Luis Rubio

Trump is the President of the United States and now reality sets in. Although his inaugural speech contained clear elements of what he expects to accomplish, at this moment everything remains on the plane of expectations and possibilities. As Spinoza wrote in the XVII century, “in practical life we are compelled to follow what is most probable; in speculative thought, we are compelled to follow truth.” What will be the truth?

I have observed Trump since he emerged as the Republican candidate for the U.S. presidency and, attempting to be objective, I have analyzed his proposals, his context and his array of possibilities to determine what part he believes and what part is merely rhetoric but, above all, what is possible in the real world in terms of what concerns Mexico. My impression, reduced to a sentence, is that, despite his being given to categorical and incendiary phrases in his discourse -and daily Tweets-, the new President is (as would be presumed of a businessman) hyper pragmatic, with few fixed beliefs or convictions (such as for example, Obama clearly has them, and Reagan, with whom he is frequently compared, also had them) and that consequently, he will be moved by trial and error. It is possible that, for this reason, he would commit great errors at the beginning that he would correct later. If this were to be true, the key (or the luck factor) will lie in not being in the line of fire while he makes these great mistakes…

Moving from the general to the specific, his proposal is one of retrenchment, which implies reorganization, rationalization and reconsideration. Although with a very distinct rhetoric, this does not constitute a break with Obama but, instead, continuation by other means. In foreign policy terms, Obama initiated the process of military retrenchment in the Middle East and, in the migratory domain he deported nearly three million persons in the course of his administration. Trump will surely make much more noise about these matters, but the substance will probably be more similar than distinct. The only theme on which Trump and Obama differ radically is in commercial affairs: for Obama trade is part of the solution while for Trump it is part of the problem.

Trump’s core proposal resides in the reconstruction (or re-creation) of U.S. economic strength. For him, the current weakness of his country derives from the excesses of its foreign policy during the last decades, above all on the military stage, as well as the relocating of manufacturing plants to other countries and the growth of imports. All this has translated into the loss of manufacturing jobs and the impoverishment of the U.S middle class. Albeit each of these proposals could be disarmed with analytical arguments, such as in fact occurred, sufficient voters accepted his perspective, conferring on him the electoral win.

In this context, it is obvious what Trump would do if the U.S. could abstract itself from the world. However, what the new President proposes is much harder to do because it involves the world superpower that, as happened with Rome or England in their time, greatly benefits from the world order and the status quo. In the ambit of trade, Trump intends to reorganize the existing commercial arrangements and agreements to favor U.S. producers and workers; this sounds good in electoral rhetoric but is formidable to achieve in a world in which the capacity to produce -and, thus, to consume- depends on increasingly structured and competitive supply chains. For instance, there is practically no longer a sole automobile manufactured in North America that does not incorporate parts, components and productive processes that originate in the three countries: infringing upon that would imply raising the cost of cars and reducing the competitivity of those companies before their Asian and European rivals.

My impression is that Trump is going to emphasize the dismantling of regulations and elements that render the functioning of enterprises costly, including important changes in tax issues, in addition to launching an aggressive program in matters of infrastructure (whose financing will comprise a entire theme in itself), but it will be in that sphere of influence that his impact will be greatest. Along the way, he will have ceded political and social affairs to his vice-president, which will appease his party’s conservative wing.

How will this affect Mexico? I see two scenarios: one is that the era of functional friendship that was inaugurated back in 1988 and that allowed the two nations to view each other as inextricably linked -where both share problems and opportunities and do not judge each other but rather cooperate-, will come to an end. That is the risk entailed by the extremism that Trump exhibited in his campaign. The other scenario is that he ends up recognizing what in their time Salinas and Bush Sr. understood: that there is no alternative other than close cooperation and, thus, that the wager should be to improve the relationship and the neighborhood rather than persevering in the historical enmity that had prevailed back when. In this scenario, the negotiations that come to take place would in the last analysis renovate the alliance. The question, not an idle one, is whether Mexico´s government will know how to conduct itself within the new context to achieve this.

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Luis Rubio

Is Mexico a democracy or an autocracy? The response would seem obvious, but it is not. Without doubt, Mexico has changed radically in its forms, but I ask myself whether in reality it has changed in essence. The evidence of the past couple of weeks is not endearing…

The crucial question is why have the fruits expected from the reforms undertaken not blossomed forth along the last half century? The express objective of the reforms initiated since the eighties was to raise the economy’s growth rate, which were followed by an entire series of social and political reforms, some planned and others not. The Mexico of today is unrecognizable, at least in its formal institutional structure; the Constitution of today reflects a diverse country, open and complex, something radically distinct from that which existed in 1917.

The reforms have proliferated, but the growth has not been achieved and that, with the evidence of mounting corruption, is what has induced the population to protest. The anger is real and could easily become the tipping point producing unraveling the stability that, until now, has been maintained despite so many ups and downs.  Of course there are parts of the country that grow at Asiatic rates, but others contract constantly and systematically; despite that, the evidence suggests that the population understand the dilemmas, now magnified by the coming of Trump. What it does not tolerate is the inequities.

