Luis Rubio

About 25 years back, Mariano Grondona, perspicacious Argentinean observer, explained his skepticism about the liberalizing reforms of that era. His argument was two-fold: on the one hand, he said, “We are surfacing from some decades during which it came to be thought that the State is the panacea… now we run the risk of believing that the market is that panacea”. On the other hand, he inquired, “Is capitalism a movement that emerges naturally when we remove all of the controls…? Latin America has cultural roots that are not capitalist. Our structure is based on the family, not on the society. Our idea is that the family is the model and that the State is not unlike the paternal custodian of a large family. That is where we come from. And I do not think that can change simply by throwing out the rules and letting the market operate magically”. “What has died is the belief that the State will fix everything”.

Twenty five years and many crises later, Grondona’s words continue to have an impact on me. Not only did he clairvoyantly anticipate the problems of his own country, but also his skepticism has been well justified. Although it cannot be denied that, at least in some countries, beginning with Mexico, there has been great material progress during these decades, it is also evident that we are far from having consolidated a sturdy route to growth and development.

Mexico has achieved the consolidation of a powerful growth engine in exports but has fallen behind drastically in its internal market. Two things illustrate the latter: one is, plain and simple, the differences in the growth of productivity: while corporations that export and those that have transformed themselves exhibit spectacular productivity growth rates, the traditional manufacturing sector experiences negative productivity year after year. Thus, although the average growth of productivity gives every appearance of being dismal, that number conceals more than it reveals, and what it reveals is a political and social problem that successive governments have been unwilling to attack: they have preferred the status quo, regardless of whether this implies systematic impoverishment of those in the low-productivity economy, rather than the risk of the process of change and adjustment that would be necessary to carry out in order to give growth a chance in that lagging economy. Concern about the risk is reasonable, in view of that something like 80% of the population employed in manufacturing is concentrated in the “old” economy, but the consequences of going down that road are not at all promising: it’s enough to observe other cases in the south of the continent.

The other example took place in 2009. When the U.S. crisis began, many economists expected that, because Mexico exports the equivalent of one third of the GDP, the economy’s contraction would be approximately one third that of the U.S.. But the opposite happened: the contraction was three times greater. Instead of the internal economy getting the country back on its feet, its contraction placed in evidence its dependence on the demand generated by the economic demand produced by the exports.

The current government is attempting to construct a new domestic engine of growth in the form of public deficit spending and investment in infrastructure. This is not an innovative mode of promoting growth but, given the evident deficit in infrastructure that the country is undergoing, everything helps. The problem lies elsewhere: as we saw in the period between the seventies and the nineties, that is not an engine that can be sustainable because it entails the risk of exacerbating the growth of imports and, with that, a currency crisis. With this I do not mean to be catastrophic: a moderate deficit might work; but the historical antecedents are not kind in tests of moderation and restraint.

The long-term viability of the economy resides in something that Grondona understood very well: the only way to secure development is through the constitution of a strong market and a strong State, one balancing the other, and each holding in check the excesses of both. A strong market impedes the government from running riot and undertaking extravagant and counterproductive policies. A strong government establishes rules of the game for the market to function efficiently. All successful countries boast a good combination of these two factors.

Simplifying, without the desire to generalize excessively, it seems to me that there are two types of countries: those that have achieved an equilibrium between State and market (an equilibrium that is very distinct in Hong Kong from that of France, but both with strong markets and governments) and those without. Very few countries have been able to transit from precarious economic and governmental structures to a consolidated market. The European crisis of recent years has exposed the absence of equilibrium in some nations (e.g., Greece) as well as how unsustainable the equilibrium was in others (e.g., Spain).

But only a handful of nations have achieved a successful transition: evident examples are Korea and Chile. The strength of these two nations lies in their having devoted themselves to constructing the foundations and scaffolding of a modern State and economy. Each followed its own particular path and neither was free of violence and abuse, but both have something important to teach us. The question is why our inclination is toward imitating lost cases (or, at least, not winners) such as Brazil, rather than heeding those that have taken the great leap ahead. That is our challenge and if the government doesn’t rise to it, it will end up like all its predecessors.

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Luis Rubio

Reality is constructed on the accumulation of actions and inactions, decisions and omissions. What follows are some observations of the current Mexican moment:

1. The capture of “El Chapo” and the death of Nazario Moreno reopened the debate on security and the similarities or differences between the former administration and the present one. Are there differences? The evidence suggests that the only notable difference resides in the strategy of communication, in which President Peña-Nieto’s government excels. The government’s manner of acting suggests efficacy and competency but, at least in this matter, there’s not the least doubt but that luck also is on their side. Those responsible for both facts –the police, the Navy, the Army- have not changed in the past several years and it is clear that the current government does not have a new strategy, in the police-military arena, distinct from the former one. Time will tell whether their political management, through their representative (some say “proconsul”) in Michoacán, yields different results.

