Luis Rubio

Fears, interests, inertia and a great dose of myopia impeded the country from carrying out an integral transformation in the past four decades. Reforms of diverse sorts, some more profound than others, but always in partial fashion, were promoted: there were always limitations and powerful interests that biased the reform processes for the sake of safeguarding special interests, union, bureaucratic and political niches and opportunities for corruption. Notwithstanding this, there were many successful reforms in the economic ambit, but the political system was left practically intact, engendering a myriad of spaces in which the process of economic reform interacted -rather clashed with- the realities of power and of politicians.

Andrés Manuel López Obrador repeatedly affirms that during the last 36 years nothing advanced, that everything was defective. Those statements are factually in error, whenever the evidence is overwhelming in the opposite direction: whoever has driven through the Bajío in recent years can appreciate the spectacular transformation undergone by states such as Querétaro and Aguascalientes and, from there, the entire region to the north and a good part of the northwest of the country. If one observes export behavior, Mexico has become a true world power. In a word, the transformation is real, to which dozens of millions of Mexicans can testify.

But AMLO is absolutely correct in that the change and progress that has come about has been highly unequal on not benefitting in the same manner the whole of the population. Those who have visited the states of Oaxaca, Chiapas or Guerrero know well that there, progress has been much more limited, that the ways of life, the social control and the political control of yesteryear continue to prevail and that daily life for the majority of the population has not changed in decades if not in centuries. At the same time, AMLO should be content since, had things been different, he would never have been elected.

The point is very clear: Mexicans are paying the price of the reticence in terms of reforming the country integrally, so that the unabridged population, of all regions was to have the same opportunity of entering into the world of growth and productivity. That has been happening in nations like Chile and Colombia, not to mention various Asian and European nations, where the reforms were integral, without looking back, and without the inordinate desire to perpetuate spaces for depredation on the part of special interests through enterprises and opportunities for corruption.

In the ongoing, internal sparring of the PRI race for its leadership, one can observe this phenomenon keenly: two countercurrents, one looking toward the future, another longing to keep alive the stagnation of the past, because that benefits retrograde groups. What can be recognized in the PRI is nothing more than a microcosm of the country in its entirety: those who want to go forward vs. those who want to return to, preserve or recreate an idyllic past that did (almost) nothing good for the man in the street.

In addition to making possible the triumph of a reactionary and retrograde political project, the country is suffering through the consequences of reforming inaction in the most diverse ambits. First of all, in the poverty that persists despite so much reform, but that is explainable: one need do no more than watch the scarce infrastructure constructed over the last decades in the south of the country, an infrastructure without which it is inconceivable to attract productive investment, in addition to the educative involution of the region, which speaks for itself. Second, the enormous difficulties confronting persons and companies, above all small and medium enterprises, to raise their productivity, without which they could never prosper. And, third, and most transcendental in that it reveals the main scourge of the country, the universe of extortion that characterizes everything that is carried out, in all domains, and which constitutes a genuine modus vivendi for the bureaucracy, the police, the political parties, the judiciary and the governments (at all levels) and from which not even the greatest nor the most powerful enterprises are safe, even though they possess better means to face it.

These matters are not exceptional in the world and have been broadly studied from Montesquieu to the theorists of the modernization of the XX century. In order to prosper it is indispensable to have a system of government that creates conditions for progress and the transition from the old status quo to a new reality is always tough and complex, bequeathing innumerable malfunctional spaces along the way, as could be the violence of the present day.

To truly achieve integral and balanced growth, the country is required to complete the transformation that was cut short in the past decades. The president could persevere in his process of retraction toward the past (which augurs no good) or take advantage of his extraordinary circumstance –of legitimacy and political capacity- to construct and implant roots for a new open and democratic political structure in conjunction with a transformed system of government, compatible with the realities of the XXI century and susceptible to promoting prosperity in all the population. The question remains: forward or backward.

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@lrubiof

Luis Rubio

The government is confronting unmistakable challenges in the most diverse ambits, for which it does not have reasonable or viable solutions. Insecurity, inequality, poverty and the lack of growth, to mention only a few, are nodal problems that the country has been up against for decades –if not centuries‑ and that are unlikely to desist with the strategies being adopted. However, there is a scenario concerning which the legacy of the previous government is particularly injurious because it restricts the capacity of action of President López Obrador, but, above all, because it constitutes a bona fide disgrace for a government that, in all of its arrogance, branded itself as orthodox: public finances.

The prior administration increased the public debt by nearly ten percentage points with respect to the Mexican GDP, despite having driven one of the most vigorous tax-collecting (and pernicious for growth) fiscal reforms in decades. Additionally, it saddled Pemex with a debt of more than 45 billion dollars, depositing the company in virtual bankruptcy. Not only that: the growth of the debt was essentially in foreign currency instruments, which increased the country’s vulnerability, and which in itself explains the extreme depreciation undergone by the peso during those years.

