Luis Rubio

In 1982, in the middle of the maelstrom that he had precipitated, former Mexican President José López-Portillo affirmed that “I am responsible for the navigating but not for the storm”. It never occurred to him to think that when a ship is piloted directly into a storm the probability of its being swept away increases dramatically. That’s how Mexico wound up in 1982. The risk today is distinct, but none the lesser.

It is worthwhile to look over what happened in the seventies and at the beginning of the eighties because that time is frequently regarded as a great moment of economic development. The Mexican economy had begun to experience structural limits in its growth since the mid-sixties, but it was then-President Echeverría, followed by López-Portillo, who forsook the model of stabilizing development in an attempt to accelerate growth with a swelling public expenditure, financed by foreign debt and inflation. After 12 years, the country was insolvent, to the degree that it took nearly two decades to emerge from the stalemate. In 1994-1995 Mexicans underwent the last crisis of that era and the social costs were enormous because those who have the least are always those who suffer the most, the ones that pay the cost of governmental excesses in the form of rapidly rising prices and unemployment.

It is absolutely logical and reasonable for a government to desire to step up the rhythm of growth and even more so when there is a surplus of capacity for this already in place. The problem, which we have traversed many times in recent decades, is that when the government spends excessively for an excessive amount of time, it exhausts the productive capability of the national plant, which immediately leads to an increase in imports. The latter, in turn, exacerbate the demand for dollars, giving rise to sudden movements in the exchange rate. That is, the reason why deficit spending is dangerous is not theoretical nor ideological but practical.

During these past months, with the drop in income from oil, the government, affected in terms of its own revenue, has seen growing pressure on the fiscal accounts, and the same has occurred with the balance of payments, where a relatively small deficit (of less than 1% of the GDP) went up to more than 2.5% recently. This implies that the demand for dollars is greater than the supply, translating into pressures on the peso. With respect to fiscal accounts, the government’s mushrooming deficit spending is exerting the effect of increasing the debt (that grew from 29% of the GDP to 44% over these past years), precisely when the storm in the rest of the world began to intensify.

When López-Portillo proclaimed that he had no responsibility for the storm he was right, but his argument was no more than a poor excuse to deflect attention from the risk that was approaching. Today Mexico does not find itself in an identical situation because the structure of the economy is very distinct, both because of the huge level of manufacturing exports and due to the fact that the exchange rate is floating (at the time it was fixed). However, the risks are similar, as we have been able to observe in the manner in which the peso has been losing value day in day out.

But the underlying problem is not the fact that more or less is spent, but rather that one person concentrates too much power to decide to engage in this spending without explaining its action and justifying it before a responsible opposition, serious and knowledgeable. In the crisis at the end of 1994, as related by Sidney Weintraub in his diligent study on that devaluation, the great problem was that the outgoing government incurred mammoth risks –it wagered on the stability of the economy- because it was not required to render accounts to anyone. The year 1994 was a particularly complex one for the country due to the political assassinations that characterized it and the Zapatista uprising, circumstances that would have been difficult to manage in the most developed and institutionalized of countries in the world. In Mexico, where we do not enjoy those features, the risk is infinitely greater, which is why 1995 was such a bad year in every regard.

“Democracies”, says Paul Johnson, “work best when the remit of politicians is reined in. The separation of the judiciary from the executive and legislative arms of government is a long-established principle. And in economic policy, too, politicians have begun to realise the value of limiting their own powers”. What seems so obvious to Paul Johnson is something alien to us Mexicans. Here there are no controls or checks of one branch of government over another and the effective faculties of functionaries are excessive, as the foreign-exchange crisis in which we are presently immersed suggests.

There is no doubt that the crisis we are experiencing is foreign-made, but the fact of not being well prepared to deal with it is 100% Made in Mexico.

The classics

In the last two decades the notion has become the vogue in the West, above all in the U.S., that history does not matter and that the past should be judged in the light of today, with present-day criteria. Along the way the classics of history have been forgotten, the lessons that afforded many of us the possibility of understanding the world within its context and as the heritage of the past. Civic-mindedness disappeared from the curriculum and Don Quixote, The Ramayana and The Odyssey, among so many others, even in simplified versions, are no longer read. Miguel Ángel Porrúa has just published a collection of “Classical Readings” for secondary school. Our future would benefit if secondary-school students were to have access to these readings, perhaps the best long-term antidote to the burgeoning international disorder.

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Luis Rubio

“Men will never act well except through necessity: but where choice abounds and where license may be used, everything is quickly filled with confusion and disorder”, affirmed Machiavelli in his Discourses. That is what the debate surrounding the legalization of marijuana seems like. It appears to me that three themes are merged and confused here and that they should be understood, each in its proper dimension.

First is the essential matter of the freedom of each person to do with his life whatever he wants whenever it does not affect third parties. This principle should govern any decision in issues of rules, regulations and control, in whatever ambit, and that of drugs is not distinct. There is no reason to prohibit their consumption in that the sole person affected would be the individual who decides to consume them. The project of Supreme Court Minister Arturo Zaldivar that was approved this week is, in this respect, impeccable.