The evidence of inequity is ubiquitous. Privileges persist and the protection mechanisms that the political parties, legislators and politicians enjoy are unintelligible for a population that has withstood everything. Even worse, the governors abstract themselves from the general situation to demand ever higher budgets; the federal government promises to return to macro stability but expenditures keep growing; legislators demand salary increases and gasoline vouchers. The former Federal District persists in its constitutional exercise adding ever more rights, benefits and governmental powers, without any obligations, except for the average citizen that is who, at the end of the day, pays the bills.

I have no doubt that the core problem is but one and a very simple one:   the absence of citizen confidence. Confidence is always the key, but it was simpler to achieve this in the PRIist regime because the existence of vertical controls permitted the alignment of governmental actions in a world era characterized by the total control of information. This combination favored economic functionality.

The world changed, the controls broke down, information became ubiquitous and now no one can impose confidence. In this manner, the citizenry’s confidence disappeared and now the government seems bent in undermining it ever more. Dozens, if not hundreds, of reforms have been approved, but none is oriented toward protecting the citizen, conferring certainty on him or guaranteeing him his rights in the face of trouncing by the politicians and the risk inherent in a change of guard in the presidency. The electoral reforms are particularly revealing: they only see to the problems of the politicians; none focuses on winning over the credibility of the citizenry.

In the literature on political transitions* two key moments are established: one from authoritarianism and the other toward democracy. Mexico concluded the first stage and for this electoral reforms were fundamental, but it lost itself in the subsequent process.  Currently there are professionally managed elections that are an example to the world, alternation of parties in government is frequent and freedoms are infinitely greater. However, we continue to endure autocratic forms in issues of transparency, accountability and corruption: much is reformed but always to take care of symptoms, leaving whoever is in command (because to govern remains only an aspiration) to decide what is to be known and whom to prosecute. The grandiloquently named “National Anticorruption System” will be yet another large bureaucracy: would it not be better to eliminate the causes and sources of corruption?

I daresay that we are at a political (certainly not economic) point in time that is not very distinct from that of 1982: the country is experiencing growing deterioration that is manifested in ideological atrophy; economic erosion in vast regions of the country; endemic corruption; and political dissent –in addition to conflict- among the political elites, each looking for ways out to ensure his or her personal survival. All of that is exhibited in the form of profound anger and uncontainable contempt for the government.

What is paradoxical is that, in contrast with 1982, Mexico today has a highly powerful economic platform, the productivity attained by the modern manufacturing plant is comparable with that of the best of the world and workers’ salaries in that segment of the economy are robust and on the rise. The president had the exceptional opportunity to convoke the population in an exercise of national unity before the challenge posed by Trump, but squandered it in the gasoline decision that was poorly planned and even worse communicated, and not recognizing the social and political context of today.

NAFTA was successful because it protected –isolated- investors from the potential abuse and excesses of our revered government and its bureaucracy. Something similar will have to be achieved internally to confer certainty upon the population and thus to begin to recover the lost confidence. In this era it is impossible to prosper without the citizenship on board, which is exactly what the government seems incapable of understanding.

*above all O’Donnell and Schmitter.

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                                                                                       Luis Rubio

The word “democracy” has ended up being trivialized in political discourse, but above all among the population. Many of those who despised the old overbearing presidency and devoted themselves to combating it now despise democracy: before because a person had too much power, now because the person does not have enough. In its most fundamental meaning, democracy exists to protect the citizen from abuse from the government; in the Mexican public debate, democracy is an instrument to elect those who will govern and not to meddle later in their decisions.

What is the appropriate balance here? In the context of an astoundingly poor political management of the gasoline crisis and in the threshold of the crucial year of the political cycle, where the terms of the presidential elections will be defined, it is necessary to debate why the country does not progress despite so many changes and reforms in all orders. Only then will it be possible to get out from such a dangerous political moment.

It appears that there are two issues that no one would dispute as being core problems: the ineffective nature of the government and the worst possible quality of public services. Although the two are linked, they are two distinct issues that are frequently mixed or visualized together in terms of causality: the government does not work (and provides bad services) because it is poorly organized. Of course, there is something of the truth in this relationship, but it is imperative to understand the causes well because an error in diagnosis always leads to a bad solution.

Since at least 1958, when opposition parties got representation in Congress without having won an election but in order to have them inside the tent, the country has undergone a multiplicity of political and electoral reforms that, even in the best light, did not achieve more than partial results, though they did incorporate all political forces into the system. Certainly, some reforms transformed the system for good (such as that of 96 that created an exemplary professional electoral system), but the country continues to stagnate. The reforms attacked –in some cases ad nauseam and to the absurd- problems among politicians, but none has procured listening to the citizenry and responding to their concerns and needs. Most reforms have ended dealing with the redistribution of power among those who are already in power.

As Einstein once said, it is insane to do the same thing over and over, expecting different results. What makes the politicians think that a new wrinkle will solve the political problem of the country?

I do not dispute the need to reform: what I ask is a reform for whom? Dozens of political and electoral reforms –in addition to hundreds of reforms in the economy, tax matters and social rights- have not achieved increasing the trust of the citizenry in their government, that the streets are well paved or that the population enjoys physical and legal safety.