Although during the last third of that six-year government there was a dedicated effort to correct the excesses of debt and develop an acceptable financial program for the bondholders of “our” oil company PEMEX, the legacy for the current government was toxic.  Some examples of that are the financial crisis of the ISSSTE (the State workers social security system), which compromised its functioning, the high interest ratesand the costs of servicing the public debt and, most of all, the enormous risk that the Pemex’s finances represent for the government and for the nation in general.

This is not the first time that a government has inherited a precarious and even dangerous financial situation. It is enough to remember the situation in which President Echeverría left the country, the circumstance López Portillo left to Miguel de la Madrid or that Salinas left to Zedillo. The first two were the product of kindergarteners-at-play errors in economic leadership, motivated by ideological biases and political pretentions that implied abandoning the development criteria of the preceding decades, while the latter was due to the management of the debt at a moment of intense political volatility. The paradox of this is that the present government inherited a fragile financial panorama, but one that it appears decided to worsen.

The existing situation is hazardous because of the elevated status of the public debt, the virtual bankruptcy of Pemex, and the massive budgetary pressures that the government itself is generating. In contrast with the seventies and eighties, today the government basks in ample international reserves and the credibility that for decades was forged among financial market agents, permitting it to obtain foreign financing with relative ease, although that credibility has been eroding owing to the disorder that reigns in the government, as well as doubts about the projects driven by the president. The risk of loss of confidence in the international markets –due to internal matters or the relative uncertainty of the new NAFTA- are risks that cannot be avoided, in that its domestic impact would be devastating.

The more fundamental contrast with those administrations is much more transcendent: in 1976 as well as in 1982 and 1994, the heirs of those crises devoted themselves to modernizing the economy, focusing on promoting investment, attracting capital and resolving the financial as well as structural problems that the country was enduring. The present government clings to doing the contrary: return to megaprojects financed by public investment with uncertain rates of return (such as the Dos Bocas Refinery and the Tren Maya) and the growth of subsidies oriented toward financing political clienteles, instead of positioning bases for the growth of the economy in the long term. Nothing better symbolizes the contradictions of the current government than the cancellation of the project most likely to generate economic growth and improving competitiveness, the new Mexico City airport, in favor of two white elephants.

If to all of this one adds the exponential growth of the costs of pensions that the government will experience in the upcoming years (something known for decades, the product of the greater longevity of the population), and the similar growth of the clientele programs that the present government has designed, the fiscal problem could come to nothing more than exacerbation. In this regard we must add the project of fusing the diverse components of the health system, with the risk of reproducing, among physicians and the rest of the sector’s personnel, the union phenomenon that holds sway over the education sector.

In a word, the existing fiscal problem will become aggravated, anticipatingrisks that this administration will end up facing and that, while not being caused by the current government, are titanic in tenor and inordinately sensitive. The lousy budgetary management of the past administration has already rendered possible the electoral triumph of today’s President López Obrador and could wind up being an envenomed legacy.

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@lrubiof

Luis Rubio

Not at all surprising is the existence of tensions between the needs of the economy to be able to progress and the demands imposed by the population by means of democratic actions. In order to attract investments and create conditions for progress, governments must restrain themselves in budgetary matters and avoid distortions such as those that produce subsidies, trade restrictions and other discretionary measures. For its part, the citizenry, through its vote, demands satisfiers, solutions, better life conditions, security and peace for its own development and well-being. If the government acts well, there is no reason for both factors to be contradictory, at least if sufficient time is allowed for the former to come about. However, in the era of instant communications and overblown expectations, voters require immediate satisfiers.

The tension between both phenomena –public policy and peoples’ requirements- is something inevitable in human society, but it has been exacerbated in the information era, engendering new wellsprings of conflict.

Throughout the second half of the XX century, the notion that dominated was that liberal democracy was the pattern against   which all nations had to assess themselves, which led to the dictatorships and benevolent despotisms of the world adopting apparently democratic measures, such as elections, which in reality were not very democratic but that complied with the formality. All this changed during the last decade due to the 2008 financial crises as well as to the mere fact that China had achieved an exceptional economic advance without even pretending to be a democracy. Today we have arrived at the moment at which innumerable dictatorial governments, authoritarian or, at least, not democratic, feel themselves to be legitimate and do not perceive any need to justify their hard handedness or their non-democratic hand.

In Democracy and Prosperity, Iversen and Soskice argue that democracy and capitalism are not only compatible, but also that one is unviable without the existence of the other. Their approach is based on three elements: first, a government is required that functions and that establishes and makes the rules be adhered to for economic and social interaction; i.e., the market and the State are two crucial components of development. In second place, education is central to development and even more so in advanced societies because insofar as the economic, technological and social complexity rise, the population always insists on there being a competent government: only a highly educated population can aspire to development. Therefore, in third place, development requires particular skills that usually are multiplied through networks and communities, thus possessing a geographic nature. The latter explains why electronic companies have been concentrated in the Mexican state of Jalisco, automotive firms in el Bajío, aviation corporations in Querétaro or the old shoe industry in Guanajuato.

