Luis Rubio

No Mexican can be pleased when facing Donald Trump’s interminable diatribes with respect to Mexico and Mexicans with which the likely Republican presidential candidate has captivated part of the U.S. electorate. But that’s no reason for Mexico to precipitate its response or react without evaluating the potential consequences of this.

The Mexican component of the Trump discourse is not the product of chance. Rather, it is the result of a strange combination of careless abandon on our part and bad luck. Both factors have coalesced to convert Mexico into the cause of all the woes of our neighbors to the immediate North. Thus, it is imperative to understand the dynamic in which we find ourselves prior to responding.

When negotiations for the North American Free Trade Agreement (FTA) began in 1990, the government mounted a multifaceted public relations strategy in the U.S. On the one hand, it organized an action plan oriented toward that country’s legislative branch to generate support for the moment at which the agreement would be presented for approval;  on the other hand, a broad strategy was articulated of means designed to attract the attention of U.S. denizens toward things Mexican. For this it presented the extraordinary exhibit entitled “Mexico: Splendors of Thirty Centuries” in New York and at many museums in the rest of that country; seminars, conferences and film festivals were organized and events were sponsored in all corners of U.S. geography. In the best tradition of successful countries in Washington, Mexico achieved exceptional presence and recognition. It captivated the American public.

The problem is that, à la Mexicaine, as soon as NAFTA was ratified, the strategy was forsaken and an enormous vacuum was created. That vacuum was rapidly filled by all of the groups that had been opposed to the trade agreement and that, from then on, procured its undermining, if not its annulment. The three most prominent sectors in this ambit were the unions, the environmentalists and the anti-immigrant groups. Some of those sectors (which, except for the unions, are not usually homogeneous) entertain specific motives for opposing it, others trace their anger to ideological factors and yet others are merely ignorant; rightly or wrongly, at least two of the sources of greatest stridence with respect to Mexico –immigration and drugs- are simple economic elements: there is demand, ergo, supply. One thing cannot be explained without the other.

The cost of the withdrawal of a strategy of Mexico’s positive presence in the U.S. has been tremendously steep. Still, it is also true that in these twenty years the world changed and it was our bad luck that many of those changes were attributed to Mexico, regardless of whether both things were independent of each other. During those twenty years, globalization transformed the method of production worldwide; technology  (above all that of robotics) drastically reduced the need for manpower in industrial production; and the digital revolution rendered a huge segment of the traditional labor supply irrelevant because it does not have the necessary skills to be successful in that new world.

Our misfortune was that NAFTA entered into operation precisely when all of this was taking place: when the Mexican presence was growing in all ambits (above all in the form of exports and migrants), all of this without there being a protective parapet in the guise of a good public relations campaign that would safeguard the country and engender for it a good name. It is obvious that Mexico is not to blame for all the calamities that Trump and his retinue ascribe to it, but it is indispensable to recognize that we –our absence- contributed to creating the propitious breeding grounds for this to occur.

Other things also happened. An example says more than a thousand words: when I was studying in Boston in the seventies, the Mexican Consulate there dedicated itself essentially to the U.S. community. That is, it was a mini-Embassy devoted to promoting Mexican affairs in that city. The same occurred at the other forty-odd Mexican consulates in the U.S. at that time. Today, the consulates seem like municipal delegations given over to resolving formalities for Mexican migrants.   During these forty years, migratory growth changed everything with respect to the presence of Mexico in the U.S. and today’s consulates reflect this. The effect of that is that we relinquished a vital presence in U.S. communities.

Trump is harvesting the economic avatars of the past two decades, particularly the loss of manufacturing jobs (product of technological change, not of Mexico) and the growth of migration (product of the demand for jobs above all in agriculture and services). It is possible that, on having maintained an active public presence, some of the negative impact concerning Mexico could have been neutralized, but at this stage nothing can be done in this regard for the purposes of this year’s elections.

This said, a colossal risk exists: the boorish attempt to affect the result of the election by means of a rush to compel Mexicans in the US to naturalize as citizens can turn out well if Trump loses or very badly if he wins. Trump is not irrational: his strategy is absolutely logical, clearly reflective of a careful reading of the polls and of what is bothering his fellow Americans.  It appears rash -and very dangerous- to me to try to skew the result in such a crass and vulgar manner. Involved here is not any inconsequential enterprise; at stake is the  viability of the country, whose economy depends, only a cool 100% of it, on exports to that country and on remittances materializing from there.

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 Luis Rubio

The daily life of Mexicans intersects with innumerable suppliers of goods and services and governmental entities, very few of which materialize for the citizen and consumer, respectively, as their raison d’être. A patrimonial vision persists and endures in which the citizen is at once the subject and captive consumer, both of these the property of those who should be the furnishers of competitive services. Instead of anticipating future competition and conceiving of the consumer as informed and responsible, they hazard a bet on continuity. They mirror Orwell’s words when he, on addressing the language, affirmed that: “The political language is designed for making lies seem truthful and murder respectable….”.

