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.

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FORBES – Enero 2014 -Luis Rubio

The first year of the government has ended and now comes the time to experience its implications and consequences. The dilemma is clear: after churning up the waters, the government’s entire incentives clamor for restoring the calm, pacifying the losers and the aggrieved and building upon what already exists. That side of the dilemma cries out for a time of peace, tranquility and the reestablishment of the partnerships affected by the legislative reform process. On the other hand, in contrast with developed countries, the legislative process is only just the beginning of the reform. In a civilized and institutionalized nation, the dispute arising from what’s proposed for reform manifests itself within the legislative context: it is there that all of the interests are at play, exert pressure, and procure taking advantage of the situation. Once the legislative process is over, everyone complies with the outcome, like it or not.

The situation is very distinct in Mexico where the end of the legislative process marks barely the beginning of the dispute. The legislators (and, in today’s arena the members of the “Pact for Mexico”) can string themselves up from the chandeliers, but in reality their acting is nothing more than abstract, operating in the stratosphere. The true battle ensues after the legislative part: on occasion on the streets, on others in the ingrained hostilities among interests that procure advancing, modifying or impeding the process of change. The reforms go into effect after this political process. The National Coordination of Education Workers (CNTE), a dissident teachers union, evidenced the case with its mobilization in the streets immediately after approval of the law and it was from that moment on that the real negotiation commenced (and the result was a radical dilution of the provision of the law). From this perspective, with the first year of government the bell was heard that signaled the end of the first round of a 15-round fight. There are still fourteen to go to see the actual result.

What’s to come will have two distinct political frameworks. On the one hand, the implementation process itself which, as illustrated by the “achievements” of the CNTE, is crucial for the proposed reforms to forge ahead or grind to a halt. Each reform entails clienteles and the individuals affected, thus the political dynamic varies (an established corporation is not the same as a pressure group). On the other hand we come upon the problematic that appears to me to be central: Will Mexico be capable of creating the climate necessary for the reforms to be successful, especially the one that the government has identified as core, the energy reform?

Everything suggests that there are two crucial components for the success of an energy reform in an environment of brutal competition, the product of the so-called “revolution” that has  taken hold of the sector, particularly in the U.S., and that implies that there are many projects with which Mexico will compete and few relevant players, i.e. a buyers market. The first component is concerned with the technical factors that the legislation should incorporate and that determine the possibility of a company’s being interested in participating in this market. These involve the possibility of booking the reserves as their own in their balance sheet and the existence of obstacles (such as local content requirements, being in partnership with Pemex or participation of the oil workers union in the new investments). In general terms, if the former is not possible and the latter comprises a condition, potential investors will not be interested.

Supposing that the technical matter is resolved satisfactorily, the remaining component has to do with the energy or hydrocarbon authority invested with the responsibility of regulating the functioning of the industry. That authority would be responsible for contracts, supervision, and administration of oil reserves and, in general, regulation of the hydrocarbon market. The countries that are successful in this matter are those that have achieved the consolidation of a strong and autonomous regulatory authority, one that is independent and with such autonomy that it enjoys the trust of the investors. The constitutional reform did not create such a strong, independent regulator.

This latter is a real problem. If one observes the rest of the economy and the society, Mexicans have been practically incapable of consolidating an institutional system of checks and balances, one likely to achieve that crucial autonomy. Mexicans often speak with pride of institutions such as the Federal Electoral Institute (IFE), the Federal Competition Commission (CFC), the Federal Institute for Access to Information (IFAI) or the Federal Telecommunications Commission (Cofetel), but the reality is that every time one of these does something that upsets the politicians, their board is dismantled and the source of the trouble is eliminated (and this happened in almost all of these instances in 2013). That is, autonomy only lasts until it’s exercised for real. How, within this context, can one suppose that it will be possible to reach this in energy?

There is a reason for optimism: up until the nineties, political parties invested more of their funds in post-electoral processes than in the campaign itself because the latter is where the negotiations took place. Today that’s no longer true: elections are duly supervised and the results respected. The advance has been real. The same can happen with energy, but it won’t be easy.