When one asks oneself why the economy does not grow faster, the response is obvious to the citizens, so obvious that the politicians do not want to see it: because there is not the least amount of confidence in the functioning of the government. The system of government is designed to extract rents from the citizenry, feed the philanthropic ogre and preserve the privileges of groups within the political system and those around it. In the meanwhile, the citizenry lives in a world of uncertainty with respect to its physical integrity, patrimonial security and governmental abuse. Even paying taxes is complicated.

The old political system, that of Plutarco Elías Calles, was created to concentrate the power and to institutionalize the conflict of the post-Revolutionary era. The problems of today are in a certain sense the product of the success of that framework, as reflected in population growth, the geographic dispersion and the economic, political and social diversity of the country. Although much has changed thanks to the reforms undertaken, the old system continues to be there, like Monterroso’s dinosaur, but with an enormous difference: before it worked and satisfied the minimal necessities and today it does not.

One possible explanation for this paradox is that the old system responded to the problem of its moment and stopped doing so because the problems changed but the system remained.    Today the system does not respond to the needs of the development of the country that, basically, have nothing to do with what worries the politicians. While they continue the search for band-aid remedies that do not work, the country needs a government that does work. Of course, it is imperative to reform the political system for the government to work, but what is crucial is for the reform that is undertaken to be contemplated with that rationale: that is, that of solving the population’s problems and making their daily lives easier.

The problem with this solution is that it would entail a revolution in the nation’s political system. The most advanced of the proposals of reform seek to return to what formerly appeared to function, that is, in essence, what the current government attempted: to recentralize the power.  That option disappeared the day that the economy was liberalized (1980’s) and it is impossible for it to recreate itself. What we need is a political system for the XXI century, not the continuation, albeit institutionalized, of the Porfirian state. And that implies the end of privileges, and the advent of transparency and accountability: that is, responding to the citizenry. If things do not start out from that premise, nothing will change.

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Luis Rubio

In his book The Big Short: Inside the Doomsday Machine, recently dramatized in the film of the same name, Michael Lewis describes a complex problem in an easily understandable manner. The 2008 collapse of the financial markets constituted the end of years of development of products increasingly more complex and dependent on variables that, their creators supposed, were not connected. When reality imposed itself, the result was that what under normal conditions was not linked was indeed correlated under critical conditions, magnifying the risk. The problem is that Lewis solely details, with immense grace, the symptoms; he never arrives at its ultimate causes.

The succession of events leading to the collapse, and the instruments involved, is known; however, what this and other books tend to omit is the reason for which those “infernal” instruments were designed. Decades of observing several of the most brilliant actors of the international financial sector have convinced me of two things: their extraordinary intelligence and inventiveness, on the one hand, and their conduct, neatly Pavlovian, on the other. This has to do with a combination that can be extraordinarily beneficial for economic development, but also lethal under certain circumstances. In the language of the economists, when the incentives are misaligned, the risk of mixing intelligence and creativity with perverse objectives can bring forth mammoth crises, such as that of 2008.

The heart of the matter does not lie in the facts themselves, widely recognized at present, but in the circumstances that ushered them in. What was it that prompted the development of such clearly risky products? What we all do know is that the crisis was produced because loans were granted, above all mortgages, which the banks that had supplied them later “securitized” and then resold far and wide. Under normal conditions, the families that had obtained these credits would have paid them off over decades, generating the funds for the proper functioning of the system, and the holders of the securities grounded on those properties would have earned the agreed-upon return. The problem was that many of the families awarded the credit, as ridiculed by Lewis’ book and film, abandoned their mortgaged houses, severing the virtuous circle. What Lewis never provides is an explanation for what brought about the granting of loans to persons plainly without the ability to pay.

Mervyn King,an ex-Governor of the Bank of England, describes the other side of the phenomenon:instead of heroic and self-justifying scenes, typical of this types of books (like Ben Bernanke’s, Chairman of the Federal Reserve System’s Board of Governors at crucial moments), King approaches the transcendental: what occurred for the financial sector to become the Achilles heel of the world economy?

The title of Mervyn King’s book says a lot: The End of Alchemy. King dissects the riddle at the crux of the financial system from ancient times: the fallacy residing in accepting deposits from the public whose payment can be exacted at any time vs. the granting of long-term credit. This, of course, is nothing new: it is the lifeblood of the financial system. King takes it upon himself to spell out the way that bankers have devised complex mechanisms that do not ensure sufficient funds in case of an excessive short-term demand and the risks inherent in those mechanisms.

The deeper issue, argues King, is the innate risk of a financial system that confronts increasingly intricate problems and challenges to financial stability vis-à-vis the operators of the system, gifted individuals without the least incentive to be cautious or to safeguard the stability of the system. That is, King, as an ex-Governor of one of the most important central banks in the world, sees the problem that appears when the incentives are in misalignment from a regulator’s perspective.