The second matter is the fact that prohibition has not avoided drugs being grown (or manufactured), transported, or consumed. The sole accomplishment of the prohibition of drugs is the development of enormous consortia devoted to the trafficking of narcotics, the very consortia that, in order to function, generate a mega industry of corruption wherever they are and the violence that inexorably accompanies the latter. On the other hand, one thing is the prohibition of the consumption of determined goods and another, very distinct one, comprises the responsibility of a government to maintain its society at peace. Organized crime proliferates in all societies but not only owing to drugs: also at work are abduction, theft, the black market, gaming, and numberless illicit businesses that must be equally fought against. Deleting drugs from the equation would contribute to diminishing the power of organized crime but would in no way change the responsibility of the State to combat it.

Finally, the third issue is public security, by no manner or means a lesser affair and one that, while obviously linked with prohibition, is not the same as nor does it derive from this. Public security is concerned with the quality and strength of the system of government that a society possesses and that is observed in everything: in the continuity of governmental policies and programs, in the state of education, in the quality of the infrastructure, in the administration of justice and in the respect enjoyed by the police. A strong government (large or not) is one that does not bend with the political winds-at-play but rather functions within a context of laws that effectively limit, through checks and balances, the actions of the politicians who enter and exit the realms of power in consistent fashion.

The nodal point is that decriminalization of the consumption of an innervating substance has nothing to do with public security: this depends on the quality of the government. Although it is obvious that the potential decrease in the earnings of the drug traffickers could contribute to less insecurity, this concerns two distinct issues. In our Mexico’s, in order for drug decriminalization to truly exert an impact on public security it would be the Americans who would have to effect this and not only with Cannabis. The overwhelming majority of narcoprofits derive from the U.S. drug market, thus a significant change in violence in Mexico would not be expected. This is not an argument against decriminalization: only one about the expectation that this would contribute to diminishing the violence.

Spain and the U.S. are two nations in which many more drugs circulate (and are consumed) than in Mexico, but neither of the two is characterized by the levels of violence seen in Mexico on a daily basis. The difference does not lie in drugs being legal or illegal in those nations but instead in that in both there is a solid governmental system that looks after the citizenry. While the conception vis-à-vis drugs is radically distinct in those two countries, the common denominator is the existence of solid judicial power, widely respected professional police forces and effective protections for citizen rights. None of these things is true in Mexico.

Mexico’s decriminalization of the consumption of one of various drugs constitutes a step forward with regard to the principle of individual freedom and that is a milestone in itself. But let’s not ask for the impossible.

Supreme Court

In a system of separation of powers the President proposes and the Congress disposes. That’s the golden rule of checks and balances. However, judging by the controversy regarding the two pending nominations, Mexico continues being a dictatorship. The President is upbraided for not appointing his friends or favorites (as, incidentally, his peers in other latitudes do with frequency). This seems to me an absurd proposal: why would one appoint one’s enemies?

The key is not the president but the Senate, whose function as counterweight consists of evaluating the members of the short list submitted by the president and acting in consequence. In a democracy that is the crucial constitutional control.  It is the Senate where all eyes should be focused on to force it to fulfill its crucial mandate and ensure that whoever comes to be a member of the Supreme Court would possess the merit and quality to do so, independently of his friendships. That’s where the society should call to demand democratic accountability. In view of the Court’s recent decision, there may never have been a more momentous time that this.

Harry Truman soon found that “whenever you put a man on the Supreme Court he ceases to be your friend”. That’s the democratic way.

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Luis Rubio

According to an anecdote that modernizes a story told by Plutarch in his Lives, an exhausted U.S. banker was found resting in a small fishing village on the Yucatecan Gulf Coast of Mexico.  Every day he watched a fisherman set out to sea at daybreak, returning with a few fish and then he stayed in his hammock, amusing himself by spending time with his children and playing the guitar with his friends. The banker asked the fisherman if he would like him to help him build a great fishing business. The fisherman seemed to be interested, so the banker went on: he could get a group of investors together, you could buy several boats, and you could set up a big fishing business, including processing, canning and distribution. You could strike it rich, but you’d have to move to Mexico City or to Los Angeles. And how long would it take to do all of that, asked the fisherman? About fifteen or twenty years, responded the banker. And then what? That’s the best part, said the banker: when the time is right we will register your business on the stock market and you will become an immensely wealthy man. Millions? And what then? With a big smile, the banker responded:  “Well, with that money you could retire, go out to sea in your boat, spend hours lying in your hammock, amuse yourself spending time with your children and play the guitar with your friends”.

The circularity of the anecdote evokes much of life’s absurdity and obliges one to reflect on the why and wherefore of that life. Although there are thousands of books devoted to this theme, the majority of these self-help, perhaps the last place that one would expect great lessons in this matter is in a text by Adam Smith, the renowned intellectual of capitalism who in 1776 published his famous work The Wealth of Nations. Russ Roberts has just published an amusing book that translates Smith’s concepts presented in a book printed in 1759 entitled The Theory of Moral Sentiments. Roberts’ current book, How Adam Smith Can Change Your Life*, claims Smith’s concepts for modern life.

As one could intuit from the initial anecdote, the entire sense of Smith’s work, seemingly contrary to the myths associated with his most famous book, is the futility of money as the pathway to achieving happiness. Beyond a critique of materialism, Sentiments addresses the capacity that we humans possess to beguile ourselves with the seduction exercised by money, power and fame. “Those seductions never satisfy”. Smith’s great insight, says Roberts, is that “our behavior is driven by an imaginary interaction with an impartial spectator”. We do not judge ourselves by our principles but by what that imaginary companion thinks of our acting. That “spectator” makes us see whatever deviation there is with respect to our own code of behavior.

