibility of, finally, achieving high economic growth rates. The matter is not one of governmental preferences or popularities; the issue entails strategies of development in the era of globalization, in the XXI century.

No place in the world evidences the direction of the development of this era, and in such brutal fashion, as Asia. In that region, the dispute embodies everything for the future: who will procure the highest rates of per-capita income in the shortest time. One by one, each of those nations, with its culture, history and form of government, has been constructing the foundations of its development, but all these nations share characteristics in common, beginning with their devotion to education, infrastructure and technological development. In that region, it would be unimaginable to attempt to return to an idyllic past because nostalgia has no place in the future and everything hinges upon, at the end of the day, in a better future.

A recent visit to three countries of this region left me with observations and learning experiences on the way they conduct their affairs and, above all, their priorities: the differences among nations such as Korea, Singapore and India are stunning, but the dynamism comprises solely one, common to all. India is an immense nation in population and territory, with an ethnic, religious and economic diversity that, even when one comes from a country as complex as Mexico, is absolutely incomprehensible. And, notwithstanding this, the entire country appears to be imbued with a drive toward a future that, without breaking with its traditions, would be radically distinct from the past.

The first time I visited Korea, in 1998, the country was emerging from a financial crisis, similar to those Mexicans had undergone so many times. What impressed me most on that occasion was the sense virtually of guilt exhibited by my interlocutors in the government and in academia. For them, the fact of having had to resort to external support (the IMF) was equivalent to losing face, demonstrating incompetence and, in the main, having chosen the wrong path. Their response was not to return to the poverty of the past, but to change their strategy in the extreme, confront their problems and take a great leap forward to bring to fruition the results of which their citizens are so proud today.

India and Korea entertain evident similarities with Mexico because they are large nations, with a long and proud history, but where dramatically distinct is in their determination to shatter the ties of the past and build a new society, dissimilar, capable of satisfying the needs of an ambitious and driven population. Korea, a nation without natural resources, opted to convert education into its comparative advantage: instead of yielding to traditions or interest groups, it propelled a fundamental change in education until rendering it the means through which poverty and its natural impediments could be left behind. India, a nation with more than a billion inhabitants, decided on a similar path, but one situated in the environment of the enormous complexity typifying it. Despite its social contrasts, the nation’s full impetus can be appreciated on every block and in every conversation.

A member of the Indian government explained the challenge with a clear and simple argument: in spite of its similarity in size to China, India is a democracy and has to deal with its problems within that context, something that for the Chinese government would be utterly inconceivable. The difference, the functionary went on, is that the Chinese will always continue to be enthusiastic to the extent that the government goes on satisfying them with economic growth; in contrast, India will continue on its road to the future, on occasion jolt by jolt, but with the support of a citizenry that only has the future because the past holds no attraction. On hearing that, I wished this were the discourse of our president.

Singapore is not a model for Mexico (nor for India or Korea), plainly because of its scale. An island-nation where everything works, the infrastructure is unsurpassable and the order excessive, Singapore knows from whence it came and where it wants to go, to which it devotes resources and efforts incessantly and even mercilessly. Nothing obstructs the path of the world’s best-paid civil servants (there the reverse is understood as true:  well-paid functionaries commit themselves to their work and to nothing else), all are specialists consumed with their mandate.

Some decades ago representatives of the World Bank and other analogous organisms affirmed that Mexico had perhaps the more competent governing team; it was without doubt top-notch, but that of Singapore is categorically matchless, one after the other. It is not by chance the world’s wealthiest nation in per capita terms.

Three nations edifying their future: with their vast differences and features, each of these possessing clarity of course and, chiefly, without complicating their lives with a past impossible to recreate. Impossible not to be tremendously envious.

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In memory of Manuel Medina Mora

Luis Rubio

The streets are clean, tourism has exploded, merchants seem happy and hotels are full. Oaxaca seems to have finally broken with its historical impediments and enjoys a new moment of peace and growth. If it only were so easy. The only thing that has changed is that the federal and state governments have given in to all the demands of the so-called Teachers Coordinator, the famous CNTE. Thus, the blockades disappeared, which means that the (alleged) teachers granted the citizenry the favor to live in a normal way, at least until the new round of demands, threats and extortion begins. All of which makes economic growth impossible.

The discussion regarding economic growth is permanent and is enlivened by the political rhetoric that does not address the causes of the phenomenon and that is exacerbated when the growth rate is low. The relevant thing is that the underlying problem never ends up being solved. In the course of the past few decades, various strategies have been undertaken to address the absence of high rates of growth and progress has been made on some levels, but no consensus has even been reached on the ultimate cause of such a low average rate, to the extent that, instead of looking for ways to raise it, what’s celebrated is the fact that there was no recession.