The country has for decades been engulfed in mediocrity, faithfully reflected in the growth rate of the economy. However many attempts are engaged in by the authority, the evidence is resounding: the Mexican economy functions to the degree that the engine that exports and remittances represent operates; that is, we live because of the U.S. economy. The internal engines do not work for the same reason that they have not worked since 1970: because key issues have not been attended to. The core problem is political, in that concentration of power leads to the abuse perpetrated against the citizen and consumer, which in turn inexorably generates mistrust that inhibits investment and saving. The result should surprise no one. Some allusive examples:

• The government of Mexico City is delighted for having rid itself of the Federal District (the D.F.) because it will now serve, and with no qualms, its interest groups. The constituent process comprises only insiders. The new traffic regulations are designed to impose discipline by means of arbitrariness: their rationale seems more like tax collecting than like creating a space of civilized coexistence. Rather than currying citizen favor for his future candidacy, the Head of the City Government is experiencing the collapse of his popularity. Perfectly predictable.
• The Rule of Law is inconceivable without order and discipline, but the question is where to start. Miguel Ángel Mancera began by imposing fines in wholesale fashion, with all of the abuse that the latter can provide; Arne aus den Ruthen, in Mexico City’s Miguel Hidalgo Delegation, opted for the path of confrontation. Order is necessary; the question is whether arbitrariness is a model of civilization. Subjection of bodyguards is one way of combating arbitrariness and impunity, but without crushing it because making a great ado does not guarantee results. Arbitrariness does not end impunity and, in contrast, can propitiate it.
• Presently in the making, The Constitution of the Federal District is an illustrative case. No matter how hard a long list of notables has involved themselves,  the greater part of the citizenry is not aware of this nor is it represented. Is this a private process, only for those currently in office? Some months ago, the U.S. Securities and Exchange Commission (SEC), the U.S. equivalent of the Mexican National Securities Commission (CNV), proposed a modification in the respective law. The first thing it did was to publish the proposal so that all the interested parties would be informed, comment on it, and petition changes or greater precision, a process that would take  over a year: the objective is better regulation, not a boorish candidacy. The point is to facilitate public discussion that permits all of interested parties the opportunity of analyzing and evaluating its implications in order to recommend corrections as well as of adopting the pertinent modifications and mechanisms in order for it to possess, when finally implemented, full validity and credibility. The process in Mexico City (the new Ciudad de México [CDMX]) is absolutely arbitrary: the SEC process is absolutely predictable, thus zero arbitrary.
• Private companies are not far behind. Banamex cancels accounts of more than 30 years if they have not been used in the past twelve months, as if it were the holy government.  The worst is that it is that the interested party who must prove that the bank is in error and not the opposite. When the light go out, the response of the Federal Electricity Commission (CFE) is “… but we’re not billing when there’s no electricity”, as if a modern economy would be able to function not only with that degree of arbitrariness, but also above all with that inability of understanding the importance of the flow of electricity. Aeromexico flights depart at times different from those advertized and then changes reserved seats as it pleases. Who does it work for? The company registering the greatest number of complaints at the Prosecutor for the Consumer (Profeco) is TelMex. Where does the consumer stand in all this?

What’s paradoxical about Mexico with an open economy is that, while it has drastically increased the availability of goods and services, consumer dealings continue to be authoritarian and arbitrary. I ask myself what will happen when true when options really exist…

Arbitrariness is the norm and one of the obvious causes of the lack of trust, which has translated into the extremely low rates of economic growth and also into the most superlative levels of contempt for authority. Arbitrariness feeds on impunity and this generates cynicism. There’s no worse vicious circle.

The mediocrity overwhelming the country is the product of the indisposition to take the great step forward to construct an ordered and civilized nation. Of course it is necessary to discipline, but the latter requires its achievement with the legitimacy of governmental as well as entrepreneurial action. Without that we we’ll do nothing but go on digging the hole of justificatory language and poor results. There is no way of disguising overwhelming evidence such as these.

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 Luis Rubio

In today’s world there is no more divisive and politicized issue than inequality.  Inequality has supplied interminable rhetorical fuel to politicians and activists, turning Thomas Piketty into an international celebrity and triggering innumerable “occupation” protest movements worldwide. What is not obvious is that emphasis on inequality solves anything.

No one can dispute the fact that inequality exists but the essential problem is poverty, not inequality. “The poor suffer because they don’t have enough, not because others have more, and some far too much”, says Harry Frankfurt.  Why then do we not worry more about the poor than about the rich?