2. The dilemma of competition in the economy is more complex than the argument suggests concerning the declaration of “preponderance” emitted by the recently created the Federal Institute of Telecommunications (IFETEL). There is no doubt of the dominance of two companies in television and telecommunications, respectively, but the solutions are not simple, in good part due to the technological change that has been taking place over recent decades. There are various things that seem evident to me, some apparently contradictory: a) today’s great issue in telecommunications is access to mobile networks and to the Internet.  The demand for liberalization, for equality of access for other companies, seems logical and conducive to the creation of a public good –interconnection- that, no ifs, ands, and buts about it, should have been the original criterion for privatization more than two decades ago. Interconnection is the critical issue; b) the issue about television has changed in one sense and remained the same in another: on the one hand, the future of television lies in closed networks, via the Internet and mobile phones, which the experts call “triple play”. This places the viability and economic attractiveness of open television in doubt, at least in the long term. On the other hand, the contempt and disapproval of opinion leaders with respect to the television conglomerates perhaps has less to do with their dominance than to the perception that they are less dedicated, as they affirm, to entertainment than to political manipulation. Within this perspective, Carlos Slim, who is not perceived in the political arena as a political actor but as an encumbered businessman, may well be a solution to the television dilemma: a credible competitor; c) IFETEL’s decision has yet to weigh in with concrete criteria, some of which, I suppose, would derive from the secondary law that remains to be passed in the Congress, but it is paramount for IFETEL’s board to realize that competition is a means, not an objective. By the same token, I wonder whether IFETEL acted autonomously, if it responded to the clamoring from the gallery that demanded “giving their comeuppance the big ones” or whether there is an institution with looming strength, capable of confronting the government and the power moguls even if this would make it unpopular, not a small matter in light of what’s to come on the energy front. No less important is the government’s statement that it will not seek the breakup of other big companies that, given Mexico’s history, are present in many a sector.

3. The celebration of the 85th anniversary of the founding of the PRI constitutes a milestone not so much for the longevity of the party, but for its evident resurrection, and all which that implies. Above all, the PRIists are making haste to recover legislative control in 2015 and all of their actions appear oriented toward achieving that objective. Seen in retrospect, it is evident that the PRI never left and the PANists, in perhaps their greatest turpitude, were never able to dismount the scaffolding that sustained their power networks. But the “return” of a PRI that never faced the need to reform itself says a lot about the political culture of the country and about the PRI’s exceptional characteristic as a disciplined, pragmatic lot, capable of constructing and reorganizing its electoral machinery, of developing novel methods for building up and fattening their clientele and centralizing the power. No one knows what will take place in next year’s elections, but there are three issues on which it’s worthwhile to reflect: first, the President’s popularity isn’t what it once was, possibly forecasting a 2015 not necessarily like 1991 when Salinas won by a landslide; second, the economy is always a crucial factor in electoral matters and the present situation is not exactly buoyant; finally, both the PAN, as well as the Left, finds itself cowering in chaos, each of its own nature. It may be that the most pertinent question is not so much whether the PRI will dominate the next electoral processes and more about whether other parties will be capable of resurging as seasoned, capable checks and counterweights before a party that may no longer be a “state party” but that has proven an amazing ability to impose itself because of the weakness of the opposition, as the Pact for Mexico itself shows.  On the side of the PRI, the question is which of the PRIs would dominate the future, because its historical nature as a party of coteries remains alive and kicking.

4. Perhaps the most interesting thing for 2015 might be the battle for Mexico City, which PRD has held since its inception in 1997. Some, in the Left, will seek to convert it into a state (with all the complexities that that entails, not unlike DC, Moscow or Paris); others, in PRI, would wish to regain it electorally. Surely no one will get its druthers, but in the PRI the Foxist battle cry, paraphrased here, of “get the PRD out of the DF”, no doubt reverberates.

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          Luis Rubio

First they approved the constitutional laws, now all efforts are concentrated on secondary laws, the so-called implementing legislation. Then will come the most important part, the tertiary laws: reality. Says the eminent philosopher James Morris, “One of the nice things about reality is that it is what is, no matter what anybody says it is.” He could have been talking about the Mexican legislative process: in the past months, the Coordinator of Teachers, a union of dissident teachers, CNTE, showed how effective –and transcendent- this third stage is. This perspective should be incorporated into the drafting process of the implementing legislation on energy…

Reality has distinct dimensions. The most obvious, because it’s in the public light, at least in form, is the one that takes place in the legislative process itself: at least in theory, this is where all the positions, vested interests and relevant actors turn up. In a serious country the process would begin and end there. In Mexico’s case, that dynamic is going to be very distinct as compared with last year: for those who count –those who would be affected or benefited by the new legal schema, the constitutional laws can change the context, but what really matters are the specific regulations and it is there, this year, that all the “inside” interests will make their weight felt.

Another dimension of the reality is what takes place after the process: in the streets and in the plants, that is, in the mundane reality. That is the true test of the viability of a law. The bureaucrats, unions, contractors, mafias and other actors in each of the sectors affected can be as obstreperous as the CNTE or as subtle as a bureaucrat finessing the control of a neuralgic asset, but both have the same effect: paralyzing or “adapting” the reform in practice. In a certain manner, the CTNE was an anomaly during this last year due to the “formal” union’s decapitation. Its strength would have been much less under the status quo ante bellum.

Whatever might have been, in 2014 we are witnessing two processes: the legislative and the real one, “the tertiary law”, and the latter tends to be much more relevant and transcendental than the wishes of the keenest and most resolute reformer. Once again, the example of the CNTE is useful simply because of the enormous weakness of the State: if it can’t even guarantee peace, how can it be expected to attain, in the exquisite designation of bureaucratic lingo, to rule over the economy (rectoría del Estado in Spanish).