The first big problem to reach a diagnosis that everyone can share is what happened in the seventies, because there lies the heart of the political dispute. In that decade, the economy grew close to 8% annually and that is the memory that critics of the subsequent reforms keep in their memory and therefore always propose to return to that era. Now, with AMLO, they feel the time has come to recover that idyllic moment in history.

There are two problems with that memory: one is that it is false and the other that it is unrepeatable. The false part of it is that it’s impossible to isolate the period in which there was indeed a high growth rate from the consequences that followed, because the fuel that drove that growth was the combination of a rapidly increasing external debt, the expectation of permanently higher oil prices and exacerbated public spending. If one takes not only the seventies but the seventies and eighties together, the photograph ends up being very different: in the eighties the excess of the seventies had to be paid back in the form of a permanent recession and extremely high inflation. That era is unrepeatable because it was a unique moment in which exceptional circumstances combined to produce a pathetic rate of economic growth and ever more social conflict.

Secondly, the problem is not the lack of growth, but the lack of generalized growth: when one visits Querétaro or Aguascalientes, it is immediately evident that the notion of low growth is simply ridiculous; the opposite is true in Oaxaca or Guerrero. So, the problem is not that the growth is low, but that something differentiates the northern states from the southern ones.

Thirdly, the government’s permanent propensity to modify the rules of the game in a country where the president (or the authority in general) has excessive discretionary powers creates an environment of endless distrust. That was the reason why the NAFTA was sought: to create a space in which the rules were permanent and reliable and is a good part of the reason why the North grows so rapidly.

Santiago Levy has long been arguing that the informal economy is the great scourge of the country because it prevents companies from growing and developing and has proposed a series of measures to reduce the tax burden and facilitate their formalization. The approach makes sense, since if one compares the tax collection of those in the formal economy with respect to GDP, the tax burden is not very different from that of the developed world: the problem is clearly in the enormous dimension of the informal economy and the mechanisms that promote it.

The example of Oaxaca suggests another (additional) explanation to the problem of growth. Luis de la Calle summarizes it eloquently: “The prevalence of extortion in the country has become one of the main brakes to the growth of micro and small businesses, many of which are forced not to grow and remain in informality, where extortion tends to be centralized and known. This implies that they do not have an incentive to invest, grow, explore new markets and products, expand outside their local markets and less to hire a growing number of employees… Moreover, the chance of extortion increase with the success of small businesses.”

The reality is that it is not very difficult to elucidate the cause of the economic stagnation, but Mexico is on track, once again, in the wrong direction. The current government is exacerbating uncertainty for investors at a time when NAFTA is at risk and believes that with a great fiscal stimulus everything will change. It would be better to attack the causes of extortion and informality because therein lies the heart of the structural problem that prevents growth. It would also help to strengthen, rather than destroy, the institutions that generate trust, but that would be too much to ask.

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Luis Rubio

The only thing about which there is no dispute is that the president is advancing pell-mell toward a growing concentration of power. Every step he takes and each decision he makes tends to eliminate competition, diminish or neutralize counterweights and cancel all sources of independence that he can. The manifest objective is to control so as to resolve the problems that the country has been experiencing with weak presidencies that proved incapable of reestablishing order and promoting the growth of the economy. In other words, recreating the sixties.

Decades of observing the functioning of the political system have led me to two conclusions on its fundamental pillars, hence on the viability of the project of concentration of power.

In the first place, there is not the least doubt that during the entire independent era of the country there have been only two periods when the economy grew swiftly and the society lived through years of peace and stability.  The first was that of the Presidency of Porfirio Díaz that, after decades of conflicts and uprisings, the government instituted an order that permitted attracting investments, constructing railroads and bestowing a strong drive on the economy. The second was the post-revolutionary stage, especially the years of the so-called “stabilizing development,” during which the economy burgeoned in an unusual manner and the country underwent rapid urbanization and growth of the middle class. The common denominator was a strong government that did not allow dissidence and one that imposed order. It is not difficult to identify in these achievements a powerful attraction for a president who dreams of procuring a third era of peace and stability.