The core point that Roberts extracts from Smith’s text is that “economics is about something more than money. From there, Smith’s book becomes a roadmap for each individual to find his own happiness. Despite the natural avarice of humans, Smith affirms that man is profoundly moral. “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him”.

For an author inexorably associated with the ruthless creation of wealth as something not only meritorious but also absolutely legitimate, Sentiments affords a much richer perspective of the vision of Adam Smith. Russ Roberts dedicates his book to explaining the logic of the “book of manners” that Smith wrote through chapters entitled as follows:  “How to know yourself!”, “How to be happy”, “How to not fool yourself”. In his most well-known book, Wealth, Smith writes nothing about altruism, kindness or compassion. How could that be? Roberts asks himself.

The bridge between the two books, and between morality and economics, which Robert discovers is to be found in the notion that selfishness can lead to others being benefited. Men “are led by an invisible hand to make nearly the same distribution of the necessities of life, which would have been made, had the earth have been divided into equal portions among all its inhabitants, and this without intending it, without knowing it, advance the interests of the society, and afford means to the multiplication of the species”. Economics and morality end up being two sides of the same coin that are, in the last analysis, inseparable.

The next president or the National University

For many decades after 1968, the UNAM 6 was abandoned as a place of political turmoil and the government’s objective was no more than to isolate the country from the brewing and permanent conflict rather than building a transcendent educational capacity. A better leadership and thrust over recent years has sought to reconcile the two characteristics of the national university: an institution for the masses with the mandate to educate over two hundred thousand students and the institution of excellence that characterizes many of its research institutes. The next president will be key because he or she will determine whether the UNAM returns to the era of conflict or consolidates what has been achieved and takes the decisive step towards the transformation that education, the economy and the country require to successfully enter the twenty-first century.

Of all the candidates for the presidency only one has the future in his sight and a project to advance it. Sergio Alcocer has extensive experience both in and outside the UNAM and has the cosmopolitan vision that is indispensable to match the professional side of the institution with the labor market demand, while he also understands well the link between basic and applied science.

*How Adam Smith Can Change Your Life, Penguin

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Luis Rubio

“The objective is to protect the union, defend its privileges and guarantee the source of support that teachers represent for electoral processes”. I don’t know whether that would be admitted by some PRIist strategist, but that has been the strategy of the Mexican government with respect to the teachers’ union from ancestral times. Education in Mexico was conceived as an instrument for controlling the population and the union became a useful means for achieving and upholding the ideological hegemony that “the system” strived for. The child, the supposed beneficiary of education (free, lay and secular in the PRI mythology) was secondary in the scale of priorities. The same is true of the union: as the “useful idiot” of Soviet political literature, what was important was the control and not the result. Today, nearly a century later, it is possible to appreciate the cost of such irresponsibility

It would not be surprising to anyone who observed the history of the education of the country, ranging from debates on the constitution to the socialist education of Cárdenas, that the prototypical Mexican student obtains less than 1 in average score in the Programme for International Student Assessment (PISA) test, the lowest score of any country participating in this evaluation. Instead of dedicating itself to the child, supposedly the subject of the tutelage, the political system has for nearly a century worked to keep the population quiet, in check and subordinate. The problem is that today’s world does not countenance that reality: the economy does not know how to deal with unavailing subordinates instead of creative persons, who are likely to contribute to the development of a modern economy.

The educative reform, with all of its imperfections, at least attempted to pinpoint the educative problem characterizing the country.  Whether due to fear of failing the evaluation or the corruption of their leaders, the National Coordination of Education Workers (CNTE) as well as the National Union of Education Workers (SNTE) defend an educative schema that implies maintaining a status quo that only serves those leaders: it does not help the children, it does not contribute to the development of the country and does pose a threat to political stability. That is, the educative system engendered to perpetuate stability and the PRiist empire ad hominem has listed to the opposite flank: now the risk of education rendering development (and stability) impossible is real.

What is desirable, rational, would be to accept that the “historical” solution (corporatism oriented toward control rather than development) does not work and has become an unmanageable problem. The political and ideological rationality typifying the regimen’s educative policy –control and subordination- undermines technological development, hastens poverty and prolongs underdevelopment. What appears to be so obvious continues to be anathema for the greater part of the political world. However, until the disappearance of that corporatist view, the country will endure sunken in its vicious circles. The problem is one of essence: it must be acknowledged that what exists does not teach how to think, the key to development, or we will continue to press on toward underdevelopment.

While perhaps exacerbated in Mexico, the problem is not exclusively Mexican. Countless countries face the same challenge: how to remodel education into a key factor, a positive factor, for economic development. All current educative system evaluations exhibit absolute incompetence and the examinations reveal a systemic failure that primordially affects the most vulnerable population: the poor. Instead of education working as a transformer means that opens opportunities for development to children, the former preserves the poverty and vicious circles that characterize us.