At the core of the collapse of 2008 is found political pressure that the financiers dealt with in a highly creative manner but that was at the same time scandalous and riddled with vices. The politicians, especially a U.S. Senator and a Congressperson, had for years pressured the banks to lend money to poor families to purchase a home. Canny, the financiers designed a type of mortgage that entailed minimal payments and no interest charges for three or four years, with these payments to skyrocket dramatically at a later date. Those given credit lived in the houses as long as payment was feasible and abandoned them immediately afterward: utterly rational actors. On their part, the financiers had satisfied the political requisite, securing their bonuses (for allocating many, very profitable, credits), allowing the deluge to come some years afterward. By then all those mortgages had been sold to investors duped into buying them up.

Enormous creativity and enormous risk. As King observes, the phenomenon is perfectly explainable and highly difficult to eradicate because political demands clash with the incentives of very smart and rational financial operators. These are conflicts that never get resolved cut can be mitigated with adequate regulation that stems from the recognition of human nature as it is and not as it might be desirable.

Agustin Cartens, Mexico’s central bank governor, has just been appointed head of the Bank of International Settlements, the most important global regulator in banking matters. His experience and intelligence may well help avert the next crisis. Not a minor source of recognition.

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Luis Rubio

The beautiful thing about libraries, about books, is that they are like cherries. You finish one, and this leads to others, which end up leading you inevitably.

Arturo Pérez Reverte

In 2012, very much in his style, Charles Murray published a provocation that turned out to be predictive of Trump’s victory. In Coming Apart, he devotes himself to analyzing a theme that had concerned him for many years: that of the inequality and public policies that tend to exacerbate it. In previous publications he had looked down upon tedious and politically incorrect terrains such as that of intelligence and the IQ as significant factors in social polarization. In Coming Apart he describes this as the population tending to polarize itself and to aggravate the problem: according to Murray, those that are successful in society have come to concentrate themselves geographically and with respect to activities, to the degree that they eventually live in a bubble that separates them from the rest of society: they watch different television programs, read different literature, go to other schools and are increasingly less similar to the remainder of the population. Murray’s argument throughout his career has been that public policies designed to wage war on poverty and reduce social gaps have been a failure because they do not strike at the heart of the problem and often exacerbate it. In 2016 he published an interactive questionnaire that allows to determine how close a person is to the median American, that is, how similar an individual is to the majority. Although the questionnaire is ethnocentric and not easily applicable to Mexico, it is worthwhile responding to because it is highly instructive: http://www.pbs.org/newshour/rundown/white-educated-and-wealthy-congratulations-you-live-in-a-bubble/

Ronald W. Dworkin is a physician and philosopher who has made inroads into matters of public policy, first those related with health and recently with a book entitled How Karl Marx Can Save American Capitalism.Dworkin’s premise is not new, but it is highly interesting: Marx was an enemy of capitalism but, on exhibiting its defects and limitations, he forced governments to respond, above all in issues such as the abuse of workers and the need for social policies, as well as an integral heath system. At present, says Dworkin, there are new risks that, although distinct in nature from those that capitalism underwent in the XIX century, constitute a new challenge to its survival. Among these, Dworkin cites matters such as social alienation, decreasing birth rates, and the use of drugs for functioning in work life. While the concrete proposals that Dworkin suggests have nothing to do with Marx, what seems relevant to me about this book is its notion that liberal and conservative dogmatisms are useless for solving the problems of today. Specifically, he proposes that the government focus itself, with laser-like precision, on threats to private life without attempting against the factors that permit the good functioning of a market economy.

Anthony de Jasay is a Hungarian economist and philosopher who migrated to Australia and now lives in France. His book, The State, begins with an extraordinary question:  What would you do if you were the State? It is customary, says Jasay, to conceive of the State as an instrument, a means that exists to achieve the common good. However, the author asks, What if we were to suppose that the State has its own ends that are not those of the population? Jasay formulates a lengthy response that follows the history of the State from its original function, with exceedingly modest dimensions, as protector of life and property, until it converts itself into the “agile seducer of democratic majorities, to the welfare-dispensing drudge that it is in many countries today”; he then asks “Is the rational next step a totalitarian enhancement of its power?” The State presents a debatable extrapolation but not an irrelevant or illogical one.

Richard Epstein is a U.S law professor who has been writing for decades on the Constitution of his country. This year he published his masterpiece, The Classical Liberal Constitution, in which he delves into the origin and nature of the United States Constitution and analyzes the manner in which it has evolved over time. Beyond the properly U.S. debates that he treats throughout the book, what appears unsurpassable to me are his reflections on how the nature of the government has been changing, its objectives and the values that, in fact, give it life. Its main proposal is that protections of individual rights have been reduced without solving the essential problems of contemporary society. A profound believer in small and demarcated government, Epstein touches upon many of the themes that invigorate the work of Murray but from a constitutional perspective. His central assertion is that only firm and decided protection of individual rights before the State, guaranteed by the Supreme Court, can create the conditions for economic revitalization. Somewhat in contrast with Murray, his contention is not ideological but rather fundamentally pragmatic: it seems obvious to him that the status quo, while it worked before, does not now. That, notes Epstein, should be enough of a lesson.