The problem with a nostalgic glance back on the past is that it permits us to isolate the triumphs from the failures or the advances from their consequences. The Porfiriato period collapsed due to biological reasons in that it depended on one individual who pushed and controlled, negotiated and governed, but that inexorably came to a close. Even without a revolution, the Porfiriato endured contradictions that with difficulty would have survived the leader himself. The end of the era of the hard PRI was the product not of the lack of institutionality but rather to its close-mindedness and authoritarianism, which denied any flexibility for adjusting the model when its underpinnings began to take on water, while it simultaneously blinded its leaders to the development of the society, the product, ironically, of its own successful governing. Like in the Porfirio Diaz times, the nature of the system hindered it from transforming itself and there is no reason to think that a new era of iron-fisted presidential control would be distinct. The problems that the PRIsts are currently facing in their intent to re-create themselves derive from precisely this.

In the second place, Mexicans have an innate penchant for wasting opportunities, perhaps because of the shallowness of the Mexican democracy and its profound authoritarian leanings. Although the problem of access to power was (almost) solved, Mexicans are far from having built institutional scaffolding that protects the citizenry, deeply rooting citizen participation in such a diverse and unequal society and obligating the authority to be transparent and accountable for their acts. The mere fact that the president can decisively wipe out the incipient counterbalances with no cost says it all.

But the underlying problem is that power, as vast as it may be, does not guarantee a genial result. In the eighties and nineties, thanks to the pairing of the PRI and the presidency and the authoritarianism inherent in the latter, with an infinitely more powerful presidency than that which followed, the government was unable to carry out the integral change that its own project proposed. Incomplete reforms were made, frequently translating into substantial discomfiture, for which Mexicans are now paying the price. An example illustrates this to a T: Telmex had two title-concession projects for its privatization, one worth four times more than other; one pledged the immediate end of the monopoly and the opening of competition, while the other preserved the monopoly. Economic growth required the first; interest from internal revenue ensured the second. No such thing as a free lunch.

At the beginning of this century, Fox wasted the enormous opportunity that his election had created. To the dilution of presidential power he added the incompetence and frivolity of his person, who has to date been unable to understand his historical responsibility. Will the third –the so called 4T- be the charm?

The problem transcends the characteristics of a person or persons because it reflects the structural weakness of Mexican politics that is not resolved with the reconstruction of the imperial presidency.

AMLO is basking in enormous popular support, greater than Fox at his moment, but equally volatile. If something has been taught by Mexico’s history it is that the great statesmen recognized today were acknowledged as such from having transcended the barriers of the time and constructed a novel platform of reality. None of these -Juárez, Madero, Cárdenas- knew beforehand that they would be statesmen: they simply erected a new future. All of which shows the futility of attempting to recreate an unrepeatable past, when what is required is a new future.

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Luis Rubio

In 2018, the Mexican electorate shed the mask of the establishment’s dominant narrative and chose the candidate that promised to change the ruling axes of the country’s political and economic systems. Since the election, but especially since the congressional swearing-in on September 1, Morena’s groups and allies have acted less like an institutional parliamentary group and more like a clashing force that wants to alter the established order without formal procedures or negotiations. According to their logic, they came to power regardless of the election: rather than winning the election, the election merely acknowledged their victory. In light of this vindictive undercurrent among many members of the Morena coalition, the key question in the months ahead is whether López Obrador will support this idea or whether he will assume the presidency as a statesman who is accountable to the whole of the electorate.

The contrast between both scenarios is radical. The first case presents a government that seeks not only to rule in its own manner but also to change the established order and its sustaining institutions in an integral, drastic, even violent manner. It hearkens back to the days of the Mexican Revolution, where one regime ended and another began without an institutional process in between. In the second case, López Obrador could maintain the existing institutional frameworks in order to carry out his agenda while bringing with him the population at large, as happened in post-Franco Spain. Such an approach has the enormous virtue of making changes permanent.