The relevant question is what or who should be placed at the heart of the educative system. For almost a century, the two factotums of education in Mexico have been the teachers’ union and the bureaucracy of the Secretariat of Public Education (SEP). The system was never designed to nor did it pretend to educate children.  I ask myself whether it is not time to start there: by positioning the child at the center of the equation.

To do that would imply altering all of the mythos of education, beginning with the public variety. In Africa and Asia interesting experiments may be observed with regard to enterprises devoted to education that have achieved at least a consistent and transparent educative system yielding increasingly better results. I’m not proposing ending public education, but rather promoting and favoring the growth of that ogre, the private school, as a means of generating competition and disruption in, feasibly, the last bastion of nearly unmitigated governmental control.

Private education has comprised an exclusive realm of the population with resources, but in Asia and Africa its greatest growth is among the most poverty-stricken, where otherwise interesting innovations are discerned. The best proof that this is viable is that there is practically no family in Mexico that would not prefer a private education for their children were it to have the possibility of defraying the cost of one. A mechanism of school vouchers for financing it would allow for forcing unionized teachers to “get their act together” but also,  –above all- would uncork options for the neediest Mexicans and, in educative terms,  –those left behind.

The problem of education is not budgetary but political. It is time to forsake the objective of keeping the population ignorant and the answer lies in competition, which can only arise from for-profit enterprises committed to education.

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Luis Rubio

There is practically no governmental speech or relevant document in which the growth of the economy is not manifest as a cardinal objective. Economic growth is like a happiness elixir because it reduces tensions, solves problems and facilitates daily life, in addition to generating wealth, jobs and opportunities. It is not by chance that everyone wants to achieve it.  The problem is that, as we have seen in the last decades, it is not easy to attain. Diverse strategies have been tested, some more successful than others, but it is clear that a high growth rate and one that is sustained over time has not been procured.

Although there are many explanations for what is lacking, what does exist or what is required is sufficiently plain. For example, no one –or no reasonable person- doubts that productivity comprises a central factor, as is investment; nor is it in dispute that the NAFTA constitutes a key mechanism for attracting investment, increasing exports and solving balance-of-payments predicaments. It is also obvious that none of these factors suffices and, more importantly, that not all of the population has benefited across-the-board.

A comparison may explain the missing ingredients: in 1997 the world awakened to the news that the region of the planet that had experienced the greatest growth for decades, Southeast Asia, was in crisis: devaluations, sudden nosedives in incomes, price increases, loss in value, that is, all the elements that we Mexicans have lived through numerous times, but unknown in that zone. Soon, however, differences became apparent. Korea, for example, immediately understood that the problem has been too much investment in infrastructure and nearly null growth of productivity, leading it to an about-face in its strategy and a prompt return to an approach of sustained growth that has converted its population into a citizenry with one of the fastest growing incomes. Why haven’t Mexicans achieved something similar?

In his study on the growth of the U.S. economy, Robert Higgs* says that there are three types of capital: material, human and intellectual. “In the long run, it is impossible to build up one part of the capital stock without also building up the others… Witless men behind witty machines would be of no use. Understanding these interdependencies is at the heart of understanding the process of economic growth. To build factories is commonly recognized as an investment, but to obtain education, to purchase improved health, to seek new useful knowledge –these too are investments. And the rate of return on investment in a particular kind of capital depends not only on the size of existing stock but also on the available stocks of complementary kinds of capital.”

In other words, for the economy to grow, productivity is key but for this to be achieved, investment is indispensable in the three types of capital: material, human and intellectual. Hernando de Soto adds another component: according to him, what distinguishes developed countries from those that are not is the existence of a transparent property regime. Thus, although his book is entitled “The Mystery of Capital”, in reality there’s nothing that mysterious about it. The great problem is to find the way for all of the ingredients that make growth possible to be present simultaneously in order for it to occur.

Therefore, while it’s not due to chance that the political discourse of the last half century has been saturated with promises of growth –demonstrating the understanding of its importance- it’s also not by chance that governmental action (and the content of the discourse itself) reveals a total lack of understanding of the nature of the phenomenon of growth or an outright absence of willingness or capacity to make it possible.

It is obvious that there has been no dearth of attempts to elucidate the diverse components of the growth equation, but the tangible fact is that this is not being accomplished and part of the reason, it seems to me, is that the element of interdependence of which Higgs speaks has not been understood: the diverse ingredients must be present; none is adequate in itself. The case of Korea is suggestive: while there they are analyzing the requirements that the academic curricula should possess in fifty years, in Mexico we continue to be entrenched in a bureaucratic and union conflict typical of the past century, apparently insoluble. Korea has been attacking all of the components of growth, advancing on each front in the best manner possible. Education is perhaps the most visible of the components, but its transformation in institutional and legal matters is striking; above all, it demonstrates a perfect understanding of the centrality of trust and the diverse type of capital in growth.

In its “zero-based” proposed basis for next year’s budget, the government has opened an unusual opportunity. While it is impossible to alter the entire rationale of a governmental budget in a few months (and it is impossible to do it within the context of the presidential succession that inexorably dominates the national panorama at this moment in time), it is imperative to initiate a sensible discussion in this respect. Part of our problem is how public monies are handled and whether they serve to promote investments in the three types of capital required for growth. Another part deals with the issues of power that lie behind the lack of definition of property rights. None of these affairs is simple or easy to solve, but we should all take the opportunity to debate it seriously because only in this manner might its causes begin to be attacked.