One need not proceed too far afield to imagine how complex what is coming is and, within it, the vast number of opportunities for paralyzing a reform such as that of energy. Without knowing much about the sector, some obvious key areas are: bidding for public contracts, regulation, credibility of the regulator, interconnection (ducts, cables, electricity grid), competition. In the past there has been an infinity of bidding for diverse-type contracts in PEMEX that, although formally international and transparent, end up being monopolized by two or three engineers because the bidding rules are so skewed that only these personages could satisfy them. Obviously this did not happen by chance.

This year will be crucial for the country. After the constitutional monsoon of last year, what is to come will define what type of economy Mexico will have and, doubtlessly, what kind of country it’ll construct. The transformation that, at least potentially, has been legislated is so enormous that the secondary laws will require great care in handling and, at the same time, will be subject to interminable pressures on the part of all of the actors: from the reformers with no particular interest but who often assume more than they actually know, which leads to many, often serious errors in the law, to the dozens of individuals and groups whose interests are on the line. To top all of this off the ideological actors will appear who, in the pose of safeguarding the Republic, will incorporate all manner of restrictions in the guise of baroque terminology that later will give the lawyers and courts a wide berth.

To complicate the matter, for obvious reasons of the country’s history, in Mexico there is no major experience in energy affairs from the legal perspective because the reality would not require it. This fact is neither good nor bad in itself, but implies that, whatever emerges from the legislative process will thence comprise the platform employed to settle lawsuits when these arise. Given the very abrupt manner in which the constitutional reform was approved, Mexicans’ proclivity for producing unintelligible legislative after pains (and deliberately saturated with confused wording designed to grant discretional powers to the authority), and the arbitrariness with which things are decided upon on a day-to-day basis, the potential for conflict is infinite. If the objective is to attract foreign investment, inevitably long-term in this sector, everyone should know that litigants will be poised one step behind every decision, all ready to pounce.

In a word, the reality will impose itself independently of the preferences of all involved. The tertiary law is always definitive and brutal and, worse yet, as Machiavelli said in his Florentine histories, “winners have no shame, no matter how they win.” To those who can emerge winners or losers, their lives will be spent in whatever surfaces in the reform; thus they will do everything possible to impede the reforms, adjusting their needs to or neutralizing them. The CNTE may be very obvious and crude in its ways and proposals but no one can be blind to their unmistakable win in the terrain that counts, that of reality.

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Luis Rubio

The detention of drug lord “El Chapo” Guzmán is of enormous importance but its transcendence will depend on what’s done here on out. It is still premature to venture a conclusion, but it’s indeed possible to speculate about its potential implications.

The propaganda surrounding the Chapo has brought to mind the characterization that Hannah Arendt made of Adolph Eichmann when she covered his war-crimes trial in Jerusalem. Although it is evident that the Holocaust has nothing to do –in dimension, scale, horror or evil- with the narco, the photograph of the personage from northern Sinaloa state allows us to observe that it concerns a mere link in a long chain in which the individual, isolated from his mafia, is no more than another simple cog –a “functionary” she said- in the wheel. Thus, however much his capture merits, the problem laying siege to the population –extortion and kidnapping- does not end with the detention of a capo but rather demands attention to the entire system that makes it possible. The great question is whether this detention will bestow on the government the courage to confront the true challenge.

The government is correct in congratulating itself and no one can withhold from it the credit for having laid the long arm of the law on the one who, for so many years, had outfoxed the justice system. The government can boast about its efficiency but it will now have to demonstrate that it is really willing to design and to enforce a strategy that transcends the issue of the individual in question, or, even, of the narco industry in its entirety, in order to attend to the underlying theme, which is the safety of the population and the absence of an effective government that makes it real.

The capture is important because of its symbolism: from now on a real struggle against impunity could be constructed, but in this Mexico’s history is not kind. Despite the narrative that was swiftly fashioned concerning the mechanics of the detention, information from the outside suggests nothing exceptional in the actions of the government’s security forces. It was U.S. entities that provided the critical data that made possible the capture of the capo by the Mexican Navy so cleanly and efficiently. Nothing wrong with that, but it made it obvious that a new strategy does not exist.

The matter of the strategy is more relevant than one might think. In the first place, it’s worthwhile asking whether in reality there exists the conviction necessary to reconstitute (or create anew) the institutions responsible for guaranteeing the safety of the population. Although a year ago the President heaped praise on the police reform in the state of Nuevo León, there’s no indication that this, or any other, is being applied to achieve what plainly is key: to develop police and judicial capacity at the state and local level.

In second place, if in effect no new security strategy exists, in the administration continuing to follow the U.S. “cutting heads” strategy? In concept, the search for capos and their “elimination” or incarceration makes all the sense in the world because it advances the cause of justice and attacks impunity head on. However, that strategy would perhaps be viable or suitable for U.S. territory where there are functional police and judicial authorities at the three levels of government: when a capo is detained, the local police act against the rest of the mafia involved and, usually, achieve dismantling the organization as a whole. The experience in Mexico, and it’s not exaggeration to say it, in Iraq, suggests that this strategy is counterproductive where there is no similar structure of authority because capturing the capo does not lead to the dismantling of the organization but instead, to its fragmentation, with the consequent upsurge in levels of violence. I do not wish to suggest with this that the search and capture of these leaders should be abandoned, but it is not sufficient, and it is not what’s most relevant.