Spain illustrates the contrast between these ways of proceeding. When Francisco Franco died in 1975, after nearly 40 years in power, the Spanish people wanted a new regime. Politicians wondered how to take that step. One option was to break away from the Franco regime and enter an environment of absolute uncertainty; the alternative was to accept the existing institutional regime—even if it was hated by most political forces and parties—until a new legal and institutional framework had been built. In that regard, the Moncloa Pact of 1978, in which the political parties and the trade unions came together to discuss the management of the post-Franco economy, did not agree on the “what” but on the “how.” The most pressing issue at that time was that of prices and wages, essential to economics but of lesser political importance. Mexico, by contrast, has failed to agree on the “how”: on procedures for governance and economic management. Beyond the specific issues discussed during the pact negotiations, the essential factor in its success was that all relevant and economic forces were there, from the extreme left to the extreme right, business owners to politicians to union leaders. After decades of exclusion, the presence of all these forces—including iconic figures who had been in exile, such as the communist leaders Dolores “La Pasionaria” Ibárruri and Santiago Carrillo—changed the national context. The presence of these stakeholders spoke volumes. During the discussions, Prime Minister Adolfo Suárez proposed that Spain’s political and economic leaders accept the continued existence of the Franco legal establishment until a new constitution could be drafted and implemented. In other words, the process through which the post-Franco Spain would transition to full democracy was agreed. The negotiations did not attempt to make headway on the content of the new constitution, the way in which state companies would be managed, or the process for granting media operating licenses. These affairs would be decided by a future government. The agreement confined itself to handling how the decisions would be made rather than what the decisions would be—and this was the key to its success. With this in mind, López Obrador must determine whether he will take the institutional path—as Suárez did, through which he rose to become one of Spain’s greatest statesman—or the path of radical imposition, typical of a revolutionary project.

In this author’s opinion, López Obrador will soon find that many of his ideas are unfeasible or extraordinarily damaging, and thus are counterproductive to his vision of Mexico’s future. His decision to cancel the new Mexico City airport project is a window through which one can observe his perspective on the potential costs of carrying out actions that have more relevant angles than initially thought. In this case, the airport project cancellation affected not merely a few contractors (for whom López Obrador has assured compensation for the termination of their contracts) but thousands or hundreds of thousands of bondholders in international financial markets, national and foreign providers, and many other kinds of key stakeholders. By closing that door, López Obrador sent a sign that he will not stick by the existing rules, and that no investment can be completely certain. The immediate costs of this decision were apparent in the actions of the credit-rating agencies as well as the effect on Mexico’s exchange rates, but the potentially uncontainable costs will come later, when future investors ponder whether it is worth losing their investments to the actions of an unpredictable government. Unlike contractors and the construction industry, businesses and investors operate a longer-term horizon.

Above all, López Obrador has a fundamental decision to make in terms of how he will act as president: whether to be a social activist or a statesman. If the former is true, the airport decision has set the tone already. If the latter, there is still time to set a new course, as he showed before the Conago (national governors’ conference) when he demonstrated his willingness to work with the governors rather than seek to impose his will on them. For López Obrador, such a change likely would be difficult to make, given his deeply rooted conviction that everything that was done after 1982 was wrong. This conviction is an important factor for his base, which has stayed with him against all odds and often chants “it’s an honor to be with López Obrador!” As a leader, he might well regard such a change, in a way, as the equivalent of betraying himself and the political bases that have supported him through thick and thin. Yet it also may be more important, in López Obrador’s point of view, to achieve his goals than to stick to counterproductive dogmas.

Excerpt from Unmasked: López Obrador and The End of Make-Believe, which can be downloaded at:
https://www.wilsoncenter.org/sites/default/files/mi_190625_unmasked_v2b.pdf

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Luis Rubio

When the vessel Andrea Gail set sail from the port of Gloucester, Massachusetts, in a desperate act to participate in the last great fishing expedition of the season, its captain and crew did not have the least idea of what awaited them in what ended up as the 1991 “Perfect Storm”: all of the factors that could turn out wrong came together to produce a disaster of immense dimensions. Something like that could be happening in Mexico‒United States relations: perhaps no one seeks or desires this but, little by little, elements are accumulating that, on not being attended to, could produce the type of clash that seemed to have disappeared from the panorama more than three decades ago.

For nearly a century, the relationship between the two neighboring nations vacillated between violent and conflict to distant. The North American Invasion in 1846 reverberated in Mexico, giving rise to a nationalist reaction to which some historians attribute the true birth of Mexicaness. The two nations experienced highs and lows during the revolutionary period, with eventual crises due to the threat of non-recognition of a new president, with all of what that entailed. The Mexican post-revolutionary governments maintained a distant relationship, while simultaneously promoting national unity on employing the loss of territory as instruments of internal cohesion. All of this was feasible because Mexico had its sights trained on the interior of the country and its ties with the exterior were important but essentially symbolic.

The financial crises of the seventies and eighties obligated the redesign of economic policy and that led to a redefinition of the relation with the United States. Mexico began exporting increasingly more goods to the American market, which caused commercial conflicts: from accusations of dumping to tuna boycotts. For the first time since the War of Independence, Mexico began to see its neighbor as a potential source of the solution to its economic problems. Likewise, the United States was confronting problems whose attention required the cooperation of the Mexican government. Bilateral interaction grew, but the problems –old and new (from the war on drugs launched by Nixon with the closing of the border crossings to the death of DEA agent Enrique Camarena)- multiplied. Both nations ended up recognizing the need to establish mechanisms for a functional relationship.