William Watson* argues that “focusing on inequality is both an error and a trap. It is an error because much inequality is ‘good’, the reward for thrift, industry and invention. It is a trap because it leads us to fixate on the top end of income distribution, rather than on those at the bottom who need help most.” In other words, combating inequality –therefore, capitalism- would lead to generalized impoverishment without ever diminishing inequality.

Inequality is the effect of an economic system that rewards and compensates creativity and innovation, inevitably generating differences in income in the process. The problem in countries like Mexico is that there are other elements that impact the result and that differentiate us from societies that, although manifesting high inequality levels, do not have poverty. For example, political use of the educative system (created to teach to a lesser degree than to control the population) has had the consequence of biasing the result, producing a majority population with little capacity for developing itself in the modern economy and a minority that possesses infinite possibilities of seizing upon opportunities. The same can be said for governmental concessions that favor concentration over competition or systems of permits (such as those for imports) which are an endless source of corruption. If we add to this total impunity, the ingredients of poverty and inequality are in the end uncontainable.

If one only wishes to observe the inequality and stops there, the solution becomes evident. Like the proverbial example of the man who, because he had a hammer in hand believed that all there was to do was to drive nails into the wall,  those obsessed with inequality in truth have a more relevant and profound agenda,  which is to undermine capitalism and stockpile more funds for the use of the bureaucracy.

In the discussion on inequality what is crucial is to define whether one is addressing a problem or an instrument. Inequality as a rhetorical instrument is highly useful for driving political careers, but does not lead to a solution of the problem and could even render it more difficult; inequality as governmental and social action objective obliges one to define priorities that should be seen to by public policy.

If one observes the distinct moments of the poverty-fighting programs that, from the seventies, have been the emblem of successive governments, the tension is plain between these two forms of understanding poverty as well as governmental action. In this manner, programs ranging from IMSS-Coplamar to Solidaridad, and more recently Prospera, follow a political logic that, while doubtlessly procuring the watering-down of poverty, have an unmistakable, patronage-oriented rationale with electoral and political control aims. On their part, programs like Progresa and Oportunidades obeyed a technical logic without electoral or patronage benefit. The question becomes apparent: political tool or problem to be solved?

Inequality, above all the so widely imputed inequality in Mexico, embodies a complex origin and cannot be resolved merely with fiscal policy. In fact, the notion of raising the taxes of some to redistribute them to others has always entailed the result of diminishing growth (because it de-incentivizes investment) without benefiting the poorest, because the bureaucracy is not efficient in distributing those benefits and, perhaps more importantly, given that there is an entire institutional framework that actuality promotes poverty. The example of the fiscal reform of two years ago is more than eloquent: it affected the consumption of the poor and decreased the investment of the rich.

Attacking poverty is the country’s great challenge and there are not many ways to do it. The most obvious one is achieving high economic growth rates within the context of much greater competition to that to which we are accustomed, in addition to a radical change of course in public policies that are key for the poor, particularly education. For this to be attained we must advance in a nearly opposite direction from that which has characterized the country: we have to liberalize more, make the tax system competitive, generate conditions that make productive investment attractive (beginning with the absence of the counterweights to political power) and eliminate the biases that favor certain persons, officialdoms, companies and groups over others. A recipe like this might preserve the inequality but would have the effect of drastically reducing poverty, not with hand-outs but with real opportunities for productive employment.

Of course, it’s very easy to market inequality as a political project, but that doesn’t solve anything.

*The Inequality Trap

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Luis Rubio

“When people stop trusting any institutions or having any firmly held values, they can easily accept a conspiratorial view of the world”. That, says Peter Pomerantsev*, is the ulterior objective of the Kremlin’s strategy of propaganda and control: generating cynicism among the population so that it will accept the command of the government. Cynicism ends up becoming an instrument of political control.

In Mexico the cynicism of the population is ancestral. Although the reign of the old system did not entail the perversity of the Soviet system, the witticisms, jokes and, in general, cynicism comprised the defense mechanisms that the society developed in the face of poor economic performance, governmental corruption and abuse. However, there was, and is, a glimmer of Soviet inspiration in the management of information, which always led to the flowering of conspiratorial explanations. In this light, it is fascinating to observe the inherent contradiction in the protests –before and now- against the exacerbated power of Mexican presidents: how even the civil organizations that pride themselves most in their autonomy heartily end up demanding from the President himself action, response and resolutions.

One of the chief qualities of the old Mexican political system was the equilibrium generally maintained between control and freedom. Although it was doubtlessly a system infused with control accompanied by eventual recourse to authoritarian measures, spaces of personal freedom were also significant. The contrast with military dictatorships and totalitarian societies was brutal: not by chance was the system always referred to (and an infinity of academicians characterized it thus) as relatively unique or at least exceptional. Its paramount defect was the absence of adjustment mechanisms that would have permitted the flexibility necessary to proceed to adapt to changing times. That lack of adjustment capacity explains in good measure the complexity of the moment Mexico is currently experiencing.