Behind the assessment of these authors lies the thesis that democracy works and is stable to the extent that the government, and the political parties, are capable of satisfying the middle classes, a pivotal ingredient in economic growth as well as in political stability. The key to all this is a basic principle:  when a government is democratic, it must provide the population and the enterprises with the conditions that permit them to be successful and in that resides the essence of democracy, that is, responding effectively to the citizenry.

Would this thesis be applicable to the current Mexican reality? On the one hand, the President’s popularity would suggest that the great recognition that he enjoys is independent of the economic performance. However, if one looks at the surveys, the electorate keenly distinguishes between their respect for the President and their support for the decisions and measures that the President undertakes.  While support for the person exceeds 60%, approval of his measures ranges between 20% and 40%. That is, the majority of the population are not in agreement with the way that he governs, but massively approves of the person of the President. On the other hand, the population that approves of the President is not homogeneous: there is a cohort that has supported him for years and that concedes to him all of the latitude that he requires, but there are other groups that are more volatile and that demand rapid and expeditious solutions. The common denominator is that everyone expects answers, but some are more patient than others.

The Mexican society continues to be, in many senses, an industrial society, and in industrial societies, say the authors,    workers with skills and those lacking these (the product of the failures of the educative system) are interdependent; however, as long as the economy advances toward digitalization, that interdependence disappears and it is here where the political crises and abuses of the interest groups come to light.

The authors affirm that populism emerges when important sectors of the society stop seeing themselves represented by the political system. This explains the triumph of AMLO last year; it also constitutes a challenge for responding to that population on time and in successful fashion.

www.cidac.org

@lrubiof

Luis Rubio

The president is pushing quickly ahead on all fronts. In the economic sphere, he has neutralized, dismantled or weakened practically all the entities designed to regulate investments and the functioning of markets, including electricity, hydrocarbons as well as the boards of directors of the state’s “productive” enterprises and the development banks. Even before being inaugurated, he had already canceled the new Mexico City airport and announced the construction of projects of doubtful economic viability, such as the Dos Bocas refinery and the Mayan train. Each of these actions has implications for the federal budget and for the credibility of the government in its economic management and, nonetheless, has had no apparent cost. The president has, de facto, challenged the financial markets and economic orthodoxy without his decisions showing any negative consequences on the most obvious variables, starting with the exchange rate. The question is why.

The urban legend tells has it that when the current president was preparing to announce the cancellation of the airport, his main economic advisors warned him about the possible consequences of his decision, the first being a depreciation of the exchange rate. The president nonetheless went ahead with the announcement and absolutely nothing happened. On the contrary, the peso appreciated after the announcement, which, according to the rumor mill, discredited his advisors and strengthened the president’s conviction that his decisions are being accepted as necessary, as the product of sensible and reasonable moral and political considerations.

But President López Obrador’s decisions have been anything but sensible and reasonable. Worse still, his project for the concentration of power is advancing without pause, sweeping not only the feeble counterweights that were built over the past decades, but even threatens to follow the same path with respect to the Supreme Court of Justice. The eagerness to rebuild an almighty presidency continues unabated.

Emboldened, his cabinet adopts positions and determinations that affect contracts and practices that are common around the world, as exemplified by those related to the supply of gas to the CFE, Mexico’s utility, which stipulate that the company must pay for gas, whether it takes it or not. This practice (embedded in the respective contracts) is the way in which the private investors that paid for the construction of the gas pipelines recover their investment. That is, there is nothing exceptional about it and it’s key to the provision of electricity.

The bottom line is that the government has been modifying institutional structures, changing contracts or threatening their alteration, thus creating a highly uncertain environment for new investments. Who would want to risk their capital when the rules of the game are susceptible to being changed at any moment? Investors require certainty that the authorities’ ways of proceeding are predictable and reliable, since no one would invest in an unpredictable environment.

However, even though uncertainty grows and its sister cousin, distrust, is beginning to appear, nothing seems to affect the environment of apparent calm and stability, especially the exchange rate.

This has no precedent. In the past decades, every time a government even vaguely mentioned any change in the rules of the game, the effect would manifest instantly in the value of the peso against the dollar; none of that has happened in these months. The reason for this is very simple: stability does not come, as the president believes, from his own actions and honesty, but from financial agents abroad, who continue to buy Mexican government bonds.

They do so under two premises: first, because of the interest rate differential that Mexican bonds are paying, which, being higher than 5%, makes them very attractive. Second, those investments follow the signals of the rating agencies, which have maintained the government’s paper at investment grade. Nobody knows how long the latter will remain true but, as long as this does not change, portfolio investors will keep their appetite in these instruments. That is to say –a paradox for an administration that calls itself nationalist-, the stability of the government has become absolutely dependent on the financial markets.