At the end of the eighties, Bush and Salinas agreed to a set of principles, explicit and implicit, for the good functioning of the relation and for the solution –or, at least management- of the problems that are inherent in such a complex interaction, broad-ranging and dissimilar, in addition to asymmetrical, such as that of these two countries. The heart of that agreement resided in a basic principle: isolate the problems and deal with each separately.  The objective was that, on not linking or mixing distinct matters, what was fundamental and quotidian could be worked out in a natural fashion.

Mixing unrelated issues (such as drugs and trade) produced constant crises and exacerbated moods. On agreeing not to contaminate certain themes with others, the two governments committed to seeing to each issue in its precise dimension, making it possible for the more explosive things –such as migration for the U.S. or arms for Mexico- not to impede the functioning of what had become natural, non-conflictive and inherent in the life of the two neighbors, such as trade. The agreement of Houston in 1988 conferred celerity on the bilateral relationship and eventually led to NAFTA.  From then on, one government after another –of both sides- adhered to the established principle because it recognized the value of not cross-contaminating matters and, above all, the risk of doing so. It was well understood that a functional, conflict-free relationship was in both nations’ interest.

On breaking with the sum and substance of what was agreed to –by admixing migration with trade- President Trump had placed in doubt the foundations of the bilateral relationship. It is not only the fact of attacking Mexico and Mexicans rhetorically, but of that of making threats to the viability of the main engine of the Mexican economy (the exports) and putting the AMLO government up against the wall in one matter, migration, which is particularly sensitive for his political base and his legitimacy.

To date, the Mexican government has responded in two ways: on the one hand it had previously announced its decision to review the schema of cooperation with respect to security (the so-called Mérida Initiative of 2008); on the other, it has accepted, reluctantly, the terms of Trump’s demands with respect to Central-American migration. The two watersheds are contradictory and will, sooner or later, generate sparks.

Up until now, discussion within the U.S. has ignored the advantages which that country derives from cooperation on the part of the Mexican government in diverse matters that interest the U.S. and that constituted the incentive for their active promotion of the Houston agreement thirty years ago. The risk now is that its acting places pressure on an administration (which, in any event, would much rather return to distancing itself from its Northern neighbor), that would wind up destroying what has worked effectively for so much time, to the benefit of the two nations.

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Luis Rubio

The risk of Mexico acquiring the Argentinian vice of being permanently stuck in a limbo of mediocre economic performance -worse than in recent years- with recurring ups and downs, as well as frequent financial crises is real and rises with the policies adopted by the current government. The coincidences begin to be too many to not see the danger that their consolidation could imply for the country and the generations of young people who renewed their hope with AMLO.

Both Peronism and Morenism are inclusive movements, characterized by an enormous diversity of acolytes and followers, but with one element in common that is the fierce loyalty to the boss: everything is valid as long as that loyalty remains unbreakable. AMLO is replacing the few institutions that existed in the country with personal structures of loyalty and submission, two recipes for certain instability in the future. Instead of consolidating the few institutional advances that had been achieved, Mexico is moving towards a project where the rules of government are the will of one person, as happened in the years of the Kirchners in Argentina.

Secondly, the strategy of subsidizing and generating clienteles, which follows the same pattern of subordination, but on a massive scale, inexorably comes with the creation of new rights that, in time, become difficult, if not impossible to reverse. The Argentine fiscal crisis is not the product of chance, but of rights acquired over time, which then turn into obligations that the government has to pay with increasingly scarce resources. Mexico is already advancing in its demographic evolution towards a society with ever more pensioned adults and less new entrants into the labor force, to which the cost of AMLO’s clienteles will now be added.

Third, the policies adopted by the two Kirchner governments in Argentina suggest the kind of risks that the strategy of the new Mexican government is going to foist on the country: the centralization of all social programs in the presidential office. The Kirchners did something very similar with their “banner” programs: Universal Assignment for Child (Asignación Universal por Hijo), Social Income with Work (Ingreso Social con Trabajo), They Do (Ellas Hacen), More and Better Work (Plan Más y Mejor Trabajo), Unemployment Benefit (Prestación por Desempleo), The Completion Plan for Primary and Secondary Studies, Fines (El Plan de Finalización de Estudios Primarios y Secundarios), Argentina Works (Argentina Trabaja) and Entrepreneurs of our Land (Emprendedores de nuestra tierra).