Totalitarian systems generated loyalties that were the product of fear, but they never acknowledged the fact that, on attempting to control everything –all aspects of the society and daily life-, those same regimes made it possible for anything to become a source of dissent. Vaclav Havel, the dissident intellectual and later Czech Republic President, exhorted the population to take advantage of that spirit of control and overturn it: if the government wanted to monopolize the entire life of the citizenry, citizens had to, simply, live “the truth”, ignoring the official verities.

One of the objectives of the KGB, the Soviet intelligence and repression organization, consisted of manipulating information, day-to-day life and the economy: things could not “simply happen”; they had to be the product of a decision from above  devoted to manipulating the day-to-day progression. Markets could not be free; they had to be administered. Elections could not be unpredictable: they had to be decided upon beforehand. Everything that is not controlled is hostile. With that logic, the Russian Government and its satellites kept the population subjected for decades.

The Mexican political system learned much from those practices and improved on them in a myriad of cases, beginning with a very simple one: it never fell into the pretentiousness of controlling everything. One day, after I published an article that had upset a functionary, the Minister of the Interior called me. As if we were great friends, he told me, in overly colloquial mode, as if providing harmless counsel, “in Mexico anything can be thought, some things can be said and very little can be written”. The threat was clear, but it wasn’t same as the Gulag.

What the system did not learn was to adapt; while it did achieve the containing of dissident movements when independent candidates emerged in the forties and fifties, the repression of the 1968 Student Movement marked an end and a beginning. Instead of steering clear of the storm as it was wont to do, the government at the time interpreted it as a challenge to its essence and existence and acted in consequence. Fifty years later we are still living with the consequences; not only has the raison d’être of any government, that of maintaining order and security, been cast aside, but any vestige of civility has vanished.

Can the vicious circle be broken? The manner in which diverse tight-spots in recent times have been resolved give the impression that this would be difficult. Seen in retrospect, the great electoral reform, that of 1996, was for all intents and purposes a mechanism of co-optation: in reality the electoral system did not change to open competition, but instead incorporated two additional parties (PAN and PRD) into the old system, that of privileges. In today’s Congress there is enormous diversity of representation, but there is a multiplicity of anecdotes intimating that the actual mechanism of legislative control and voting can be likened to the world’s oldest practice: money under the table. In fact, it seems so obvious and in the open that it is over the table and with well-established tariffs. Some decisions with regard to appointments have been forced upon the legislature and other nominating bodies by the threat of demonstrations and work stoppages. That is, by means of force.

It seems to me that there are two ways to break the conundrum: one would be the product of leadership that understands the risks involved in continuing to pursue the present course. The other would be for organizations of the civil society to mature and develop strategies and coalitions dedicated to driving the development of checks and balances that would impede the abuse and excesses. I do not see how the reality is going to change by requesting action from the individual concentrating the power (indeed, ever more complicated to exercise) if what is sought is checks and balances and transparency. The alternative is cynicism.

*The Kremlin’s Information War, Journal of Democracy, Oct. 2015.

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Luis Rubio

It’s surprising that some are surprised. In the last five decades the country has lost all of its bearings: it changed its strategy of economic development, maintained the system of privilege (increasingly corrupt and visible) and, on top of everything else, undermined its own credibility on incorporating a belief system that hollowed itself out from within. The electoral preferences commanded by potential candidates such as Lopez Obrador, Jaime Rodriguez, El Bronco, and other outsiders are the consequence of what, consciously, has been done –and what was decided not to do- in the last fifty years.

The ideological hegemony in a society, the essence of the work of Antonio Gramsci, is developed, nurtured and preserved through the institutions that sustain it. The old Mexican political system was exceptionally deft at that: it aligned –and submitted to it- all of the social actors and governmental instruments in order to lend viability to its philosophy of “revolutionary nationalism”, over which it sustained its hegemony through the decades. However, when the system encountered problems in the sixties, first in the economic realm and later in the political, it lost its way and, although extraordinarily positive things have been accomplished, the government has never recovered its bearings. A new hegemony never emerged.

Stable societies entail two complementary characteristics. First, they enjoy ideological hegemony because the visions emanating from the educative system, the religious prelates, media, the political and entrepreneurial discourse and from the diversity of social and intellectual entities all coincide. When the loss is suffered of coherence and congruence the system’s credibility is forfeited and support of the sociopolitical regime disappears.