In 1992, George Soros speculated against the British currency and humiliated its government. The feat was huge: The United Kingdom succumbed to the attack of a private actor when it presided over the then-called European Community, and then had to leave the ERM, the European Exchange Rate Mechanism, with its tail between its legs. Paul Lepercq, a keen commentator, wrote at the time that the matter had been so dramatic that, had it happened a century earlier, the financier would have been beheaded.

Financial markets are not guided by moral considerations: they only take advantage of arbitrage opportunities. As soon as the internal and external realities come together -which will inexorably happen- the broken dishes will show and, with them, the accounts receivable.

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@lrubiof

WORLD CRUNCH/AMERICA ECONOMIA
Luis Rubio

Mexico And The Problem Of ‘Privilege Violence’

If President López Obrador really wants to give his country peace and security, he’ll need to tackle criminal complicity among the powers that be.

MEXICO CITY — Violence ends up destroying or at the very least transforming civilizations. So what can be done to stop it? For governance analyst Rachel Kleinfeld, the solution lies in re-civilizing societies and political systems.

In each situation, she argues, there are clear and distinctive reasons for violence to occur. So countering it requires the correct focus. Kleinfeld believes that in many countries, leaders need to tackle what she calls “privilege violence,” violence that is wielded for the purpose of protecting power. For that to happen, the middle class and civil society need to mobilize and pressure the state to act.

Violence can eat away at a state’s structural integrity. Often, there is outright complicity, Kleinfeld argues. Criminals come to entice and corrupt rulers to the point of turning them into accomplices, and once the state is part of the criminal order, its entire structure of police and judges is weakened and becomes part of the problem, not the solution.

Kleinfeld points to privilege violence as typical of unequal and polarized societies in which the powers that be use it to preserve the status quo. Big interests may prefer a cowed population, but down the line, as violence thrives, the state apparatus loses its ability to protect ordinary citizens.

The most interesting aspect of Kleinfeld’s research, as it relates to Mexico, is the distinction she makes between governments that are overwhelmed by violence, and those that have joined with organized crime. While the second can lead to the first, there are cases, like Afghanistan, where very powerful criminal groups can impose their law.

Violence and corruption produce a generalized fall in standards.

The author has no doubt that in the cases of Honduras and Mexico, the second case applies. Authorities were corrupted by or simply embraced organized crime, leading to the collapse of structures designed to protect citizens and implement justice.

Once that happens, and when the authorities connive in criminality, all areas begin to deteriorate, even when unrelated, Kleinfeld contends. That’s because violence and corruption produce a generalized fall in standards. People with hitherto irreproachable conduct begin thinking it is now alright to steal in a supermarket. Electricity inspectors practically turn to extortion not unlike how the mafia demands protection money. The political discourse becomes aggressive as never before.

When civilization becomes degraded in that way, the only way to rebuild, Kleinfeld argues, it is with a government that is prepared to smash the complicity chains, and with a general population that demands government accountability.

It is as if the analyst were writing a script about our country. An incoming government finds an exhausted, half-dismantled state apparatus that was corrupted by crime-associated predecessors. It has no choice but to come to terms with the criminals to avoid a sudden rise in violence. The future is determined at that point: The new government can either accept the status quo (a pact), either as an end in itself or just to continue as before, or it can use the ceasefire to win time and build new police, judicial and investigative capabilities. Most governments become mired in such pacts, and the result is more violence.

Whether a country can escape the cycle depends, in large part, on the role played by civil society. When society insists on government action, provides oversight, and reveals its weaknesses, governments keep the flame of “re-civilization” alive, Kleinfeld argues. Likewise, when society doesn’t or can’t pressure the state, governments inexorably begin to cede.

The new government in Mexico, under Andrés Manuel López Obrador, must decide if it really wants to solve the problem, or just play the boss role — which is not the same thing. It has promised to restore peace and security in Mexico, but through the army. Kleinfeld’s research casts doubts on whether that will work. If the López Obrador administration really wants out of the violence, she suggests, it must collaborate not with the armed forces, but with civil society.

Leoluca Orlando, a former mayor of Palermo — once a mafia stronghold — said it clearly once in comparing the fight against the mafia with a two-wheeled cart. The cart can move with just one wheel, but only in circles. Pushing it forward requires both wheels.

See more from Culture / Society here

https://www.worldcrunch.com/culture-society/mexico-and-the-problem-of-39privilege-violence39

Luis Rubio

When Don Quixote discovers windmills, he says to his squire “Fortune is guiding our affairs better than we could have wished. Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them. With their spoils we will begin to be rich for this is a righteous war and the removal of so foul a brood from the face of the earth is a service God will bless. What giants?” asked Sancho Panza. “Those you see over there,” replied his master, “with their long arms well nigh two leagues in length.” Take care, sir” cried Sancho. “Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone.” He then proceeded head on, screaming: “Fly not, ye cowards and vile creatures! For it is only one knight that assaults you.”