Mexico had already experienced clientele-based programs (and failures) such as these, but since the nineties achieved a certain level of institutionalization of the social policy, which has now been dismantled at a speed that astonishes. Worse, it’s surprising that neither the beneficiaries of programs like Prospera nor what remains of the opposition have raised even a finger. In Argentina, these programs allowed the opposition to be overwhelmed in one electoral process after another: the inexorable question is whether AMLO will navigate with that same ease from here to the elections of 2021 or whether he’ll face at least some pushback. The critical question, as Ben Franklin would have it, is whether the citizenry will defend its conquests.

There are other coincidences that should be of concern about their effect on political competition and the deteriorating business environment. For example, the Youth Program Building the Future (Programa de Jóvenes Construyendo El Futuro), a scheme very similar to that used by the Kirchners to attract young people to the movement of La Cámpora, an organization dedicated to mobilizing unemployed young people with few alternatives in the labor market. This type of programs are designed to generate dependency on the government, eroding the development of a workforce guided by criteria of merit and productivity, increasingly important in the era of the digital economy. An army of permanently mobilized youth is useful for electoral purposes but destroys the economic future of a country.

When the president states that his objective is to subordinate economic decisions to political priorities, now strengthened by the Secretary of Finance’s resignation, he is ratifying that he’s willing to go one of the most powerful forces of our time. When Bill Clinton was running for the presidency, his main political advisor, James Carville, suddenly realized that the world had changed: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” AMLO believes Mexico is still grounded in the 1980s…

The Argentine example is suggestive not only because of what happened there, but because it is the kind of program that AMLO and his followers see as desirable. The disappearance of (almost) all technical capacity in the government allows implementing costly programs without measuring any of their potential consequences, besides providing incentives to adopt policies whose medium and long-term effects always end up being devastating, such as price controls, nationalization of the pension funds and the use of tools such as legal reserve requirements as well as compulsory lending programs at banks. Some members of Morena drool at this type of mechanisms. They have no idea of the destruction they imply.

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 AMERICAS QUARTERLY –
BY LUIS RUBIO | JULY 9, 2019

 Mexico

Carlos Urzúa’s unexpected decision to step down as treasury secretary was a warning – will AMLO listen?

MEXICO CITY – In all my decades observing Mexican politics, I have never seen a public resignation like this one.

On July 9, Carlos Urzúa announced in a letter that he was stepping down as Mexico’s treasury secretary. The letter was explicit, forceful, scathing, and above all revealing. Mexican officials usually resign for “health reasons.” Urzúa chose to send a warning: This administration isn’t working, and I don’t want to be stuck on a sinking ship.

Urzúa’s letter included four critiques of Andrés Manuel López Obrador’s government. First, that decisions are made without proper analysis or evidence. Second, that Urzúa was being forced to resign not as a matter of ideology, but over fundamental concerns about public finances. Third, that officials without the requisite knowledge have been tasked with managing essential government functions. And fourth, that there are patent conflicts of interest within the government’s team.

The trigger for Urzúa’s resignation was not immediately clear, but on those four points the letter leaves little room for speculation. It therefore offers a window into how this administration operates. Clearly, the problem revealed in Urzúa’s letter does not lie in alleged differences between left and right or so-called moderates and radicals, but in a lack of economic and financial rationality behind decisions that are being made.

Demonstrations of this dynamic abound. The National Development Plan, for example, was published in two parts: one an ideological exposition proffered directly by López Obrador, and the other a more traditional financial approach drafted by the office of the treasury. That López Obrador discounted the importance of the treasury’s version was, in hindsight, a sign of things to come.

In this sense, Urzúa’s letter is more about López Obrador specifically than about any possible conflict within the Cabinet. For López Obrador and the markets, this is strike two (whether he realizes it or not); the first was the cancellation of his predecessor’s airport project.

Naming Arturo Herrera, a deputy under Urzúa, as the new secretary was an obvious choice. Like Urzúa, Herrera knows the president well and has worked with him in the past. The two economists’ histories with López Obrador are nearly identical. But they differ in two important ways: First, Herrera has experience in the field of international financial organizations, having worked at the World Bank. Second, Herrera is more inclined to say what he thinks.

A few months ago, in an interview with the Financial Times, Herrera said that a new refinery project at Dos Bocas was not financially viable. He knew full well that López Obrador would offer a rebuke, but made the comments anyway – true to his responsibilities as the deputy secretary.