The other characteristic derives from the results of governmental management that strengthens, or reduces, its credibility. It is obviously easier to sustain hegemony in a prosperous society in which all of its members benefit from and entertain a horizon of progress, than in one living from crisis to crisis. Korea possesses great ideological solidity while Venezuela finds itself on the brink of a resounding collapse.

What have we done in Mexico? In the sixties the economic sustenance of the revolutionary regime vanished. In the seventies the sources of economic stability were destroyed and laws and regulations were incorporated that undermined economic development; in the eighties and nineties a new economic strategy was adopted (which has made it possible to survive and succeed for the last twenty years) but this strategy was never thoroughly implemented in an integral way, sapping its own viability, thus its credibility. Throughout this entire process some have been favored at the cost of others, giving rise to deep-seated social resentment. At the same time, the essence of the old regime has been perpetuated, making of the system of privilege an enormous social blemish, with a growing cost: according to some estimates, corruption in the country represents 9% of the GDP, while the impact in terms of credibility and reputation (sufficient to remember celebrated moments such as #LadyProfeco or that of #LordMeLaPelas) is infinite. The sources of unease and anger in the society are obvious.

What has been paradoxical through all of these decades is how rhetorical objectives have clashed with concrete actions. The case of education is paradigmatic: although this was conceived as a legitimizing instrument of the revolutionary government, up to the seventies an ideological equilibrium was maintained that was compatible with the development of a private enterprise-based economy. From the seventies on, the tenor changed to the point that children of following generations only know how bad everything about capitalism is, this despite that all of the later reforms were envisioned to shore up private investment. Flagrant contradictions.

This all generated growing tolerance for mediocrity, while political correction has ended up becoming the mantra and absolute limit of freedom of expression. If to this we add a succession of failed governments, rejection of the political establishment is absolutely logical. In a word, what we are currently undergoing is the consequence of actions, decisions and choices over many years.

Within this context, who does support López Obrador, El Bronco and other potential “dissidents”? All those who have grown up in an era of crisis, of rhetoric that is openly fallacious and full of lies, and growing corruption, waste and impunity. Why would one believe that things are going to get better when things are not carried out that are promised and that would be necessary for this to function? I have no doubt that the employee working at a plant exporting successfully and experiencing growing productivity levels optimistically perceives a future of opportunity, but I am certain that there are millions more who are stuck in an old economy that affords no possibility at all and who know that there is no future. There are real sources of resentment.

In the logic of the mediocrity of the last fifty years, concessions such as the lack of a modern system of education capable of providing equality of opportunity for all might have seemed to be minor and not transcendent, but have undercut the country’s viability and trust in government. As Mario Puzo wrote in The Godfather, “if we let them push us around on the little things, they wanta take over everything”. Successive governments were yielding in everything. Now the question is how to steer the country forward anew.

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Luis Rubio

Two have been the reactions to the announcement by government officials of budget cuts: some complain of the impact that these will exert on concrete programs, on public investment or on aggregate demand. Others criticize the cuts as too little, too late. If one observes, no one defends governmental spending for its virtues or for the opportunities that it could or should generate but rather for the costs that it entails. The budget, in any country, reflects a combination of political priorities and the correlation of forces. That correlation of forces in today’s Mexico produces an enormous fiscal weakness that reflects the institutional fragility of the political system as a whole.

There are three factors that aggravate fiscal fragility: first, the excessive discretionary powers possessed by the functionaries. When one listens to a European or U.S. Minister, what makes him or her different from a Mexican, Venezuelan or Brazilian one is that the former does not have the monies that can be applied at his discretion. In Mexico even third-level Ministers have significant funds that can be employed discretionally, a circumstance that is exacerbated in the case of the Ministry of Finance. The point is that although Congress has the power to approve the budget, its powers to oversee spending are very limited given the enormous clout of the executive, incalculably superior to that characterizing the U.S. Department of the Treasury or its equivalents in developed countries.

The second factor that distinguishes Mexico’s Treasury is the relatively low average fiscal burden. While some pay a lot, others pay nothing.  The tax collection problem is due to circumstances solely explained by power relations or by indisposition, also deriving from political calculation. On the one hand, there are numberless sectors, activities or groups that are, de facto, excluded from tax obligations: unions, court favorites, political clienteles, organized crime, State governments, political parties, agriculture, and a long etcetera. On the other hand, when types of tax alternatives are considered that could be employed to increase tax revenue, no consideration is given to linking spending and tax collection, something that could only happen if state governments were to collect more taxes, which would make them accountable to  voters.