The “fourth transformation” advances in the same manner, rapidly and without surcease, leaving injured parties everywhere. As with Don Quixote, the advance is neither smooth nor free from conflict, though there is no doubt that creating conflicts to confront comprises part of the plan. But inasmuch as the injured partied mount up, the sources of anger, economic lag and eventual opposition also grow.

The list of the injured is mushrooming and impacting: with the cancellation of daycare, children who are being deprived of a place to stay during the day safely and creatively while their mothers work, as are their mothers who are unable to work outside the home, affecting the family’s sustenance. Avocado exporters who watch their product going to waste due to the slowness with which the U.S. Customs operates in this regard, without the Mexican Government doing anything. The residents of the border regions who see tens of thousands of Central American migrants arrive without there being the infrastructure for lodging them nor the opportunities for hiring them. Those fired by the government who, without rhyme nor reason, were thrown out on the street without compensation nor alternative opportunities. Those who have seen their salaries decimated, losing their acquired rights by a decision hastily announced in one of the President’s daily morning press conferences. Women who undergo intra-familial violence and who no longer have safe havens to go to. Newborns who have no opportunity to ensure them a successful life -newborns with  correctable birth defects- thanks to the termination of neonatal screening. The organizations of the civil society that, complying with legitimate functions, are attacked and under-cut. The citizenry that stops being able to count on means of protection with the disappearance of key counterweights for the functioning of the economy –in matters of energy, hydrocarbons, competition, education- and now with the potential loss of a Supreme Court independent of the executive branch. The concessionaires in matters of energy that, fulfilling their commitments, find themselves under threat. The children who will not have the opportunity of a better education, all to serve abusive unions whose interests have nothing to do with education itself and even less so in the digital era. The decline of consumption, which affects the poorest. The attempt against economic growth by the elimination of sources of certainty and investment. The former top-level government functionaries -in their majority honest and upright, responsible professionals- damaged in their person and their reputation, who suffer consequences that the President cannot even begin to understand.

The injured parties multiply and are many more than the President himself imagines, many of them –in fact, the overwhelming majority- part of his natural political base. Those who suffer most because of the multiplication of attacks are precisely those who urgently require an increased economic growth rate and the benefits accruing from this in the form of incomes and jobs. The president is absolutely committed to achieving a better economic growth rate but, as an old Irish joke goes, you can’t get there from here.

There is no way to get there attacking, undermining, destroying and setting land mines in place at each step. As a political project, attack is a way to advance, but not so as an economic project in this era of the worlds’ history. Growth is built on investment and the latter depends on the investor’s willingness to assume the risk that his project will be successful, that there is a market for her products, that new barriers are not erected against the growth of his enterprise, that the borders will not be an obstacle to the exports of her goods or to the importation of his inputs, that the bureaucracy will not invent impediments to his progress and that the workers, employees and proprietors of the entity will not be unjustly besieged and reviled. It is not by chance that literally all of the world’s governments dedicate themselves to attracting new investments and companies, with carefully articulated strategies and resources. The exceptions, such as North Korea and Venezuela at present, say it all.

The lists of injured parties and the values and counterweights that erode or are eliminated day upon day endeavor against the economy and the country in general. We won’t get there from here.

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@lrubiof

Luis Rubio

“The solution to the problem, says Rachel Kleinfeld, lies in re-civilizing society and the political system.”  Violence has very clear and distinctive explanations in each specific situation that can be reverted if the problem is focused correctly. The author* affirms that it is possible to restore peace and order if a leadership is disposed to join forces and confront the problem that produces the “violence of privilege” with a middle class capable of mobilizing itself to obligate the government to act.

Violence destroys civilizations or transforms them.   It begins because of the structural weakness of a government or due to the complicity existing among the members of the government with the criminal organizations that, notes the author, is commonplace. Typically, criminality involves those who govern, it seduces them and corrupts them, to the degree of making the accomplices, thus closing the circle. Once the government forms part of the criminal order, the entire structure of the police, prosecutors and judges ends up becoming weak because it then comprises part of the problem and not part of the solution.

At the heart of the argument appears the concept of the “violence of privilege” that arises from the established order that is devoted to preserving what exists, characteristically in very unequal and polarized societies. Authorities can become accomplices because they want to benefit directly or because they respond to greater interests committed to the status quo. In practice, the difference is small because, once complicity is the order of the day the violence starts and the governmental apparatus ceases having the capacity to protect the citizenry.

The most interesting facet of the book, at least in Mexico’s experience, is that it engenders a very discerning distinction between governments that have been outpaced by criminality and those in which the authority has entered into collusion with organized crime. Although the latter can lead to the former, there are experiences, as in Afghanistan, in which very powerful forces can impose their law. In the case of Honduras and Mexico, for the author there is no doubt that this is about the second case: the authorities were corrupt or were corrupted by organized crime and that’s what brought about the collapse of the whole apparatus dedicated to the protection of the citizens and to the procurement of justice.