*The Transformation of the American Economy: 1865-1914

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Luis Rubio

Borges wrote that “everything is determined, but we must have the illusion of there being free will and that what occurs in history is the consequence of what happened before.” The illusion of recreating an idyllic past is tempting because it permits challenging the notion, brilliantly shattered by Manrique in theThe Couplets on the Death of his Father, that the past was always better.

In matters of security and drugs, the last several years have not been good for Mexico, now under scrutiny of the international human rights organizations. Thousands of deaths, abductions and great social strife are only the most obvious manifestations of a period no one would wish to repeat. Some administrations sneered at the problem; others assumed it as a personal call to battle. While the distant causes are sufficiently clear (an enormous market, immense profits, tremendous capacity for corruption), there is no similar political agreement on the diagnostic of the causes of the deterioration of security or on the possible solutions. There isn’t even recognition of that this is no longer the country the era of singing idol Pedro Infante or, more to the point, that the country does not have the ropes of a modern police and judiciary, capable of confronting the problematic inherent to the XXI Century.

These differences have led to extremes of viewpoint as well as of action. Felipe Calderón committed his administration to combating organized crime. His predecessor basically pretended that a problem did not exist and his successor considers that on strengthening the image of the presidency the problem will disappear. Now another current has come to the scene: one that asserts that the problem isn’t Mexico’s but rather that of those who consume the drugs.

Mexico legalizes drugs, runs the argument, allowing them to transit to their final destination (the U.S.) and turns over the budget now allocated to security to the promotion of social causes and growth of the economy. The benefits of redefining the reality and adjusting it to one’s liking are obvious and fantastic of course. The implicit supposition of this perspective is that the government would stop confronting the narcos, these would then focus on their business –transporting drugs- returning to the peace and tranquility of before: happiness all about.

The problem with this romantic view is that it has no sustenance at all in the reality. There are two reasons to think this. First, the reason why in the past the drugs flowed north without much negative domestic impact no longer exists. That happened because the narcos of the time were Colombians and their sole interest was moving their merchandise toward the final market. On not having local roots, they utilized the most convenient means and geography for their business: the Caribbean, Mexico or Canada was all the same to them. They contracted some Mexicans (presumably many of those who later took charge of the business), but Mexico was no more than a stopover in their supply lines: a logistical hub. Narco monies corrupted diverse authorities but that was nothing exceptional in a political system whose instrument for forging allegiances was precisely graft.

Much more important in yesterday’s schema was the enormous strength of the centralized and authoritarian, hierarchical and vertical political system whose weight was sufficient for maintaining the narcos at bay. The federal government tolerated (fostered?) the narcos for two reasons: because they didn’t meddle in the domestic politics; and because the narco furnished the political system with an additional source of proceeds for the members of the revolutionary family. It seemed to be a marriage made in heaven: everybody was a winner. Nobody perceived the slightest cost.

None of those halcyon premises continue to be valid today. To begin with, narcotrafficking at present is controlled by Mexican mafias who have territorial roots and local interests of diverse sorts. In that they could scarcely be more different from their Colombian forerunners. At the same time, the context within which the narcos operate is radically different from that of the past: formerly it was the government that established the rules and took command because it had the capacity and might to do so. Today we have a weak government system that is finding it difficult to keep itself afloat.

What changed? On the one hand, simple growth and diversification of the country ended up rendering the old political system inoperative. Little by little from the sixties on, its capacity of imposition and control had increasingly deteriorated and nothing was done to restructure or modernize the government. The process was accelerated by the liberalization of the economy and the decentralization of power the resulted from the defeat of PRI in several states but particularly in the presidency in 2000. Also, the instruments of control that were workable at the beginning of the 20th century became irrelevant eight decades later. The point is that the federal government ceased possessing the capacity to control everything while the local and state governments never developed new capacities for doing this. This great vacuum coincided with changes in the world of organized crime, creating the space for the criminality that we have now.

The only true solution lies in reforming our system of government with the aim of developing police and judicial capacities from the ground floor up. That is, Mexico’s problem is not drugs or criminality but lack of government. Inasmuch as we do not accept that and act accordingly, the deterioration will continue unaltered.

The old system has no possibility of solving the problem of today. Today’s reality calls for a government dedicated to basic functions: security for citizens, services for economic development and clarity of objectives. This may perhaps be a dull road to take but it is the only one that would countenance the constructing the foundations of a modern country. All the rest, Borges might have added, is pure illusion.

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Luis Rubio

There are two theories on the incapacity of the country to break with its various forms of destructive inertia. Some argue that the country embodies cultural constraints that can be explained by anthropological and historical factors and that lead to rejecting a change in the way of being. Thus, these constitute a structural impediment to the success of the reforms that, from the eighties on, the nation has undertaken. One derivative of this perspective is that informality, the rejection of competition and, in general, of globalization, reflects a satisfaction with the status quo, therefore a repudiation of the essence of the reforms. In its most extreme version, this theory proposes that the political class wants to keep Mexicans poor to control them and perpetuate the power for themselves.

The other theory emphasizes the absence of conditions for the country to prosper. Among the contentions employed by those who sustain this view we find the following: the discretional powers of the authority, the insecurity, the absence of the Rule of Law and, generally, the lack of clear rules, ones that can be complied with and that can guide the development of the country.