That’s the rub: there’s the possibility, not at all remote, that the capo’s detention will become a trophy on the mantelpiece that, as in the case of the teachers’ union leader, entertains no further transcendence than the ephemeral benefit of making the government appear more efficient that it really is. Thus, the ball is in the government’s court for determining how it will use the detention, hopefully in a more effective and lasting manner than in the previous case.

Because, at the end of the day, Mexico’s true problem does not lie in the narco but in the incapacity of the country’s system of government (at all three levels) to maintain the peace, protect the population and create a climate of stability that makes it possible for the economy to progress. No one can ask the government, at only one year of its inauguration, to hand in perfect accounts, but it is clear that there is no strategy that leads to that institutional strengthening (beginning with the police and the judicial power), wherein the sole possibility lies for, eventually, resolving the country’s security problems.

Mark Kleiman, an American academic and former law-enforcement official, affirms that the key lies in utilizing the existing police and judicial capacity to impose upon the narco-trafficking mafias as severe rules and limitations –though inevitably modest at the beginning- as it is capable of enforcing, followed by a systematic strengthening of that capacity until peace is imposed and the action of the narcos is strictly limited to the movement of their merchandise to the North.  The capture of the Chapo permits launching a strategy like this, but it will only work if it’s truly designed and made to work. For this rhetoric is insufficient: acting is de rigueur.

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 Luis Rubio

Mexico has been an independent nation for over 200 years now and we Mexicans have seen everything: periods of light and periods of darkness, eras of growth and stages of crises, times of peace and times of violence: moments of optimism and ill-fated intervals. There have also been innumerable grandiose plans, the majority of which end up supplying nearly always the poorest of results. Mistrust in the government is not recent nor is it the product of chance.

Many are the reasons for such lean results but two are prominent: lack of continuity and lack of realism. The continuity problem is summed up in the fact that every six years, when a new administration is inaugurated, the wheel is reinvented. No plan in Mexico can withstand a change in the presidential office: each government must of necessity imprint a new rationale upon its thrust, generally without there being an objective evaluation of the existing one. What there was before was always bad, inadequate or insufficient, which calls for a change, often radical.

The lack of realism derives from the willfulness that tends to characterize the plans of the government: a new crowd comes into power, full of creative and innovative ideas, with which it expects to transform, change the country at the root. Some of these plans make sense, but the overwhelming majority have been mere bright ideas, sustained on the expectation that the new government, heir-apparent of the world, will accomplish its mission because it is competent whereas the previous one was the opposite. In addition to this, our governments and legislators have been extraordinarily prone to advancing great plans without effecting the changes that would be indispensable for reaching their own objective. Thus, Mexicans end up with a Constitution saturated with good wishes (and often reformed) without the least probability of their translating into the development of the country or the well-being of the population.

The result is that there is not a system of government to which the citizen can refer or in which it can trust. Everything depends on the president in turn and his plan for his six-year term. What matters is not consolidating a system of government that treats all citizens equally and in an impersonal manner, but the great vision and the cronies. Of course none of this cultivates the loyalty of the citizenry: instead, contrariwise, there is always, lurking in the wings –the fear- of what is to come, with all of the uncertainty that this scenario entails.

The reforms of the eighties and nineties, as deep and biting as they were, were not distinct. Although there was a transformer spirit that animated them, the so-called “model” that lent coherence to the governance proposal, the plan was imbued with contradictions that explain a good part of the results. Some sectors remained subject to competition, others did not; the privatizations followed a logic of maximization of fiscal revenue instead of a transformation of the industrial structure; the economy, including imports, were liberalized but without deserting the darlings of the regime; regulations were eliminated but subsidies were upheld. In a word, it was another of the grandiose plans that would transform the universe.

With one exception, which has transformed the country. NAFTA was conceived to give permanence to the reforms that had been carried up to then. Good or bad, and with all of their shortcomings, those reforms brought about the opportunity to effectively transform the reality but only if they were preserved in the long term. In other words, the categorical imperative of NAFTA was procuring the affording of certainty to the key factor of the reforms, the touchstone of the modernizing project of that moment: investment.

Revealing of the nature of the political system, what is crucial about NAFTA resides in the recognition of the incapacity of the existing institutions to confer upon them the type of guarantee that the investor requires. In this regard, notwithstanding its two thousand pages, NAFTA is nothing more than a form of borrowing U.S. institutions for the benefit of Mexico. In this lie its essence and also its limitations.

NAFTA was conceived to preserve what had been achieved, but not to advance what was lacking. In this fashion, in yet another of the myriad contradictions of the reformer project, NAFTA achieved the elemental –according guarantees- but made it possible to abandon the reform process precisely when this was most important. Everything became paralyzed exactly when the whole of the Mexican economy and society needed to experience a transformation in productive structures and in education, in the nature of the government and in the mechanisms of regulation for raising productivity. NAFTA was the end of the reform process rather than the beginning of an era of transformation. What was urgent implied an integral transition to move from a closed and protected economy to an open and competitive one. In this manner, instead of this occurring, it wound up creating and preserving a dual economy in which one part is competitive and the other constitutes an encumbrance for growth.