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Luis Rubio

It is rare day that our politicians realize the effects of their decisions. Assured of the infallibility and bonhomie of their ideas, they rarely consider the possibility that their choices and actions might give rise to opposite outcomes from those sought or radically different from those imagined.  Politicians think in terms of their own frames of reference (usually access to power and to their next means of livelihood) and not with respect to the consequences of their actions; like a thief who thinks everyone is out to steal from him.

Protected from the mundane complexity of the life of the Mexican everyman, their perspective does not in any way resemble what the citizen needs. The citizenry wants the basics: safety, certainty, services that work, the means to develop their daily life, that is, nothing out of the ordinary: they only want to live and prosper the best way possible. Politicians, however, know better: progress does not consist of having a good life, basic services and everyday safety but rather radical transformations.

The case of “A Day Without the Car” in Mexico City is paradigmatic because everyone, except for its promoters, knew that limiting the use of the automobile for millions of inhabitants without having an effective and reliable means of public transportation in place would engender the inexorable result of causing an increase in the number of vehicles: the population began to buy an additional car to be able to move to work every day. But that case, of a quarter of a century ago and, inexplicably repeated a few months back, is only a sample. The country has changed drastically in the last decades in great measure due to governmental decisions, some on target, many terrifying, which have altered not only the physical aspects and the statistics, but also the populace’s perceptions and expectations. The result is not pleasant.

Although there have been truly transcendental and transformative strategies (for example, the economic liberalization of the eighties and the North American Free Trade Agreement [NAFTA]), the majority have had null effects and, on occasion, have been counterproductive. But beyond the great reforms, what is noteworthy is the absence of the “little” things, those most important ones in day-to-day life. Many are contemptuous of the liberalization of the economy and propose canceling it, but it is obvious that they ignore a very simple fact: the SOLE engine of growth of the Mexican economy at present is NAFTA; the notion of placing it in question is, first, absurd, but after that makes one’s hair stand on end. Thus the concern about Trump.

Perhaps there is no better test of the last four governments’ lack of success than the fact that, however much growth they promised, they did not achieve adding anything to NAFTA and, in contrast, at present, have placed financial stability once again in doubt, the very financial stability that, as we learned in 1994, lies at the heart of economic viability.

Despite the lack of success of the last three administrations as well as the present one, some states and regions have procured something that is not currently recognized: the growth rates of states such as Aguascalientes, Guanajuato and Queretaro are more similar to those of Asia than Latin America. That is, today there are many Mexicans undergoing a radical transformation which distances them from those who, thanks to the worst governments devoted to corruption as their raison d’être, have left their populations in poverty and ruin. Parts of Mexico have come to prosper, others have become poverty-ridden. What is the difference? Quality of government. There is no other answer.

Some local governments have been able to do something out of the usual: they govern. Something as patently obvious is inexistent in the majority of the nation. More common are governors dedicated to power and profit than those committed to development. How unfortunate it is that the majority quest after power and personal gain.

The result is pathetic. For the ordinary citizen what is important is that there is food in the stores, gas at the respective gas stations, safety in public conveyances and certainty in the economy. The reality is another: as if it were a natural and not a political disaster (created by the radical teachers union CNTE), the federal government organized an airlift to transport basic goods to Oaxaca; rather than being the guarantor of safety, it grants privilege to delinquents.

What is the result? Instead of winning over a prosperous, content and satisfied public, the country is characterized by growing uncertainty. The workaday Mexican lives in fear of assaults, robberies at their homes, their children’s safety, uncertainty regarding job permanence and, as if this were not sufficient, the absence of hope. Our politicians do not understand even the most elementary: without stability and trust the future is impossible.

“Broken Windows” was a concept coined by Wilson and Kelling to describe the way a society deteriorates. When no one repairs a building’s broken windows or a city’s potholes, deterioration accelerates because no one cares about the state of things. Little by little, people become accustomed to everything perennially getting worse.

Mexico possesses enormous assets and virtues, but the quotidian reality discloses precisely the opposite. The key question is: who benefits from this?

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 Luis Rubio

Mexico is experiencing a growing universe of “little” civil wars that can end up with it in ruins. By the same token, the dynamic that this is creating could in like manner finally generate a country-wide platform for transformation: it all depends on how these processes are channeled or, more appropriately, whether there is someone in charge willing to lead such a transformational venture.

The open fronts are multiple and implacable. Some have been left ajar by the current administration, others have accumulated from before, but if the criterion to focus on the opportunities and risks is one of stability, viability and peace, all entail consequences. The nation is experiencing a growing civil war, or better said, an ensemble of mini civil wars, each one different in origin, circumstance, and dynamic, but the ensemble nonetheless puts in evidence the weakness of the government and that the propensity for toward anarchy grows. What is pathological about all this is that many of these “little wars” are the product of the incompetence and impaired vision of the promoters of these very wars, in many cases those most committed to exactly the opposite of what they are engendering.