The third factor, and the reason why the government’s fiscal situation is so fragile, is that the political system lost all legitimacy a long time ago. The reluctance to seek better ways of collecting taxes (which doesn’t necessarily imply raising the rates of existing taxes) derives from, at the end of the day, the perception, well earned, that tax collection is nothing more than mirror imaging of the government’s legitimacy. Some Swedes might prefer a fiscal structure distinct from the one they have to prioritize different objectives from the existing ones, but no one doubts the legitimacy of their government (whose tax rates, in some cases, are higher than 60%). The grounds of the latter lies in that the population can see their “taxes at work” in first-rate educative and health systems, an impeccable solicitousness with public funds and an economy that works. The point is that the fiscal powerlessness of the Mexican government is the product of its extremely poor performance: more money does not solve that dilemma, nor does it create better public services.

Although there have been moments of more fiscal strength, the frailty discerned during the last decades has occurred in parallel with the collapse of legitimacy since the seventies. The great good fortune of the government was that it discovered oil precisely during that period. It was from the seventies on that the promise of oil began to generate funds never before imagined, which allowed it to evade the underlying political problem: due to the governmental control of the oil resources, it seemed natural to employ the latter for political ends and for current expenditures rather than for investment.

Four decades later, the evidence is overwhelming: oil rents were wasted from day one, even before the oil began to flow in the second half of the seventies, and it never evolved into an instrument of long-term development. Billions of dollars passed through the governmental coffers leaving very little beyond that of clienteles dependent on patronage, unions turned into vested interests, the great wealth of politicians, governors consecrated to own private businesses and a country that, even though it certainly has improved, is far from having come to enjoy the good government indispensable for achieving that purpose. When the energy reform was being promoted there was much talk about Norway as a “model” to emulate. In both countries there is a great amount of oil; the difference in Norway has been the quality of its administration. It would have been better to count on that type of administration than on oil…

The big question now is whether we find ourselves in a cyclical or in a structural slump of oil prices. In the daily literature it is easy to find arguments in both directions: some who think that there will be a drop in supply, thus eventually strengthening oil prices; and then there are those who note such a pronounced reduction in alternative energy costs that we are at the threshold of a new energy era.

I do not know what really will look like in the future, but I do know that if the price of oil does not improve, the country will be obliged to confront its problem of essence: the issue of power, and that would entail a redefinition of political relations and the creation of effective checks and balances. Of course, the intermediate step of mediocrity is always possible, even probable, but the problem will not disappear simply out of pretending to cut expenditures in the short term only.

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Luis Rubio

The strangest thing about the Peña-Nieto government is its total indifference toward its own legitimacy. It is probable that the presidential team’s calculation lies in the eventual redemption that the projects and reforms it has undertaken produce, but that would imply that its actions in past years would render results of their own and not be products of the day-to-day function of governing. Be that as it may, it is a peculiar wager, above all in the light of the offer that today’s President made in his campaign for the presidency: efficacy.

The governments of past knew that their legitimacy was fragile and that it depended nearly totally on the country’s performance, above all in economic matters. For seven decades, the PRIist governments did even the unspeakable to achieve high growth rates; they knew that the alternative was popular opprobrium. Despite the intrinsic strength of the presidency during that epoch, all of those presidents knew that their credibility depended on the success of their efforts. So exaggerated was that mantra that it led to moments of madness such as those of Echeverría and López-Portillo in which they ran wild with, and in fact bankrupted, the government in pursuit of high growth rates.

The government of Enrique Peña-Nieto not only contrasts with those PRIist governments of before, but also even contrasts with others of this era, such as that of China, which strive to procure the credibility of their populations in spite of being unable to effect the high growth rates like those in the past. The Chinese Government has for decades attained very high growth rates, but it is currently confronting what is perceived there as almost a recession: growth rates of “only” 6%. What is interesting is that, beyond the specifics, the similarities are astounding because, at the end of the day, the two systems coincide in one thing: the fragility of their societies and their incapacity to oblige the government to respond to it.

The Mexican economy is growing at 2%, which is the same it has attained, on average, along the last twenty years. The government vowed to break with this mediocre growth level but has not been able to improve on it despite having raised taxes, augmented public spending, and increased the deficit and the debt. Everything has changed except for the only thing that matters to the citizenry: economic growth.

The growth problem is not exclusive to Mexico. At present the majority of the nations in the South of the Hemisphere are undergoing severe recessions and others are not even achieving the 2% that we have at present. Further than national and regional differences, what is evident is that growth is not obtained merely with greater governmental spending or because functionaries want it to be so. In a globalized world in which everything is interconnected and where communications are ubiquitous, the only thing that counts is the capacity of each nation to attract investment, whether from their own co-nationals or from the exterior. For purposes of investment, the source is the same because the world in its entirety is the playing field and everyone is part of the same space.