So what comes next? Urzúa’s letter is so directly aimed at López Obrador that the president cannot avoid seeing it as a warning: the risks that the administration is taking through its behavior could well lead to financial catastrophe. This is not about the growth rates, but essential financial stability.

In the first months of López Obrador’s administration, it is the financial markets that have maintained stability in the exchange rate. The question the markets will be asking themselves now is not whether Herrera is the right person for the job – but rather, if things go wrong, who might possibly replace him?

It’s possible that the immediate issue that led to Urzúa’s resignation was over Pemex, the state oil company. The administration is due to present a financial plan for the company in the coming weeks. It is now up to Herrera to convince financial markets that things will improve under his watch. Herrera’s stricken facial expression as he was announced as Urzúa’s replacement suggests he knows what lies ahead. But if he succeeds, it will mean López Obrador has understood the risks inherent to ill-conceived decisions. The proof will be in the pudding.

https://www.americasquarterly.org/content/amlos-wakeup-call

ABOUT THE AUTHOR Rubio is chairman of the Mexican Council on Foreign Relations. He writes a weekly column in newspaper Reforma, and is the author and editor of dozens of books. His most recent book, Unmasked: López Obrador and The End of Make-Believe, will be published on July 23rd by the Wilson Center.

Luis Rubio

All governments blame their predecessors for the woes that they find or for those with which they cannot deal. No novelty here: this is not my problem, but that of my predecessor. AMLO is an exception to this in not reproaching a government, but instead an entire generation –three decades of presidents and functionaries- for what he does not like. His problem today is that, after a prolonged campaign to destroy whatever existed, he is now the one and, however much he finds faulty with others, the responsibility is his.

Candidates are measured by their promises and intentions; presidents are responsible for the results. AMLO vowed to change the reality and now finds himself confronted with the dilemma inevitably present in everyday affairs: from insecurity to economic growth. His electoral victory was due to that he focused his campaign on things that bothered the electorate –such as the corruption, the incompetence, the violence and the unequal economic performance- all of these matters that plagued his antecessors and that, it is evident, they did not resolve. Now AMLO, who is government, has no excuse: the ball is in his court.

The era we live in adds an additional level of complexity because of the inexorable tension that exists between the decisions of the electorate and the instruments within reach of a government to act in the real world, particularly in economic issues.  The voters responded to the pledges of the candidate and hoped that he would comply with them, but complying in the globalization era is highly intricate because it requires the support of the population as a whole.

By nature, candidates guarantee the moon and the stars: some do this with strident rhetoric, others with irreducible oaths; still others attack their antecedents and make the electorate believe that it’s all is a matter of will and conviction. But, in the last analysis, they all end up facing the same challenge: in the digital era, no government controls all of the variables and the performance of the economy because the world is interconnected, technology advances at the speed of sound and   provides access to all of the population to information sources that exceed the capacity of the government to control.   Worse yet, as much as a government amasses sources of control, centralizes power and imposes itself because of the diverse interests and power factors in its society, nothing ensures the favorable economic outcomes that are the most immediate parameter for measuring success or failure for the citizenry.

The dilemma is real and is not limited to Mexico: how to render compatible the population’s legitimate claim to see the problems afflicting them, that is, the reasons for which they voted for a determined candidate to solve, before a globalized, integrated and interdependent world in which decisions do not respond to the logic of the internal politics. This latter results in the fact that investment is, in the words of the lawyers, fungible: one can go to any part of the world and it’s the same whether one decides to live in Morelia, Shanghai or New York.

There are presidents who manage the dilemma and adapt in order to advance as much as possible, while others stubbornly cling to their positions, at whatever cost. The greater the obstinacy, the worse the results because promising is easy, but achieving results and satisfying voters is difficult. This phenomenon is magnified when the president creates and multiplies the number of enemies each morning.

The AMLO style of governing is not conducive to improvement. The time for acting jarringly, generating conflict and confrontation, culminated July 1^st, 2018 for the simple reason that campaigns call for pettiness, but the exercise of the government demands acting equitably for all, in that only with the collaboration of everyone it is possible to go forward. However, AMLO is devoted to systematically increasing (and terrifying) those who appear on his black list of guilty parties and adversaries; discrediting members of his cabinet and ignoring his own advisors, in addition to exploiting resentments and frustrations, without building anything that could come to satisfy the population’s demands, protestations or necessities.

It is evident that only with actions likely to solve the existing problems would it be possible to respond to his base with results. He is not engaging in any of that.