The first theory attempts to provide an explanation for the situation that the country is experiencing that has held the country back from capitalizing on the changes it has embarked upon due to the complexity that characterizes Mexico. The most analytical of the proponents of this tenor affirm that the Mexican possesses a natural attachment to tradition and that, in any case, the reforms do not address the core issues of the national reality, such as the fact that the vast majority of producers or entrepreneurs belong to the informal economy, survive within a context that makes it impossible for them to compete and prefer the existing conditions than having to do battle in the marketplace with imported products or linking themselves with exporters. For those espousing this view, development lies in scaling back many of the reforms, impeding the generation of new sources of competition and easing of the live of the small business owner with mechanisms, above all fiscal, that reduce the burden and, chiefly, the associated bureaucracy. One candidate’s future rides on this vision.

The other view embraces modernity and transformation as a fact and a necessity for creating wealth and jobs and attempts to determine the exact nature of the phenomenon that has thwarted the unabridged success of the reforms. From this derives an entire series of complementary proposals of reform to bring the country to higher levels of sustained economic growth. For those who advance this view, the North American Free Trade Agreement (NAFTA) is a perfect example of a strategy oriented toward paving the way for the acceleration of investment.

It seems to me that NAFTA also illustrates the reason, or the fundamental reason, why the remainder of the economy has not worked. What NAFTA achieved was conferring legal certainty on investors (above all foreign) already possessing an integral notion of globalization and its dynamic. That is, large and small companies that already understood the need to raise their productivity, specialize in business niches, and act strategically. As soon as they were certain that the rules would remain constant, their decision to invest was immediate. Except for those enterprises that for some time had been immersed in the same global logic, that has not been the response of the overwhelming majority of Mexican companies.

Instead of attempting to find esoteric, anthropological or cultural explanations, it appears evident to me that the national business community tends to operate in an environment of sparse competition, the absence of information and a permanent disregard for authority that, in the main, is bidirectional. Under these latter conditions, medium and small business owners have been able to survive, clinging for dear life to what exists instead of seizing the opportunities (and the enormous intricacy) that the world of globalization entails. Many companies have succumbed in the face of competition, but many more outlive their stay in meagerly productive but directly or indirectly protected markets.

I have tried for a long time to understand what has generated that dynamic in the Mexican business population. In some cases the explanation is simple: protection generates greater profits (rents, as economists call them), which in turn generate an obvious incentive for the entrepreneur to preserve things as they are. But my observations over this time have convinced me that this latter case is relatively exceptional. I know innumerable entrepreneurs who do not enjoy rents, only marginal (and usually declining) profits and who would be disposed to transform themselves if they understood what their options are.

A recent, ongoing, study on Mexicans deported from the U.S. led me to understand part of the problem: Mexicans who had been very successful in the States began to try to do business in Mexico, only to find this very difficult, because everything conspired against them. One of these persons summarized this in a pithy phrase: “There the rules are clear and here they are not”. That difference is dramatic and provides a summation of the challenge: what NAFTA resolved for the foreign investor no one has resolved for the Mexican.

The Mexican does not reject modernity, free trade agreements or change. What the Mexican needs is a government that rather than preaching outside devotes itself to creating conditions inside for the country to prosper. Medium and small business owners require a government that informs them, offers ways for them to understand, helps them to update themselves and obliges them to do this, all in a suitable manner. That is, clear rules, the same for all.

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Luis Rubio

The moment was unique: Jawaharlal Nehru, India’s first Prime Minister, observed the workings of the London Stock Market. Legions of operators bought and sold stocks according to the traditional procedure: by shouting. Impressed by this spectacle, Nehru decried those “who sit in stock exchanges, shout at one another and think themselves civilised”. Years before, a reporter asked Gandhi what he thought about Western civilization, to which he responded:  “I think it would be a good idea”. The matter is less frivolous than it appears: What is civilization and how do we know whether we’re part of it or when we are?

A few weeks ago I wrote about some contrasts between Spain and Mexico. Many kind readers complained to me that Spain is experiencing enormous problems, high unemployment rates and generalized discontent, suggesting it’s not really a relevant model. Spain is without doubt a country in problems: although its economy has improved, its economic situation is complex and a good number of cases of corruption have surfaced. How easy it would be to conclude that Spain is all washed up and that it, like so many others, has failed in its modernization process.

The reality is another. Spain is a country that is very distinct from Mexico and I do not pretend that it constitutes a desirable or feasible model for us. But observing other nations allows one to better understand our own. In Spain the streets are well paved, police function and people pay their taxes. Beyond the government of the day, Spaniards know that governmental services work because they do not depend on the elected government. This comprises a transcendental difference: the existence of a separation between the government and the bureaucracy is one of the crucial factors in the process of civilization. In this Spain is a nation that was meticulously transformed and the contrast with Mexico is incommensurate.

Spain was transformed in its culture and in the attitudes of its people. After Franco, the country, everything, was liberated and passed on to another stage of its history. It is obvious that there have been good and bad governments and it is evident that many things do not work. Similarly, it is clear that its government in 2008 erred in its diagnosis of the nature of the crisis, which led to its raising its expenditure radically, instead of correcting the financial aggregates. Living within the Euro was a blessing while they were able to enjoy, as ex-President Felipe González once stated, German interest rates with a Mediterranean lifestyle. When the crisis broke out the Spaniards pretended that it was possible to continue in the same fashion, resulting in their postponing the necessary adjustment and ending up where they are today.