A “snapshot” of the general panorama says more than a thousand words:

• The most useless (and, in fact, ludicrous) of civil wars is that which President Peña fostered with his initiative in terms of egalitarian marriages. I have nothing against each couple resolving their lives as they see fit, but it seems to me that the presidential initiative in the matter was foolhardy, counterproductive for him and for his party but, above all, absolutely unnecessary. The war that the Catholic Church started in the wake of that decision can bring nothing good, and all the more so when, à la Mexicaine, the problem was “solved”: Mexico City permits everything; why change a status quo that works? As the phrase attributed to Talleyrand says, “it was worse than a crime, it was a blunder”. An enormous blunder.
• Corruption corrodes everything, but has opened many fronts, all costly. Above all else, there are the protagonists, first of all the governors, who exhibit not the least decorum: they interpret an electoral triumph as a license to steal and, if they can, to arrive at the presidency. This war is not going to go away, even if the political parties reach an agreement on what corruption is and thus, who goes -or does not- go to jail, and in exchange for what. Justice? Up against the wall. Even worse: it provides incentives for the next breed of corrupt governors.
• Then there are the new Torquemadas, now dedicated to corruption or witch-hunts where the last thing that matters is justice, legality or due process. To denounce, to abuse, to attack and to evidence is the new mantra. What is important is not to eradicate corruption but to light bonfires, many bonfires. López Obrador will thank them profusely.
• The PRD and Morena, the two political parties on the left that split, like Cain and Abel, are undergoing the most Bizarre of the disputes. Everything for power, all of the power of before and all of the power of now, but above all that of the future. What is important is to mutually finish each other off: what that entails for the people in the turfs that they formally “govern” is least in importance. Ask the denizens of Condesa, where a war is brewing between the two currents, throwing open the door to organized crime and all of what that implies: murders, extortion, abductions. Morena trades in the future but is stuck in the past because it has no other option: its “product” is even more archaic than that of the present federal government: a return to the Stone Age. In the meanwhile, the inhabitants of their demarcation pull themselves up by their own bootstraps. What is important is power. Long live corruption.
• The tax “reform” that was promoted three years ago by the federal government spawned a little war with the taxpayers; the government won, but the economy is now stagnant. A Pyrrhic victory. In one of his many extraordinary and unforgettable readings of the reality, Winston Churchill stated that “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” Taxes are necessary, but not as a trade-off for prosperity.

Wars, affirmed Thucydides in his History of the Peloponnesian War, start because of fear, interest or honor. Civil wars, or little civil wars, are not very different, but their essence is quite distinct on one very important regard: instead of adding, they divide.

Mexico is enduring an accumulation of grievances and conflicts, some out in the open and others entombed, but all conducive to greater divisions, if not to open war. That is the risk, the one that is exacerbated inasmuch as the federal government disappears from the map. In contrast with other nations (Spain, which functioned quite well without a government for more than a year, is a good example), Mexico cannot live without an active arbiter: an arbiter devoted to propitiating dialogue and social concert. The divisive factor in Mexico is power: without dialogue, conflict lurks just around the corner.

Minxin Pei has just published a book on corruption in China*. His argument is that the Chinese system renders corruption inevitable and that corruption will be the cause of China’s eventual collapse. It is evident, by any reckoning, that there is no proportion vis à vis China: with all of Mexico’s shortcomings and defects, the problems here are aired out and are public. That means they could be dealt with. One must maintain a sense of proportion that allows for a terse transition, whether or not it takes another decade. But someone has to lead it.

*China’s Crony Capitalism

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Luis Rubio

Concern is in vogue with regard to China’s growth rate and its potential implications for the world. However, the same phenomenon can be observed in the U.S., Europe and other nations, including of course Mexico: the pace of economic growth has been descending. The question is why.

The simplest explanation for the tendency toward a lower growth rate is that as societies become wealthier, their incentives and needs that must be satisfied, change. The argument sounds reasonable: it is obvious that what an Indian who lives on less than a dollar a day requires is very distinct from the demands of a Swiss citizen, rendering it natural that India’s growth rate would be superior.

In his famous book The Cultural Contradictions of Capitalism, Daniel Bell affirmed that growth laid the base for its own destruction because it generated people with little hunger for greater growth. In recent years, Edmund Phelps published a book* that follows that argument but leading to a very different conclusion: it is not that people stop having aspirations and needs, but that the environment has changed, making growth increasingly difficult. That is, it is not that capitalism engenders antibodies against growth but that the society tends to develop a form of new corporatism that impedes change.

Phelps’ argument reminded me of what Galbraith said on the subject of the “military-industrial complex”: it tends to paralyze development because it entails arrangements among enterprises and the government that make it difficult to change the status quo, the latter a condition necessary for the growth of the economy. Phelps denominates “corporatist complex” this type of corporatism, in which he includes the government, the legislature, the banks, companies and unions. For Phelps, there an implicit alliance among all of these interests to conspire against competition and innovation.

According to Phelps, there are phenomena known to all that stand in the way of growth and that have a bearing on the companies’ incentives, the conditions for competition, the way in which the granting of bank credit has changed and the search for wealth ad hominem. However, what appears crucial to Phelps, and what is his true contribution to the discussion on growth, is that economic policy (in the broad, not the budgetary sense) is an institution in itself that reflects the values of the society and those very values bestow privilege on the preservation of what is. In a word, people do not want to take risks and that translates into social mechanisms that cause change and innovation to be impossible.