What the government has not understood is that legitimacy in this era is not won by the ephemeral growth rate but rather by the quality of the government. It is this factor that determines not only the trust that nurtures the citizenry but also it is, in the last analysis, what attracts investors. Inasmuch as investment determines the growth rate, one would think that the central focus of governmental action would reside in attending to the concerns and needs of potential investors and entrepreneurs but, in Mexico, the sole investors who appear to be relevant are the foreign ones, although their investment continues to be less, much less in absolute terms, than the domestic one. The citizenry does not exist in its vision.

The differentiating factor among nations is one and a very simple one: the quality of the government. By quality of government I understand that deriving from the capacity of collecting taxes and redistributing these intelligently, to that obtained by the certainty that their acts generate, beginning with the existence of predictable game rules known by all before the fact. That is, the country’s challenge does not lie so much in knocking on a thousand doors, but instead in creating general conditions so that all potential investors, including existing businesses, may have confidence in the government. It is much more important for the population to understand the challenges that the country is up against than for the government to squander the citizens’ resources on interminable opacities. The point is that trust, key for enticing investment and generating growth, depends on the quality of governance and not on the promises or individual preferences of the functionaries.

The cause of our stagnation is evident. The government betted everything on growing public spending and now is having to cut back, but is doing so without conviction or a clear sense of direction. This is insufficient in an era in which investors have a whole world as their space for developing and growing. If Mexico does not offer ideal conditions, there will always be opportunities in some other latitude.

The heart of the matter lies in one thing: the government must understand that its initial proposal was correct. What Mexicans want is an effective government, a government that functions because it solves problems and creates conditions for growth to be possible. The problem is that the government identified effectiveness with control but control is not a strategy but a vice. What Mexico needs is a government that works. Nothing more, but nothing less.

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http://bakerinstitute.org/events/1762/

Luis Rubio

Charles Dickens, the celebrated British author who told of the enormous dislocation and impoverishment that the Industrial Revolution represented, began The Tale of Two Cities with extraordinary perspicacity: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on being received, for good or for evil, in the superlative degree of comparison only”. History repeats itself.

The pervasive world issue in recent decades is, again, the grand imbalance: reality advances much more rapidly than the capacity of governments and institutions to adjust. Technology gives rise to inordinate changes in the economy and in families, dislocating companies, sources of work and modes of production, consumption and lifestyles. As the Industrial Revolution destroyed millions of agricultural jobs, the digital revolution is altering the status quo on all fronts. If whoever visited a factory three or four decades ago were to go back now they would note one striking obviousness: production increases exponentially but jobs do not. A half century ago two workers were required per loom; today a sole employee, managing a computer, is responsible for up to ten thousand looms. The social impact is evident.

But the digital dislocation is infinitely more complex that that undergone two centuries ago because, although it displaced many agricultural jobs with the incorporation of machinery in the field, the type of activity did not change radically: in both cases, in the field and in industry, jobs would require manual skills to work on production lines. In contrast, the average worker on an industrial production line does not possess the characteristics that the digital age demands, where intellectual abilities are sought that are the product, in good measure, of the educative process.

Two things are conspicuous on observing the evolution of the automotive industry in the country –perhaps the most advanced of the industrial sector. On the one hand, the skill that workers have had in surmounting the deficiencies of the educative system with which they came on the scene: training programs and the huge capacity to adapt that is typical of the Mexican worker have permitted the rise of productivity and successful competition with the world. On the other hand, the industrial processes found in the country continue being, in the light of international comparisons, relatively simple. That is, the educative system constitutes a huge impediment with regard to incorporation into the world’s most advanced productive systems, the latter accompanied by the best jobs, those that pay most.

The disfunctionality of the educative system is just one very widespread symptom from which the world suffers: there is no country, however well developed, that does not experience the same type of maladjustment. The political manifestation of this phenomenon is apparent in the growing fortification of the French Extreme Right, the ascent of U.S. populism in the person of Trump and, even, in the electoral  appeal that, at its time, was represented by figures like Hugo Chávez in Venezuela and the Kirchners in Argentina. Those who feel pressed by the rhythm of change, the many who have lost jobs or who live on miserable salaries, are auspicious cannon fodder for these movements. The same phenomenon arose at the beginning of the Industrial Revolution and did not desist until decades later, when society and its institutions became acclimatized to the new realities and joined forces with the new economic era. There is no reason to think that this time will be different, but that implies decades of dislocation, with the consequences that this presupposes.

There are at present mechanisms of adjustment (social security, retirement funds such as the Afores, pensions, programs like Prospera) that permit the attenuation of the most obvious costs of these imbalances, but the political phenomenon is not distinct. That is, perhaps the havoc wreaked on humans would be less extreme, but the political impacts without doubt will be.  People who lose their jobs, who cannot find employment or who have unproductive jobs inevitably swell the ranks of the frustrated who revive populist solutions. If we add to this what will inexorably come, the restructuring of monsters such as Pemex, the political dislocation will be colossal because not only will jobs be lost, but also these will be lost by social groups and unions that for decades have been untouchable and that have developed a militant and aggressive culture. The reverberations of the bankruptcy of the Mexican national electricity company Luz y Fuerza in the figure of the Mexican Electrical Workers Union (SME) will have been but child’s play compared with what could emerge from Pemex.