NAFTA contributed to the transformation of countless industrial sectors, opened up opportunities for the growth of enterprises and activities, heightened the productivity of considerable portions of the economy and fulfilled its main objective with respect to investment.

Whatever the position assumed with respect to NAFTA, no one can doubt its enormous transcendence and its core function in achieving practically everything positive that takes place in the Mexican economy. What NAFTA can’t do is substitute for essential governmental functions. That is the great deficit that the Mexican society lives with and on which depends the realization of its tremendous potential.

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FORBES – Luis Rubio

“The calm after the storm”, says a popular refrain.  And the calm in this case could be brief: after a year of politico-legislative effervescence, the calm creates an exceptional opportunity, perhaps unique, to advance the governmental agenda no longer in the abstract and on occasion sketchy terrain of politics, but rather in the concrete scenario of quotidian reality, where it really hurts. To date, however contentious the reform process has been, everything has been restricted to the ideological. Now the battle for interests begins.

Undeniable, the success of the government in advancing its legislative platform, in the constitutional dimension. In the process the president displayed solidity, prudence, flexibility and impressive discipline. From its conception, etched into the Pact for Mexico, the strategy has proven to be implacable and the president did not follow it dogmatically but instead, as shown by the contrast between the fiscal reform and that of energy, it adapted itself along the way for the sake of achieving its core objective. The applause that it has garnered in the world press is not for naught.

What’s paradoxical about the point in time is the contrast between that optimistic applause from the outside and the pessimism, or at least skepticism, holding sway in the interior of the country. The explanation is simple: Mexicans know that the letter of the law hasn’t got much to do with the day-to-day reality. Consequently, more than pessimism, what there is in Mexico is incredulity: it must be seen to be believed. And in Mexico seeing means implementing.

In comparison with highly institutionalized societies, in Mexico a good political operation (something unusual in the last decades, which is why last year’s achievements stand out so much), allows great reforms to be carried out. The speed with which the energy reform was ratified would have given a collective heart attack to the entire society of Denmark, where a constitutional reform can dally for up to three years and few are successful. Accordingly, in a weakly institutionalized society such as that of Mexico, good leadership has the opportunity to achieve fundamental transformations, but also to revert them, which feeds the skepticism.

In this context NAFTA is exceptionally brilliant precisely because it’s the only thing that hasn’t changed in recent decades. Opening and liberalization have been “modulated”, many subsidies have been reintroduced and the present government proposes raising –publicly and consciously- deficit spending for the first time since the nineties. These ups and downs generate cynicism and uncertainty among the population because they imply breaking political commitments. But not NAFTA, which because of its international moorings, is exactly the achievement sought. It is crucial not to ignore these factors, above all because of the contentiousness that can ensue on implementing the reforms already approved.

In legislative terms, the next step will be more transcendental. While a constitutional reform is significant in an abstract sense, the one that establishes the rules of the game for investors lies in the secondary laws, a matter that will proceed this year in Congress. For many analysts, that process is a mere formality because it does not require legislative alliances with the PAN and/or the PRD. However, given the historical nature of the PRI,  –a party steeped with deeply rooted private interests- absence of the opposition parties implies carte blanche for those interests to act, directly or indirectly, to adjust the legislation to their advantage. In this regard, the process is infinitely more sensitive and relevant this year. The details that finally appear in the legislation will be those that determine the measure of its success.

It seems probable that the government had calculated that it had to put its legislative agenda forward in the first year to be able to start harvesting in the following ones. Its calendar has an electoral logic (achieve exceptional results at the moment of the mid-term elections), which implies employing all of its resources –such as the expenditure and its infrastructure projects- proactively. Perhaps what they didn’t bargain for was the fireball of Michoacán and, potentially, with how complex the secondary energy law could become. No one should minimize or underestimate how fraught with difficulty political management will be in 2014 above all because, as Mike Tyson said, “A well-aimed blow can thwart the cleverest plan”.

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Luis Rubio

Not by chance do monopolies predominate in Mexico or, more appropriately, monopolistic practices. Everything in our system, and in the practices deriving thereof, leads to forms of action and response that go against competition, reduction of costs or consumer service. The abuse that citizens perceive on the part of suppliers, whether governmental or private, is the product of an institutional reality that grants privilege, thus making this conduct inevitable. The fledgling reforms do not address this reality.

The key to the functioning of an economy resides in the way that it is governed. If what governs it are perfectly defined rules and practices largely accepted by all of the actors, then the participants in the economic activity -investors, entrepreneurs, savers, consumers- will accept a lengthy time horizon for attaining their objectives. Contrariwise, when there are no established rules, procedures that make complying with them obligatory and an authority that requires adherence to them, and is capable of enforcing them, the time horizon of all of those same economic agents changes radically.

When a potential investor trusts in the permanence of the rules of the game, his expectation of profitability is lower than when that permanence is doubtful. Although it might appear paradoxical, this difference reflects contrasting assumptions and expectations. If the perception is that everything depends on a determined governor, the investor or entrepreneur will expect immediate and very grand results; if his perception is that the governor in turn is irrelevant to that performance, his vision will be long term, thus he will adjust his expectations of net profitability.