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                                                                                          Luis Rubio

At the beginning of President Peña’s government the notion in vogue was that this would be a great opportunity for Mexico, the so-called “Mexican moment”, and that all that was needed to consecrate it in reality was an effective government. As a campaign stunt it was powerful and it was convincing for a sufficient proportion of the electorate to ensure its triumph. The experience of the months since then confirms something that all of us Mexicans instinctively know: although governmental effectiveness is necessary (and regardless of how much rhetoric is employed), there is no certainty that the country will achieve development.

Success in development has nothing to do with the country’s potential (infinite), but with its performance and this depends on more than an effective government. Required are strong institutions, a competent government (not the same as effective) and, above all, a consolidated Rule of Law.

At present, Mexico is exhibiting an enormous tendency toward chaos, defining this as corruption, poor government, uncertainty, violence, criminality and volatility. There are regions of the country that are immersed in permanent chaos, which may not impede the functioning of daily life, but does make it impossible to think about development as a real possibility. The same is true for less chaotic regions, but there the essence of the lack of predictability (the sine qua non for the Rule of Law) lies is in the reigning impunity.

Millions of Mexicans have developed an extraordinary capacity for adapting themselves, functioning with a certain degree of normality and being successful. Practically all who achieve success take pride in that their feat was accomplished in spite of the government. At the same time, it is evident that without a competent, reliable and effective government success is always relative, mercurial  and subject to so many circumstances and comings and goings –chaos- that there’s no way of making it endure. The key, then, resides in the conformation of a competent system of government.

An effective government is indispensable for the functioning of a country, provided that effectiveness is not identified with arbitrariness. It is clear that in the country there abides no end of abuses, freeloaders, disorder and criminals, a scenario that demands a strong government, one capable of establishing order, limiting those excesses and creating an environment propitious for development. But that effective government must exist and operate within an institutional context that holds it in check and that avoids its own potential to overstep itself.

A government must be able to count on sufficient attributions to be able to act, and with a margin of discretion that allows it to comply with its duty. However, those powers cannot be so wide-ranging as to permit it flagrant impunity, the old predicament of who takes care of the caretakers.

In Mexico we do not frequently make a distinction between discretionary powers and arbitrariness, but the difference is one that separates an effective government from one bent on impunity. On one occasion I was present at an audit conducted by the U.S. Securities and Exchange Commission (SEC) and two things impressed me: on the one hand, the unlimited discretionary powers of that governmental agency; on the other, however, I was also impacted by the total absence of arbitrariness in its processes. When the result was finally emitted of its probe it delivered a thick stack of bound sheets of paper in which the resolution itself was found on a single sheet at the top of an enormous document. The entire remainder of the latter comprised an explanation of what had motivated the Commission’s decision, why it modified its judgment with respect to existing precedents and what its view was toward the future. That is, although its decision had been severe, there was nary a nanometer of fat in it and all of the actors in the process were precisely clear on what was to follow. This contrasts with the typical resolutions of our regulating agencies (such as the old Federal Competition Commission) where one page resolves the issue at hand with no explanation and independently of whether a decision contradicts prior or later ones. This is a particularly relevant issue in light of the recent energy reform.

To be successful Mexico has to construct solid institutions that bestow certainty on the citizenry: that permit it to trust that there are competent authorities who are not going to act with impunity nor conceal it. A strong institution implies limiting the government’s potential for abuse of authority vis-à-vis the citizenry, without this curtailing its functioning. It is within this context that the architecture of institutions is so transcendental: a poor design –I think back to the recent electoral political imbroglio- may not repress but rather may multiply the corruption of the system.

Another benefit, one not lesser than that of the existence of strong institutions, resides at the core of Mandeville’s book The Fable of the Bees: human societies can prosper if they have proper institutions, as occurs with those of bees, even when some of their members act violently or simply behave badly. That is, the key to a good performance of the country –raising growth, more employment, better salaries, peace and safety- resides in the construction of solid institutional foundations that, without hindering the functioning of the government, impede its excesses.

Another way of saying the same thing is that, to be successful,  Mexicans must construct a normal country, yet one not so exceptional that it makes it impossible to be successful.

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          Luis Rubio

Take a gamble on development or on influence? For developed countries, the great powers, there is no distinction: one leads to the other. For a country yet to achieve development and to satisfy the needs, even the most elemental, of its population, this poses a real quandary. This matter came to mind when a Brazilian won out over Mexican Herminio Blanco for leadership of the World Trade Organization (WTO). Many reproached the government for having concentrated on its foreign economic relations instead of constructing a capacity of influence all over the world. The defeat of the Mexican candidate hurts, but the country had made the correct bet, though without the intensity required.