Their problems today are the product of two circumstances: first a series of bad decisions at a specific moment in time, on top of years of lethargy during which the productivity of its economy did not rise, while many special interests and sources of privilege were perpetuated. In the meanwhile, day-to-day life functioned thanks to Spain’s professional bureaucracy, something non-existent in Mexico even in the best locality in the country. In Mexico everything depends on politicians who change every three or every six years and their particular states of mind and interests.

Second, and much more importantly, Spain’s essential problems, those transcending the financial situation, are deviations from the norm. For example, corruption cases are addressed and prosecuted. In Mexico corruption is the soul of the political world and is solely ferreted out when it threatens that world. In Spain, the police, the judiciary and basic governmental functions operate in parallel to the government itself. That tells the story of a civil service and civil servants, of a professional bureaucracy, which renders possible civility and civilization. Its flaws are deviations, exceptions, not the norm.

While politics is ever changing, as it should be, the bureaucracy is key because it is, or should be, what remains permanent. In England, for example, the Ministries are headed by a professional, a manager, in a manner of speaking, who is told by the politician in charge (the Minister) of the course of action of the government in turn and implements it:  the point is that the bureaucracy itself does not mix with the political. That is, they don’t leave streets unpaved or stop maintaining transport systems. Following this example, the politicians decide whether to construct a new Metro line or a new airport, but it is the professional bureaucracy that is responsible for this taking place. That difference is core. With all of its problems, Spain (or the UK) is very different from Mexico, because they have taken that leap to civilization that we fear or are unwilling to indulge in.

Mexico’s is monumental, nearly analogous to the separation of Church and State: it is that of disjoining politics from day-to-day administration. One example illustrates the difference: what comes to mind are the basic-goods stipends that some state governments dole out or monies that go to older adults, projects decided upon by politicians, as it should be. However, in a civilized country, those programs would be managed by the professional bureaucracy, not by the politicians themselves. The difference is obvious: were this to occur in Mexico, more than one political party would disappear because people would see those programs for what they are: a right with a cost and not as a handout, a mere electoral exchange. A world of difference…

What’s most important in life, said Mexican comedian Cantinflas, is to be “simultaneous and successive at the same time”. Mexico is living under the pretense of civilization but with the reality of underdevelopment. The day that the discourse and the reality are consequent, “simultaneous and successive”, the country will be another. Not a day before.

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FORBES – September

Luis Rubio

The so-called Pact for Mexico was slated to be the grand solution for triumphing over years of conflict and legislative paralysis. Although through those years of “paralysis” a great volume of legislation was passed and there was broad-reaching recognition that the country required important reforms to advance its development, none was passed that might alter the economic structure substantively. The Pact complied with a crucial objective -that of approving reforms- and creating potential opportunities that without doubt will translate into significant economic improvement, but it did not trigger growth. The governmental argument that reforms take time to congeal and exert an impact on the growth of the economy is not only reasonable, but entirely logical and legitimate; nonetheless, the problems that the country has experienced from the time of the conclusion of ratification of the reforms shows that a more profound and transcendental problem exists and that the Pact, rather than solving it, hushed it up. This problem is that of the structure and distribution of political power.

The Pact was a masterly idea proposed by the PRD with the objective of sharing the political cost of the reforms. Due to its peculiar internal circumstances –the relationship between Lopez Obrador and PRD party leaders- the PRD had been sequestered, constrained at the margin of the partisan negotiation processes of the previous years, which is why that party entertained a special reason for recouping its political and legislative presence. The PAN also came to form part of the mechanism; thus, the three parties achieved what had been thought impossible in the previous decade in matters of reform. Despite the logic of conducting themselves as statesmen and assuming the reform’s political costs, the decision of the PAN and PRD to join forces in a pact with the PRI continues to be strange, given that for those parties if the result of the reforms was indeed extraordinary they didn’t lose; but had things ended up being less benign they would lose everything. For the PRI, in contrast, the Pact was a way of achieving approval of its reforms in expeditious fashion, without counterbalance in Congress and with the knowledge that if the result was good, their bonuses would escalate and, contrariwise, the losses would be shared. In contrast with its partners, for the PRI it was all upside.

The Pact fulfilled its purpose and the country today has radically distinct constitutional underpinnings from those which existed previously, although, given the way that the country works, the existence of laws does not guarantee that these will be applied or that the reforms will enter into operation. However, once they are on the books, the potential for change is clearly enormous, even if it takes another administration to bring it about. But this contradiction –between the reality in the streets and that present in the Constitution- is illustrative of the underlying problem that ails the country. In the Pact, it was shown that the problem, in the last analysis, did not lie in the ease or difficulty of countenancing legislation, but instead in the inexistence of the capacity of governing.  The question is why.