The way that they repave the streets never fails to surprise me. Instead of going block by block and cause less bother to motorists, the contractors break up the pavement of the entire trajectory from the first minute, although it will take them months to finish the work. The reason is very simple: once the pavement is broken up, no one will dare to cancel the contract. The behavior of the contractors may seem abusive, but it is absolutely rational: it’s the only way they’re guaranteed the whole job. The problem is trust in the authority and the solidity of contracts.

Now, in the light of the possibility of a new era of bidding for government contracts in the matter of energy, the issue gains exceptional relevance. While many of the typical contractors are in the loop for a-one six-year government and their jobs are nailed down in the backroom, the potential bidders in energy matters are first-world companies disposed to fight to the eleventh hour for what’s theirs.

The matter came to mind a few weeks ago when I read about the conflict between the concessionary of terminal 2 and the Mexico City Airport Authority concerning the concession awarded for its construction and its exploitation for a determined period and under certain profitability conditions. I have no idea who’s right, but the argument is not new. Some years ago something similar occurred with the water concession in Aguascalientes with the change of governor and is now happening with the railroad operators. The theme is one of permanence and trust in (and enforcement of)  the rules.

What’s relevant are not the particular cases but rather the absence of guarantees for the fulfillment of the contracts, a circumstance that inevitably generates distrust but, above all, gives rise to anomalous behaviors. A mobile phone company entertaining doubts about the permanence of its concession is going to charge the maximal fees possible for providing its service in order to achieve its revenue objective in the shortest possible term. Everything after that is frosting on the cake. From this perspective, what a consumer may perceive as abusive behavior is absolutely logical and rational for the service provider.

Of course, the great paradox is that, while the entrepreneurs expect a high and immediate benefit because they do not trust in the permanence of the rules, many times the rules, or the concessions or contracts, do last, which implies not only exorbitant earnings, but also interminable user and client abuse. Nothing is by chance in the country: the penchant for monopolistic practices and abuse are an inherent part of the political reality.

None of this is new, but it acquires particular relevance within the context of the energy opening. In its propaganda, the government promised lower electric tariffs and lower prices at the gas pump.   Independently of the economic viability of these promises, no doubt remains that the government’s veracity, or its possibility of success, depends on the manner that it guarantees the credibility of the contracts that come to be awarded.

In its origins, NAFTA was the way that the then government found to create an investment environment above all for foreign manufacturing. The objective was to discover a mechanism that would confer credibility on the permanence of the rules. What was impacting, then and now, is that no form was found in Mexico that would render this possible. The great challenge of the energy reform lies precisely in that: to find a way for the contracts to be credible in order for the investment to be fruitful. In addition, it is crucial for these guarantees to be sufficiently solid so that expected profits that potential investors will expect would not be superior to international averages.

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Luis Rubio

Cuba is always a compelling theme in Mexican politics. The connection between the two nations dates back to the discovery of America, but it was the Cuban Revolution that changed the rationality of Mexican politics; it similarly opened up spaces of internal political interaction as well as uncorking fault lines among some sectors of society. Inevitable that each approach, or the opposite, and every presidential junket unleashes passions, often uncontrollable.

What’s relevant is that, beyond the rhetoric, the governmental logic since Fidel set sail upon the waters of the Veracruz coastline has been only one: security. In its early years, security was defined nearly exclusively as an exchange of politico-diplomatic buttressing for an exemption of Cuban guerilla activities in Mexican territory. From the Revolution a rapprochement also arose between the government and the Left that greatly broadened the margin of political maneuvering. But the logic continued to be the same: security, this time understood as internal political peace. The discourse of the “right Left” (atinada izquierda) coined by President López Mateos would have been inconceivable in the absence of the island´s revolutionary impetus.

Cuba’s transformation in the following decades had much to do with the Soviet Union and its eventual dismantling, as well as with the aging of its leadership. As the revolutionary spirit was replaced by a logic of survival, the Cuban government undertook strategies of economic opening that, while not involving the majority of its population, permitted them to attract tourists, investments in oil and mining. The inexorable effect on Mexico was that this diminished the perception of the risk to security.

Come what may in Cuban policy in the ensuing years, the impact on Mexico is going to be enormous. No other country triggers such great internal passions. The discussion with respect to the President Peña’s recent trip speaks for itself: whether it is legitimizing a dictatorship, whether it doesn’t understand that we are no longer part of Latin America, whether the dissidents should be addressed. Nothing like this happens in relation to the U.S. Although I respect the critics, I think that they are missing the point.

Among U.S. scholars of international relations there are two schools of thought: that of the “idealists” that, fueled by Woodrow Wilson a century ago, propose the construction of a desirable world (hence, a world safe for democracy and seeking to democratize the world); and the “realists” who accept the world as it is and who advocate dealing with whomever is in charge, regardless of ideology. Perhaps there is no clearer exponent of that aspect today than Kissinger. Applying that perspective to Mexican politics, recent governments have been “idealists”, that is, they’ve attempted to exert an influence on the transformation of the island, judging its government in moral terms, visiting with its dissidents, etc. President Peña’s government is returning to the “realist” logic that characterized his fellow party predecessors.