Once that happens, the options are few and not very difficult to elucidate. To begin with, states Kleinfeld, as soon as the authorities are accomplices, deterioration occurs in all ambits, despite that they do not appear to be linked together because they lower the behavioral standards in everything. For example, persons whose past conduct was impeccable, now see nothing wrong in stealing something from the supermarket; electricity inspectors become virtual extortionists not very distinct from those who extort “dues” –protection money- from businesses; the political discourse acquires an aggressiveness that never before existed. When civilization deteriorates, the sole possibility resides in reconstructing it, but that can only take place when a new government assembles that is willing to break up the networks of complicity and impunity in conjunction with a society that demands it.

The text almost seems like a script: a new government arrives and finds itself enmeshed in an extenuated governmental set-up, one that is incapable and finds itself in pieces because the out-going authorities had surrendered to enjoying the pleasures associated with crime, instead of combating the latter. The new government has no choice other than to make arrangements and engage in agreements with the criminals to avoid a sudden surge of violence. It is at that moment that the future is defined: the fledgling government has two possibilities; on the one hand, it can accept the new status quo (a pact) as an end in itself and proceed as if nothing had happened. The alternative would be to utilize that truce to gain time and to employ that time to build a new capacity of the police, of the judiciary and of the prosecutors. The majority of governments get bogged down in agreements and the result ends in more violence.

The difference between a benign result and the other is the civil society. When the society exacts accountability from the government, supervises its acting and keeps watch over it and exhibits its weaknesses, the government preserves a compass towards what the author calls “re-civilization.” When the society does not apply pressure or possess the capacity to do so, the government is inexorably intimidated and gives way to everything.

The new government must decide whether it wants to resolve the problem or merely own it: this is not the same. “The solution to the problem of the Mafia,” says Italian anti-Mafia district attorney Paolo Borsellino, “is to make the State work.” Will the AMLO government restore peace and security? The President is wagering yes, through the Army. The evidence that this book yields is that this will not work: only the conjunction of society and government can achieve it.

Leoluca Orlando, the Mayor of Palermo, phrased it lucidly: The fight against the Mafia was like a cart with two wheels: police and culture. Only one wheel leads to the cart spinning around; only two wheels functioning together can make it work.

*A Savage Order, Pantheon, 2018

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 Americas Quarterly

  LUIS RUBIO | APRIL 15, 2019

The not-yet-ratified USMCA has already impacted Mexican institutions, beyond the economy.

For Mexico, the North American Free Trade Agreement as originally designed was much more about politics than trade. The George Bush administration that negotiated the agreement understood that and, in fact, saw NAFTA in geopolitical, rather than economic terms. A senior adviser to the White House at that time once told me that it was “a no-brainer: a prosperous Mexico is in the best interest of the United States.” How times change.

The importance of NAFTA cannot be overstated, which is why uncertainty over its replacement, provoked first by Donald Trump as a candidate for the presidency and now by the Democrat-held Congress, is so dangerous.

NAFTA was conceived as a mechanism through which the Mexican government obtained a kind of certificate from the U.S. government as a guarantor that the rules of the game would be preserved, that an open trading regime would be maintained and that the commitments made in the agreement would be strictly adhered to. In this sense, NAFTA constitutes an anchor of stability, a source of certainty that enjoys international support and recognition. This certainty is key both for internal confidence and for attracting foreign investment.

Mexico proposed the trade and investment agreement in 1990 after having gone through a series of economic reforms that streamlined the federal government’s finances, liberalized the economy and modernized its regulatory framework. The objective was to attract investment in order to foster fast economic growth. However, potential investors, both domestic and foreign, worried about the country’s propensity for changing the rules, carrying out unlawful expropriations and making capricious decisions without notice.

Through NAFTA, Mexico’s government committed to preserving the rule of law implicit in the agreement and submitted itself to the procedures established by Chapter 11 on dispute resolution. The result was an extraordinary source of certainty for investors, which led to the establishment of new ventures, plants and operations in the country. Mexico’s expectations for attracting investment were far superior to what actually materialized, not because of NAFTA, but because of a new player in the field to which neither the Americans nor the Mexicans had given even the slightest thought: China.

But over the past quarter century, NAFTA fulfilled its political role beyond expectations. Mexico accepted dramatically limiting the latitude of future governments for making changes to the basic framework of economic policy (the open trading regime) in the event that a president with a different economic philosophy came to government. In this regard, NAFTA was fundamentally a political act, a proxy for a lack of checks and balances that are present in the United States. It is thanks to NAFTA that Mexican economic policy was not altered in the midst of the massive crisis of 1995.

In contrast with the geopolitical clarity that motivated the first Bush administration, Trump’s rhetoric and actions altered Mexico’s politics in a dramatic way. First, by putting the existing NAFTA in doubt in 2016, it created a political vacuum that was filled by the winner of Mexico’s presidential contest in 2018, Andrés Manuel López Obrador. Second, and most importantly, it opened the way for a series of decisions that slowly but surely will eliminate or neutralize autonomous regulatory agencies that were created over the past two decades in energy, competition, telecoms and, now, the Supreme Court. Put simply, NAFTA’s erosion has had an immense impact on Mexico.