What is important to the electorate –the same for his as for that of that he loathes as “conservative”- is the result of the daily operation of the government. As illustrated by the gradual diminution in the numbers of the President’s popularity, one thing is the election and another, very distinct, is the exercise of power. His quandary is whether to continue employing the pulpit to attack those branded as “adversaries” or to build with them to achieve results.

To win an election it is necessary to attack, but to exercise power generosity and competence is indispensable. In reference to Alan Greenspan, the central banker blamed for the 2008 crisis, a politician in his country summed up the dilemma bluntly, applicable at present to AMLO: “If you get credit for the sun, you can’t bitch when you get blamed for the rain.”

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@lrubiof

Luis Rubio

In her autobiography, African-American anthropologist Zora Neale Hurston writes that “it is no longer profitable, with few exceptions, to ask people what they think, for you will be told what they wish, instead.” That is how we are at present in Mexico: advancing preferences and desires instead of building opportunities and possibilities.

The matter is not one of preferences, but rather about the policies which could lead to much higher rates of economic growth and equitable development. Concentration of power is neither good nor bad in itself because it could as well lead to the creation of auspicious conditions for a more balanced development as to a new economic or political disaster.

To start with, growth depends on investment and it is not growing. The problem did not just begin but in 2016 when, in his campaign, today’s President Trump threatened the permanence of NAFTA. That threat was –and continues to be- much more serious than is generally recognized, because the key factor in attracting private investment to the country over the last three decades has been that agreement, on engendering a political, legal and regulatory framework for investment.

A government can be hard or soft in its conduct, but it cannot force the population to save, consume or invest. Those latter actions take place when individuals make voluntary decisions within the economic and political context in which they are found. This context determines the propensity of the citizen -as a saver, entrepreneur, investor or consumer- to contribute to development and that depends entirely on the factors that justify their confidence in the future. This is exactly the same for a family considering the acquisition of a refrigerator, for a worker pondering the purchase of a bicycle to get to work more rapidly or for an industrial megaproject. The reason that NAFTA was so important does not lie in its technical content, but in the political certainty that it provided.

A second component of investment is the public expenditure. Part of the reason that the Mexican economy grows so little, especially in the nation’s south, is the lack of public investment, above all in infrastructure. A business cannot be installed where there are no highways, railroads, or ports or services (such as electricity, water and drainage and, obviously, security), under adequate conditions. In addition to the political and union-related obstacles that plague the south of the country, an extremely old, inadequate and insufficient infrastructure is found. Successive governments have opted for ever increasing current spending, cutting back on investment expenditure, which has condemned the country to low growth rates. The present government follows the same strategy: although it is changing the expenditure rubrics (reducing salaries and programs to build clienteles), the absence of public investment remains the same. The result will not be distinct and could be worse.

Private investment might substitute public investment in many instances, but those possibilities have been truncated, as illustrated by the case of the Mexico City airport. That project promised to be a magnet of attraction for other investments and services, originating further sources of growth and employment. What is relevant is that its cancellation, in addition to the message conveyed, is going to be expensive in that the costs must be paid in exchange for nothing, while it simultaneously constitutes an exorbitant opportunity cost. It is equivalent to all of the infrastructure not constructed in the south of the country. Still worse will be dispensing billions of dollars on a refinery that is not required, which does not create wealth or jobs and that does not contribute to attracting private investment: it is a blunder of incalculable consequences. It is, above all, the worst use of scarce resources and, as the economists say, one without a multiplier effect.

At the start of the eighties the country found itself in a debt crisis that submitted the economy, and the society, to more than a decade of instability, inflation and uncertainty. The debt overwhelmed any project or opportunity because it impeded any action or investment. Everything was paralyzed and any circumstance exacerbated the panorama, as occurred with the 1985 Mexico City earthquake. In the end, the way out found was in the construction of institutions that became sources of trust and stability, such as autonomous entities –of competition, the National Electoral Institute (IFE), those of energy and telecommunications- until arriving at NAFTA.  Each of these elements –some more structured, others more costly, but all oriented in the same direction- they all ended up building political stability and providing a context prone for the attraction of private investment and, with this, economic growth in some regions of the country.

The privations are evident, but advancement cannot be executed ignoring the factors that make, or would make, growth possible. It is clear that many adjustments and corrections are required, for which the current government has earned exceptional legitimacy that, everything indicates, it is going to waste, one more time. Worse, destroying the factors that have favored stability and investment is self-destructive and, at the end of the day, suicidal.

www.cidac.org

@lrubiof