Behind the difference there is no especially party-oriented rationale, but rather a political conception of the world. For the three former governments that, with greater or lesser emphasis, attempted to slip away from the logic of security that preceded them, what was important was to profess and advertise the new Mexican democracy. Nothing wrong about that had it been about Nigeria. But, being about Cuba,   our close-by neighbor, the situation is very distinct and that’s why I applaud the president’s decision to accept and follow the ritual demanded by Cuban protocol. Machiavelli affirmed that the prince needs to get his hands dirty and that there should be no ethical considerations in that regard.

Cuba is perhaps the most important country for Mexico at the present time and that implies dealing with whomever there is to deal with. That is what Mexico does with China and Guatemala and there’s no reason to act distinctly in this case. Cuba is singularly important for two reasons: first because its security apparatus has an enormous presence in Mexican territory and that creates a situation in itself; and secondly because the island is undergoing a transition that is conceivably more biological than political: if it turns out that the plans that might exist for a transition do not survive the duo at the helm, Mexico could be the immediate victim. It is in this sense that the logic of security is once again an imperative for Mexico.

When the USSR collapsed, its old security structure took on a life of its own. Part became what ended up being called the “Russian Mafia” in Europe and other latitudes, part devoted itself to internal businesses and eventually, recouped the power. If the central control that characterizes the island collapses, it is entirely possible that something similar could take place in Mexico, far more vulnerable than Western Europe. The transition can end up being gradual, negotiated or, at least, managed, but it can also end up being chaotic. If the latter occurs, Mexico would be the first “line of defense”.

In this logic, every effort engineered by the Mexican government to contribute to achieving a good outcome in the upcoming transition constitutes the exercise of the most elemental responsibility of the government in its own territory: the security of its citizens. Our institutional weaknesses are so obvious (as illustrated by the security crises typifying us), that the last thing that Mexico needs is to add to the mix a “transformer” factor, potentially more perilous, such as the Cuban one. Everything that should be and must be negotiated with the Cuban government upgrades the security of Mexico.

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a quick-translation of this article can be found at www.cidac.org

Luis Rubio

I visit diverse places of the country and listen to citizens of all types, backgrounds, and activities. Some are businesspeople, others are taxi drivers, and most are unassuming persons who sweep streets or clean buildings, are secretaries and public servants of all levels and institutions. What’s impressive is that, beyond the differences in language and ways of communicating, all formulate the same question, commentary, petition, complaint or call for help: how is it possible that the country keeps deteriorating, apparently without end? Worse still, some say, today’s president demonstrated an extraordinary executive capacity as governor and yet, the performance of his government has been pathetic.

The bet at the start of this year is clearly that the economy is beginning to revert the tendencies of the past year. Once the core part of the legislative processes has concluded (and the pressure is off for “the” reforms is over) and the errors that accentuated the recent economic contraction are overcome, this year is starting out as quite promising. Both the upcoming massive volume of public spending as well as the stronger U.S. economy allow us to anticipate that these two growth engines will yield much better results, at least in statistical terms, of economic growth. Given the change in the composition of the public expenditure (what the economists call “sources of demand”), not all of the population will perceive an improvement, but the numbers will certainly improve.

Whatever the rhetoric, it’s about the same gamble as always: it’s a bet to produce a higher rate of economic growth, even if it’s unviable in the long term. The latter is in good measure because it depends on factors whether circumstantial or unsustainable over time (such as the massive fiscal deficit) or out of the government’s control (such as the demand for automobiles or the construction of homes in the U.S.).

Mexico’s problem is that it continues living off wagers instead of laying the foundations for long-term development in the construction of a solid foundation that would lead to this. Although no one can subtract merit from the success of the approval of important reforms last year, their relevance will be seen when these are implemented and their worth tested, something not evident at this time.  By way of example: while Mexican politicians are given to legislative verbosity (and to the interminable production of laws that, beyond the rhetoric and ads on the radio, these entertain little probability of changing the daily reality), the laws of the past tended to be relatively brief. Today each of the laws is like an instructions manual that includes the entire host of contingencies thought possible and imagined by our legislative vernaculars. If one were to place our Constitution on a table next to that of developed countries –such as France, the U.S., Spain- the difference in volume (without counting content) can be measured by the kilo that have not created, nor do they appear likely to create, a modern country.

When, I ask myself, will we have a simple fiscal system that everyone can access without the aid of specialists? When will we have simple laws that establish a general framework that will allow citizens to develop their capacities without curbing their creative abilities at every turn? The free trade agreement with Chile has barely twenty pages: shouldn’t all of these be like this? Those that are not reflect the kingdom of the bureaucrats and/or of the particular interests that benefit incorporating exceptions at every instance.

De Tocqueville, the XIX Century French thinker, said it then: the government should be a means, not an objective in itself. When the government preempts all of its faculties, functions, obligations and rights, it becomes impossible to think that the citizen would behave as a responsible entity. Or, stated another way, it’s not that our citizenry isn’t democratic (“a democracy without democrats”) but rather that all of the incentives that exist favor anomalous conduct. Why should anyone play by the rules if what accrues benefits is protesting, blocking thoroughfares, joining in marches, abandoning (or threatening to abandon) The Pact, etc. It is absolutely rational for political actors and for an infinity of citizens to operate outside of the formal rules when the latter only benefit the government or a certain sector of the society.