Despite the rhetoric, NAFTA has fulfilled its core objective of supporting Mexico’s political stability through the creation of a framework that made it possible to attract investment and for about half the country to grow above 6% and, in some states, such as Aguascalientes and Queretaro, at Asian rates. Surely, NAFTA did not transform all of Mexico, for that would have required much deeper reforms for which the Mexican establishment was not ready. In fact, NAFTA (and migration to the U.S.) helped preserve the status quo, an unintended consequence of a trade and investment agreement that nonetheless served its core purpose.

One could speculate what might have happened had China not become such a powerful force in the world trade arena, but the one certainty is that Mexico lost significant opportunities as a result.

The USMCA, which resulted from last year’s renegotiation of NAFTA, updates some key components – particularly as it incorporates rules for intellectual property, online commerce and the like – but dramatically waters down the key political element from Mexico’s vantage point, Chapter 11.

The challenge for Mexico lies in the fact that it has not developed internal sources of certainty that would make it less dependent on NAFTA or the USMCA to attract investment and maintain stability. That challenge would have been easier to face with an administration less willing to undermine each and every reform that has been carried out over the past three decades. However, without either NAFTA or the USMCA, the risks, for both the U.S. and Mexico, would be staggering, precisely the opposite of what the Bush administration hoped to accomplish.

ABOUT THE AUTHOR

Luis 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 is A World of Opportunities, published by the Wilson Center.
https://www.americasquarterly.org/content/why-nafta-critical-mexico

Luis Rubio

The handiest hypothesis on the causes of the electoral result of the past year refers to the population’s being fed up, the evident corruption of the government of the moment and, above all, the paltry outcomes of decades of reforms in terms of incomes, poverty and equity.  All of this is doubtlessly valid, but it does not explain the truly extraordinary change exhibited by the electorate between January and July of 2018, in which the preferences of the body politic for today’s President mushroomed from 30% to 53%.  Part of the explanation surely lies in the poor conduct of the other two presidential candidates (each in his own way) and, especially, of the former President, but it appears evident to me that a high percentage of voters decided that the promise of “more of the same” would not improve the economy of the country.

The proposal of Andrés Manuel López Obrador to alter the course seemed attractive to more than one half of the electorate and, from the day after the election, he has devoted himself to implementing his vision through decisions, many of which have been controversial and costly. The result to date, scarcely a few months into the new government, is not commendable: instead of a project, the evidence reveals that the President and his complicated –and strikingly diverse- coalition entertains more obsessions, occurrences and opposing agendas than a plan structured and headed toward constructing a platform for development.

For several years, AMLO has been very clear in his conviction that the country lost its way from the beginning of the reforms in the eighties: his central approach is that the government should be the rector of the economic process, that is, the conductor of the country’s development because “neoliberalism” has done nothing other than produce poverty and a growing inequality.

While it is evident that the reforms have not solved the country’s problems, an integral evaluation of the phenomenon that Mexicans experienced during these years in which Mexico incorporated itself into the world’s commercial, technological and financial circuits, requires understanding the international context within which all this has come about, in that the phenomenon is, in general terms, global in nature.

Three books attempt to explain what happened and why. Each of the works has its own objective and bias, but together, they create a very interesting patina. Charles Dumas* offers an essentially technical analysis of what took place in the decades during which world commerce accelerated and in the way productive processes were altered (concentrating on the production of parts and components to raise the quality of goods and services and reducing their cost), but above all the incorporation of India and China, especially the latter, into the industrial process. From Mexico’s vantage, China purloined from Mexico the export market that NAFTA promised; without China having competed for the industrial production that withdrew from the U.S., the past thirty years would have been very different.

Robert Kuttner** contributes a diagnosis that is very consistent with AMLO’s vision:  the world worked well when the unions were powerful and had the capacity to defend the interests of their members, the welfare state satisfied the interests of the population above that of the capitalists, the economy was focused on the internal market and there were no short-term financial flows across borders. Although he refers to the U.S. (and admixes Europe along the way), Kuttner’s argument –more political than economic- is nearly indistinguishable from the vision that AMLO has sketched in his books and speeches. Like AMLO, Kuttner’s vision is nostalgic: he says that there are no easy ways out, but that what exists is not good and that the mainstays of development that worked in the past must be recuperated.

Barry Eichengreen*** studies the evolution and future of populist movements over time in the U.S. as well as in Europe. Assuming an analytical stance, this author observes that behind citizen anger and disillusionment with the Western democracies lies the combination of economic uncertainty, governments incapable of responding to the populations’ demands and needs and the threats to the integrity of the identity of the citizenry. His reasoning is lucid with regard to the causes as well as the consequences:  he concludes that the “technical” solution is not difficult to elucidate, but that governments generally do not have the political capacity or vision to do this, while populist governments do not see the need for attending to the causes of the phenomenon.