The problem possesses two contrasting dynamics. On the one hand, the country has been without functioning government for decades. By this I wish to say that the capacity to administer essential public goods, keep the citizenry safe, resolve conflicts in judicial matters and, so as not to forget it, even fill the holes in the street, is laughable. Our system of government was organized for a distinct era, for a more simple country in which things could be cleared up with acts of authority and where the disagreements that naturally arose with each change of administration were tolerable. That stopped being true some time ago, first, because the nature of the issues that require attention is increasingly complex and costly, in addition to that specialists are required; and, second, in order to progress in this era of globalization and open markets, the country necessitates services that function in a regular manner, without which it is impossible for companies to produce, compete and generate wealth and employment. Thus, Mexico’s first great deficit is one of government, a phenomenon reproduced at the state and municipal level.

The other dynamic is concerned with the problem of power. Our system of government emerged from the Revolutionary Movement of 1910 and consisted largely of a coalition of all the victorious forces within the rubric of the PRI predecessor PNR. However, while the country has transformed itself in the last decades, the power structure has remained nearly intact. For the country to progress it will have to attend to problems more profound than that of the legislative approval process: it will be required to redefine the power relationships. That process will not be simple or swift, but not for those reasons any less transcendental.

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@lrubiof

Luis Rubio

Something peculiar is taking place in the world’s economy. The crisis of the last years, the so-called “Great Recession”, has altered growth patterns, reduced income for a good part of humanity and put governments, countries and economic actors of the entire orb in checkmate. Within this context, it is ironic that despite the depth of the crisis, no serious politician in the world disputes the continuity of capitalism. In another era, something similar led to the rise of fascism. Today, however, voters in one nation after another have been consistent in electing centrist governors devoted to steadying the ship to a greater extent than changing it. What is strange is that that constancy among voters has not been accompanied by an appreciation of the generators of wealth in the society. Thomas Sowell sums up this circumstance as follows: “One of the sad signs of our time is that we have demonized those who produce, subsidized those who refuse to produce, and canonized those who complain”.

Critics of capitalism are legendary. Much prior to Marx inaugurating the era of “scientific” analysis, the New Testament teamed with critics of diverse aspects of the functioning of the markets. In recent years, scholars and activists have published tomes and manifestos convoking the dismantling of that economic system. Picketty, who enjoys the curious merit of being the author of one of the most sold but least read books in history (Amazon measures this through its electronic reader), started the trend, to which now a ponderous volume has been added by Paul Mason entitled Postcapitalism, anticipating the end of capitalism given globalization and the Internet. In spite of this, the market economy continues to advance without surcease.

In Mexico the creativity evidenced by informal businesspeople is an unmistakable sign of the vitality of the efforts of this entrepreneurial community in the country. The number of persons devoted to creative activities on their own increases unstoppably. While they don’t call themselves entrepreneurs, but that is what they do: buy, sell, create, add value. What is of greatest impact about the informal market in Mexico is its capacity for adapting, the versatility of its responses and the services that change from day to day, precisely what one would expect from a dynamic market. In similar fashion, thousands of Mexicans are active participants in the digital revolution of Silicon Valley and many more aspire to be so. Each in his world, these actors are transforming the economic life in Mexico and in the world. Why then the meager popularity of entrepreneurship?

The fact that thousands or millions of entrepreneurs refuse to call themselves this is significant. In Mexico, the designation of “empresario” is associated with a group of rich people and not with creative and dynamic individuals who satisfy the needs of the population. Part of the reason for this has to do with the perception that many business persons are not the product of their skill or capacity for satisfying the market but rather of governmental favors, concessions or other like means. Many calling themselves entrepreneurs do not do what one would expect from the entrepreneur: adapting, assuming risks and seeking new ways to respond to consumer demand. In addition, the gaps in wealth that characterize many of the most prominent entrepreneurs with respect to the ordinary citizen in the street are so great that it is easy to associate entrepreneur with wealth and not with creativity. Perhaps that explains the rejection of the use of the term in a sector as extraordinarily dynamic as that of the informal economy.

Independently of the veracity or falsity of the perceptions regarding the origin of the wealth of many of the most visible entrepreneurs, it is  evident that inasmuch as there are fortunes emanating not from the market but instead from abuse, protection and governmental favors, the solidity and credibility of capitalism is ending up severely undermined. Many fortunes have been built in the shelter of politics and many politicians employ straw-men to utilize their post to get rich. The circle is boundless and in no way favorable for the development of a healthy economy that requires, according to many of the most earnest scholars on the subject, that the entrepreneurial function be appreciated and recognized as socially relevant. Without this there will not be the conditions for there to be investments, for taking risks and for generating a vital environment of economic creativity.

At the end of the day, economic success cannot depend on the creativity of the informal sector because, despite all of its dynamism, there are limits to its potential. The vitality of the Mexican economy is going to depend on the existence of rules of the game that favor entrepreneurship, developing competitive markets, formalizing the informals to let them take flight and, with this, conditions will be created not only for the economy, wealth and employment to grow, but also the burgeoning of high regard for the entrepreneurial function.

The development of an economy requires trust between governors and the governed and this does not come out of thin air. A researcher at the University of California who has undertaken the task of interviewing migrants deported from the U.S. found one of these who explained that he had decided to start a business but that he ended up failing in this because in Mexico “there are no rules”. It is not by chance that many Mexicans of modest origin who triumph in the US fail in Mexico: over there indeed there are rules and that is the basis of trust in the institutions and of the esteem in which entrepreneurs are held.

www.cidac.org

@lrubiof