The rhetoric says that what’s sought is the construction of a competitive, highly productive country, but this does not take into account the fact that everything conspires to making that impossible: the political system is dysfunctional, the government is incompetent, the fiscal system is brutally complex, the regulations are often absurd, the judiciary is a black hole and arbitrariness reigns throughout. Impunity is the norm, not the exception.

Today’s world is not like that of the past: today information is ubiquitous and countries as well as societies can observe and compare. To the extent that all nations seek to attract the same tourists, consumers and investors, real competition resides in creating conditions that expand the market, make attractive profitability possible and confer legal certainty. In this context, attracting investors to the new energy market will be a challenge.

Investors possess finite resources and are going to choose locations that maximize their benefits. Our objective, if we truly want to transcend the small economic benefits that can be reaped this year, should be this simple: what do we have to do to guarantee better conditions in these ambits.

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Luis Rubio

“A strategy”, writes Lawrence Freedman*, “is about getting more out of a situation than the starting balance of power would suggest. It is the art of creating power”. The government has wagered everything on concluding its reforms in its first year in office so as to afterward begin to harvest. The truth is that the battles have just begun. And that’s why the strategy is crucial.

A plan is no more than a set of objectives and an idea of how to achieve them. In contrast with this, a strategy deals with the natural process of running a government: what it is necessary to do to be able to maintain the initiative, consider its options and be sufficiently flexible for adapting to the contingencies that inevitably appear along the way. As illustrated by last year, “No plan survives contact with the enemy” (von Moltke).

Freedman emphasized that initial success is never decisive. The example that he utilizes is particularly relevant for the country’s present moment: a government wins the power but is immediately responsible for all the problems inherent in having to govern and that’s where it really has to demonstrate its competency. Thus, a strategy never ends: it is, rather, a process that begins with drafting a course of action (not an objective) that little by little adapts itself to changing circumstances where nothing is permanent. What’s crucial is to have a strategy that permits dealing with the contingencies because any initial plan dies with enormous celerity.

The matter is neither conceptual nor esoteric. Beyond the specific disputes or the aggrieved in each of the legislative actions, now begins the implementation of the legislative reforms and, with this, surely, more problems. Some of these, as illustrated by the interminable staging of the CNTE Teachers Union’s drama, brought the government to render the respective reform irrelevant. Other opposition sources and problems will start to put in an appearance as the process advances.  Some actors will accept the legislative “verdict”, but others will adopt tactics more akin to those of the CNTE –or worse- than to those of the soft-drink manufacturers (who obeyed what the Congress produced) and the existence or absence will be made evident of a governmental strategy for the implementation of its reforms as well as, in its case, its capacity to pilot these successfully.

In reality, at the beginning of the second year, the government finds itself before a fundamental dilemma. On the one hand, after churning up the waters, all of the incentives clamor for maintaining the calm, pacifying the losers and aggrieved and building on what’s already there. That side of the dilemma calls for a ceasefire, tranquility and the reestablishment of the “friendships” affected in the legislative reform process. On the other hand, the reforms don’t end when the law has been put into effect, but instead when the reality changes. The true reform process is not conceptual, abstract and political but street-smart, coarse and often violent. In other words, the legislative reforms were only the first round: still to come are another fourteen to procure compliance with them, or to annul them, the reforms’ much anticipated benefit. At the end of the day, everything will depend, to a goodly degree, to how much the government wants to implement the reforms: the modest ones as well the more ambitious, this in a year that is likely to be economically more benign (thus more difficult to convince opponents). Implementation will be expensive: last year was for cutting baby teeth: now the real interests will start to take action, the majority of which not acting in the public eye, thus this can be lethal.

In its first stage, the legislative, each of the reforms underwent attacks and deviations with respect to the initial governmental proposal. Some of those attacks were fatal; others will depend on the way the process is conducted from now on. Every vested interest has its own modus operandi: the CNTE didn’t wait a single nanosecond to make its power felt and it annihilated the educative reform. Other interests, notoriously the Pemex bureaucracy, will doubtlessly throw themselves into undermining anything that affects its privileges (commissions, bribes, cuts, contracts) in hushed but certainly equally effective tones. The telecommunications factotums are experts at getting what they want. The true interrogatory is whether the government has developed a strategy to deal with this, the second derivative, of the reform process.

Mike Tyson says that “a well-aimed blow can thwart the cleverest plan”. The question is whether the government can advance despite the real opposition, extortion and violence. Perhaps a more pertinent question would be whether it is truly willing to place its future at play in these fourteen rounds to achieve the transformation that it promised and that will be infinitely more complex, costly and risky than what’s been advanced to date.

What is clear is that no reform is successful if it does not modify the reality and that implies, indeed, affecting interests. Senators and representatives can be convinced, wrangled into the corral, or bought, but the vested interests must be dominated. These are stratospheres of difference.

The government finds itself in the face of a dilemma of enormous complexity and it is not obvious that it has the resources –above all in the team- capable of being successful. The reforms to date have been unconnected and there doesn’t appear to be a strategy for the remaining five years. The key now is to bring compliance with the reforms to bear because that is what an effective government implies, one capable of presiding over a process of development.

www.cidac.org

@lrubiof