Those values procreate subsidy and protection mechanisms for enterprises and persons that have the effect of hindering the rise of new companies and development projects. In this manner, the laws, the regulations, the taxes, and the pension plans end up protecting what exists, making it unattractive for there to arise entrepreneurial spirits like those that forged wealth in former generations.

Phelps analyzes matters such as the following: bank credit was easier to procure decades ago than it is now, the creativity that is inherent in humans and that translates into the ability to identify new markets, solve problems and explore, does not prosper in an ambience of rigid rules, regulatory requirements and insurmountable fiscal issues; the enterprises that already exist and that have deciphered those pitfalls (typically a long time ago) entertain an incomparable advantage with respect to the individual attempting to create a novel venture. This adds up to people ceasing to be creative and to their adapting to the jobs or opportunities already in place instead of undertaking new ones.

If one were to go back in time to the histories of the growth of the world economies in the XIX century and the beginning of the XX, an era in which there were a lot fewer rules and regulations for everything, it is clear that innovators would run immense risks. An uncluttered comparison between the transportation systems of then and now sheds light on the different conceptions of what is safe:  carts pulled by horses vis-à-vis automobiles equipped with every kind of protection. Phelps’ proposal does not involve returning to that time, but rather to focus attention on the costs implied in that entire world of protections and subsidies that has been constructed and that is, from his perspective, the explanation for the sinking growth rate.

If one extrapolates Phelps’ analysis to Mexico, it would seem obvious that the strange collection of tariffs and subsidies that persist in a broad swath of the industrial sector is a factor that hinders innovation and, thus, growth. However, it is possible that the main explanation for the country’s poor economic performance dwells elsewhere: nobody wants to assume risks because of the low probability of success, a circumstance that become more acute when there is so much uncertainty: part of which is caused by factors of the moment, like the recent American election, but above all by the physical and patrimonial insecurity that characterizes the environment. The pathetic performance of our economy is not the product of chance.

*Mass Flourishing

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Luis Rubio

Western democracies are in crisis. One country after the other undergoes radical changes in the conformation of their electoral structures: voters appear to be fed up with the traditional solutions and begin to opt for alternatives that previously seemed inconceivable. In France, the Extreme Right advances without cease; in Spain the old Spanish Socialist Workers Party–Popular Party (PSOE–PP) duopoly  collapsed and it took more than a year to get a government in place; in England the Radical Left took control of the Labor Party. The U.S. broke all the historical cannons. Beyond the specifics, it is reasonable to ask whether in Mexico we will continue in the “nothing’s going on here” mode or, sooner or later, alternatives impossible or unthinkable until now will see the light.

The heart of the disenchantment exhibited by the electorate in the most diverse countries is the same: there is exhaustion, despair and a consequent rejection of traditional politics that promises but doesn’t deliver the goods. Citizens are tired of politicians who steal, provide increasingly less credible explanations, do not solve problems, pass the time dealing merely with ghosts and symptoms, without ever creating the conditions for the economy to satisfy the needs of the population or for democracy to serve as an effective mechanism of representation.

It is entirely possible, even likely, that the solutions adopted by the electorate in any of these countries ends up solving nothing, but the message is clear: patience with poor government has limits.

Over the past few decades, Mexico has undergone increasingly more vice-ridden, petty and dysfunctional electoral reforms that do not even appease the very parties that promote them. And that doesn’t even address the citizenry standing dauntlessly before the spectacle of the political parties’ businesses and their endless waste. It is possible that the El Bronco phenomenon in Nuevo León heralds a new political era, but there is no doubt that what made it popular, above all in the absence of a credible government program was its vow to put the former governor in jail. The spurning of “politics as usual” is patent.

Although each country is very distinct, two ambits dominate the citizenry’s ire: the economy and the corruption. The Mexican economy has for decades been split in two: one functions and grows like a meteor, the other contracts and becomes impoverished. Instead of tackling the causes of these differences, the political debate revolves around the past (that is, abandoning what little there is that does work) or following the same course of action (that is, don’t change anything, even for the better), although this does not fix the problem. With regard to the corruption, scandals accumulate but the responses to these are always rhetorical: new laws are drawn up because in Mexico there is no problem that does not merit a new law that, of course, will never amount to anything relevant or solve the problem.

The peso experiences its greatest devaluation in decades and this is always the fault of others. The problem seems evident but the justification is always the same: the bad international situation. In the past thirty years there have been periods of extraordinary economic growth in the world and others of recession, but in the Mexican economy, with the exclusion of a pair of really bad years, things have continued exactly the same: a pathetic average annual growth rate of around 2%. What is emblematic is that no one is responsible for this: when things go poorly in the outside, the problem is the U.S. or the Chinese economy, the international recession or the oil prices. When things go well elsewhere, the fault is of the previous administrations or of the opposition political parties. There is no lack of excuses but responses and actions likely to confront the problem are non-existent.

The marvelous part is that, when faced with adversity, the Mexican always responds with a joke and in that things have indeed changed: it is affirmed that the difference between dictatorship and democracy lies in that in the former the politicians laugh at the citizens while in the latter it’s the other way around. Measured under this yardstick, the Mexican democracy is a consolidated one:  there is no affair or corrupt practice, however insignificant, which does not occasion a regenerative witticism. Were Mexicans only to devote that creativity to technological innovation, the development of new products or the improvement of productivity, the country would be Switzerland.