Mexico is particularly ill equipped to confront the imbalance that is ahead. We have weak institutions, a system of government that has already proven itself incapable of dealing with the challenges of the industrial era, and an absent government. At the same time, it would be an imposing opportunity to transform the system of government and to compress two stages into one. The Chinese symbol for crisis incorporates danger as well as opportunity. The question is what our choice will be.

 www.cidac.org

@lrubiof

 Luis Rubio

In his book on inequality, Thomas Piketty obliged the world to confront a politically explosive matter. Although his critics have quashed most of the argument in technical terms, nothing can dislodge the political transcendence that inequality has acquired. Beyond its usefulness for electoral and populist ends, inequality is inherent in human nature; the relevant question from my perspective is whether this has reached such an extreme that it is a menace to stability and if this is so, what should be done about it.

According to Piketty, the proportion of wealth in the hands of a small worldwide elite will continue to grow because the rate of return on the capital is greater than the economic growth rate. His conclusion is that “capitalism generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based”. His solution is to tax the rich.

Ian Morris, a historian, has studied inequality through the last fifteen thousand years (compared with Piketty’s 250). Morris’s conclusion is that each era develops an equilibrium in terms of equality-inequality that ties in with the circumstances and needs of the moment.  “Different economic systems function best with different levels of inequality, creating selective pressures that reward groups moving toward the most effective level and punish those moving away from it.  It is also clear that transitions between systems can be particularly traumatic, and it is possible that we are the verge of such a transition now”.

The main source of inequality at the international level in the last decades appears to arise from a combination of two factors: on the one hand, the accelerated population growth in the seventies and eighties (a period during which the world population doubled), and, on the other, the growing globalization of the economy. Both factors have expedited inequality, above all because, on increasing the reserve of talent worldwide within the context of globalization, each person –from the most modest worker to the most pretentious entrepreneur- was suddenly propelled into a space of competition that had never before existed. In everything relative to standardized production, it is the same whether a product is manufactured in Malaysia or in Guanajuato. On its part, technology facilitates the transfer of services, putting enterprises at the most obscure corners of the planet in competition with each other. In this context, a child born in the northern Mexican city of Hermosillo is competing head to head with another of his same age in Shanghai or in São Paulo. The question is whether he has a similar capacity (or “human capital”) for competing.

In this era, the capacity to compete successfully is reduced to two fundamental factors: costs and human capital. Costs are determined by tangible aspects such as infrastructure and market access, as well as monetary factors, such as exchange rates. Human capital is concerned, essentially, with the education that each person has and his capacity for functioning in niches of high competition, usually determined by the technology itself.

In his book Unequal But Fair, Marc de Vos establishes another dimension. According to him, the accumulation of old money does not determine, as Piketty affirms, future inequality, but rather it has much more to do with the capacities of each individual. De Vos proposes that we are in transit toward an economic system that fuses human with financial capital in which the human element is increasingly becoming dominant. De Vos’s prescription is not to lose oneself in futile attempts to tax the capital but preferably to broaden opportunities for those who are losing ground. This, it appears to me, is the correct focus and the great challenge of the economic development of Mexico.

The inequality in the country stems from two key factors: on the one hand, the enormous polarization that exists in the educative system that tends to preserve (thus, expanding) the inequality. Insofar as a child from the urban middle class retains better opportunities to learn than the son of a farm worker in the southern Mexican state of Oaxaca, the inequality gap grows. In this regard, it is obvious that the core proposal of the educative system –to level the playing field for all children independently of their circumstances or origin- has been an outrageous failure. For many decades, this issue did not seem important because the fatal combination of technological advancement and globalization that has inexorably exacerbated the differences had not yet materialized. Today the challenge is monumental.

The other source of inequality derives from the absence of competition in the Mexican economy, which entails the permanence of sources of wealth of the type that Piketty observes as the engines of a growing gap. A monopoly (or the control of a market) implies that an entrepreneur, union leader or politician does not have to compete, ensuring what economists denominate “rents”, excessive profits that do not derive from the market. In this respect, it is the same for a company that controls a determined service or product, the union leader for whom a percentage of the company’s contracts is guaranteed or the politician with foreknowledge of where an airport is to be built and dedicates himself to buying up land in the area before the fact in order to sell it later at a huge profit.

Inequality in Mexico did not fall from the sky. It was created by individuals of flesh and blood. Thus, it can in turn be dismantled.

www.cidac.org

@lrubiof