Where there is an absolute coincidence between AMLO and these authors concerns the unpopularity of the bank bailouts in Mexico and the U.S., respectively. For AMLO, the bank rescue comprised a catapult in his political vision and in his perspective about what is wrong with the country. The other coincidence is that relative to migration: for Trump’s Americans, migration constitutes a menace to their identity; for AMLO, migration represents a failure of Mexican economic policy.

Eichengreen concludes that non-conventional governments are typically indifferent to the restrictions imposed by the markets, the availability of labor, or the needs of private investment.  The latter will probably end up being AMLO’s greatest challenge in the years to come.

*Populism and Economics. **Can Democracy Survive Global Capitalism? ***The Populist Temptation

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Luis Rubio

At the beginning of this century, Russia found itself at a crossroads. The end of the Cold War had opened limitless opportunities, but its process of transition -from an economy that was controlled, centralized and one without private property to a market economy- had been disastrous. Instead of spreading the property among millions of families and potential entrepreneurs, the enormous Soviet industries had been overtaken by a group of plutocrats who sold off the public resources, beginning with the oil, as if they were theirs. By 1998 the contradictions of the privatization and adjustment process had become uncontrollable, giving rise to one of those financial crises that Mexicans have long known. The backlash led to power the individual who to the present day continues to be the acknowledged ruler, Vladimir Putin, who, with prodigious skill, concentrated the power once again and submitted the so-called oligarchs.

Armed with a new plan and with centralized control, Putin reorganized the economy and reestablished economic stability, gaining with this the support of the public. Great changes, ideas and projects followed to reactivate the economy and transform the productive base, attempting to move it away from its (nearly) sole source of wealth, the oil.

Years later, Viktor Chernomyrdin, once Putin’s Prime Minister, aphoristically encapsulated the country’s often tragic past by saying, “We hoped for the best, yet things turned out as usual.” Will the “fourth transformation” end up the same?

The point of departure for the AMLO government is that everything done from the eighties until now was bad. Everything is corrupt, nothing works and those who led to this are traitors. The names vary, but the tonality is the same: the country was better when it was worse. A placard outside a restaurant summed it up impeccably and relentlessly: “We are worse, but we are better because before we were well, but it was a lie; not like now that we are bad, but it is true.”

The grand plan of the government is easy to discern: concentrate the power, go back on all the reforms –as much as possible- which advanced from 1982 on and, with this recreate the nirvana that existed in the seventies so that, perhaps, the President can be reelected. It is not a complicated plan, although the political management with which it is conducted makes it look so. The objective is clear and moves ahead step by step. The tactics are modified along the way, but the core project goes ahead.

What is relevant is that an extensive portion of the population is convinced that the project is worthwhile and that the President is heading it up without conflicts of interest and without looking back. That the economy is going downhill, consumption being at a standstill (or diminishing) and that public finances can undergo problems in the medium term appear to be of consens to no one. The majority of the population is spellbound believing that it is possible to achieve what one wills without having to work or construct it. The President is convinced that just desiring it will make it happen. If something is going poorly everything will be resolved –or a shortcut may be taken- with the emollient of more transfers to clienteles and identifying the guilty as scapegoats.

Given that the causes of the disaster evidenced by the robustness of the middle class (and of a country that, with all its defects, did advance), those who had some participation in the government during the last thirty years, the wellspring of potential conservatives, poseurs and turncoats, is literally infinite. If to that one adds all of the companies –and their employees- who are increasingly more productive and successful, the potential to identify those who caused that national disaster of which so many of us are so proud (and that is the sustenance of the economy), is doubly infinite.

There is not the least doubt that the country is undergoing many ills and that the sum total of an unstoppable technological change with an (almost) totally integrated global economy renders it difficult to resolve all of the problems in one fell swoop. It is likewise certain that the solution does not lie -it is not possible for the solution to lie- in the fact of concentrating the power or in revitalizing the cadaver of Pemex, since the core problem consists in the rejection of the future that is evidenced in the government’s incapacity –this and all of the former of the last half century- in carrying out an educative reform that privileges learning in the digital era above union blackmail. The political project is transparent, but the difference between the seventies and the present is that the economy is open and this in itself alters all the premises.

A dear friend says that “Mexico will never be a developed and civilized country, at least, not in the next 100 years” because rather than building a consensus that allows for broadly-approved decisions, “the government endorses discord and polarization, strategic arms in its arsenal of destruction of the present.  What we will indeed be in brief –quicker than a cock crows- is a less civilized country, more primitive, more unjust, more polarized, one with more spitefulness, one that is less desirable…” Up until now, more than 70% of the citizenry has given AMLO the benefit of the doubt. The experience of the last half century is less generous: when the fiscal, political and civilization equilibriums break down, the crises will not be long in coming.

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