Creativity is not absent among politicians either. For decades, the famous quip, now mythical, about when the new president gets stuck, he finds his predecessor had left to him three envelopes. The first says “blame me”; the second, “change your cabinet”; the third reads: “write three envelopes”. The point is clear: do anything but solve the problems.

As illustrated by the electorates of countries like those mentioned at the beginning, the problem is universal in character: the world has changed but governmental and political systems no longer solve the problems.  At the same time, many of the problems are not so difficult to solve because their causes are obvious. Reagan sketched out the problem clairvoyantly: “For many years you and I have been shushed like children and told there are no simple answers to the complex problems which are beyond our comprehension. Well, the truth is that there are simple answers. They just are not easy ones”.

In effect, there are no easy solutions, but the answers are obvious. The question is whether the traditional political system will make them theirs or whether others, outside of the system, will come to try.

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@lrubiof

Luis Rubio

The general tone is one of catastrophe: the world changed and no one is going to be able to save it. The Trump victory may not have been desirable, but it certainly was probable. The manner in which the government and many opinionators have reacted suggest that “the end is near”, but that need not be so. The atmosphere reminds me of one of the passages from War and Peace: “The strongest of all warriors”, Field Marshal Kutuzov explains, are these two:  Time and Patience.” With Napoleon’s army advancing, Kutuzov wisely wanted to wait for reinforcements before engaging in battle. When Russian generals demanded that Kutuzov attack Napoleon at his strongest, the field marshal replied, “When in doubt, do nothing.”

The election of Trump as the president of the world’s superpower and our main trade partner does not furnish us with many options but it obliges us to contemplate, with a cool head, the implications and opportunities that this entails. At this time it is impossible to know what Trump will actually do, but we already know that he will submit NAFTA to an evaluation at the Interstate Trade Commission -an agency with serious analytical capabilities- with an economic, labor and geopolitical mandate, in other words, seriously. Obviously, no one knows what will happen once the government is duly integrated, but nothing is accomplished by speculating. What is certain is that Trump brings with him an enormous sea change, but, once he is functioning in office, the reality of the power and of the institutional structures will sink in and make him recognize that there are limits to his agenda. What is crucial is to work to attempt to remove our issues from the line of fire, something not easy, but not impossible either.

If one reads his “Contract with America,” a pamphlet that was prepared for his campaign, there are no limits to the risks that we are confronting; however, if one analyzes the realities of power and of geopolitics, the options that the new president will face are very distinct from the agenda that he proposed when he faced no restrictions. One thing is the rhetoric and another is the reality, which does not mean moderation.

Everything indicates that our greatest risk (that Trump might sign a letter annulling NAFTA upon arriving at the White House, a possibility foreseen in Article 2205 of the agreement) has diminished. The assessment by the ITC will be the centerpiece of the process. While that’s settled, the government should maintain -actually, accomplish- unity and discipline of message and clarity of objectives. It also must understand better the panorama of the new team as it takes shape in order to identify opportunities but also to develop strategies that show Mexico’s strengths and chips -which are not few- in this relationship. Managing the political process will be crucial. Of course, we could and should aspire to a much more profound understanding of the immense complexity, diversity and two way benefits inherent to the bilateral relationship –the benefits that both of us derive from this in matters of security, stability and economic development-, but first things first and that is that NAFTA is the only engine of the Mexican economy.

The government can congratulate itself about its foresight (the invitation to today’s President-Elect), but the reality is that this does not change by any means  the disaster and the vulnerability under which the country was placed with an economic and fiscal policy of the seventies that is unsustainable in the globalization era and, maybe, even with the invitation itself.

The second stage will begin, at least formally, as soon as the new government begins to function. That is where will be able to see tensions on various fronts; first, between the two governments due to incompatibility of views, perspectives and objectives. The government might have saved itself from the “punishment” that Clinton probably had planned in the form of a merciless attack in matters of human rights and corruption, but there will indeed come a clash of visions for which Mexico certainly is not prepared. The point is not who is right, but who possesses the capacity to impose an agenda. The key during these months will be to “educate” the new government concerning the importance of the relationship, a principle that includes making them realize, in practice, that they too benefit from the relationship, that it is equitable and that they need Mexico’s cooperation.

However, Mexico’s image in the U.S. will not change until reality changes. Trump took advantage of Mexico because that something easy for his potential voters to understand: that our way of acting -corruption, impunity, bad government, bureaucracy and systematic abuse- are what is visible about Mexico. It does not matter whether that photo is fair or not, what is important is that it is real. Until we do not change our reality, that will be the image that remains in the mind of our neighbors: Trump did not invent the image; he just took advantage of it.

The government has two options: one is to bring itself up to accept the new reality and act consequently; the other would be to let someone else do it because the nation cannot wait.

Cantinflas understood this moment better than anyone: “The most interesting thing in life is its being simultaneous and successive, at the same time.” The question is whether this government has that capacity.

www.cidac.org

@lrubiof