Paraphrasing Clausewitz, foreign policy is an instrument of internal politics, not an objective in itself. In the eighties, the Mexican government opted for a development strategy centered on the construction of a competitive economy, interjected into the world’s economic, financial, technological and industrial circuits. Recognizing the growing globalization of the world at large, the focus that was adopted then implied breaking with the wager on development based on a closed, protected and subsidy-heavy economy. Rather than high levels of taxes set aside for financing an enormous public expenditure, the country would endeavor to permit the markets to function, the economy to specialize and the average Mexican would come out the winner. NAFTA became the cornerstone of the strategy, in the factor that would confer certainty upon the people and provide permanence of the reforms for businesses and investors.

Twenty years after NAFTA took effect the structure of the economy has undergone an extraordinary transformation that, albeit incomplete, bears significant fruits. First and foremost, it consolidated a stable economy; second, growth rates have been procured that are superior to the world average, although doubtlessly inferior to those most desirable; third, a hypercompetitive industrial platform has been erected that competes with the best in the world; finally, virtually all new investments made are conceived within a logic of competition in the global economy. The country experienced a true revolution that, unfortunately, remained inconclusive. The challenge is not to reconsider the economic model but to wrap up the process in order to leverage future growth on the enormous assets now in existence.

I return to the question at the outset: Would it be better to bet on influence rather than on development? Brazil, the country that trounced us in the match for the WTO, entertains a concept of the world and of itself that is radically distinct from Mexico’s. While Brazilians conceive of themselves as an emerging power, we Mexicans are more introspective and see ourselves more as victims. Brazil has developed a foreign policy that transcends their governments (according to one of Brazil’s ex-presidents, its Foreign Ministry, Itamarati, is so powerful that it imposed its agenda on the president), and is oriented toward projecting the might of the South American giant with a geopolitical vision. In Mexico we have a professional diplomatic corps that does not possess a strategy independent from the government and its vision is held in check by that established by the presidency. The Brazilian influence is noticeable when cases arise such as that of the WTO, in which decades of investment came to fruition. Also, I have no doubt, the Brazilians congratulated themselves for having defeated Mexico, with which they have maintained a peculiar rivalry above all from when Mexico opted for NAFTA.

The relevant response to this query can be none other than development. The average Mexican lives better than the average Brazilian, has better schooling and income levels, and interest rates paid by Brazilians are higher than those paid by Mexicans. Mexican industry has been transformed while a big part of the Brazilian industry continues to be relatively protected. Of course there are some indicators that are in favor of Brazil, but the crux of the matter is very simple: the relevant wager is placed, must be placed, on development and where Mexico has failed is not in the sense of the wager but in the conviction of achieving development and the disposition to do what’s necessary for making it possible. Contrary to what many critics affirm vis-à-vis the strategy of liberalization, the problem is not that a series of prescriptions have been applied in dogmatic fashion, but that these have been applied without conviction and without determination. The result is that the rate of economic growth is much lower to what it could be. This is what we should invest in, not in the elusive international clout that contributes little to the needs of the population.

Nothing better typifies the difference in the Brazilian and the Mexican strategy than the aeronautical industry. Embraer is the signature industry of the southern country: its planes are everywhere and constitute a visible and perceptible icon of the Brazilian and of its influence in the world. For its part, Mexico has built up an impressive aeronautical industry that at present employs more people than the Brazilian one and adds greater value to the Mexican economy than that of Brazil. The difference is that there is no “MexAir” trademark that had there been, would have been visible and would have projected such strength. However, in which country is this industry more successful? which population has the greater probability of accessing wealth? The case is emblematic because it illustrates two radically distinct conceptions of what the two nations are and of their objectives.

Mexico’s problem is that it has not yet concluded the revolution that began in the eighties. The country lives on the remains of the former protected system next to a formidable, productive and successful industrial sector totally integrated into the global economy. The fusion has not been a very happy one because it has limited the capacity of the more modern and competitive enterprises, while preserving the old industry that lacks any capacity whatsoever to compete. The dilemma is how to come to grips with these gaps. The tessitura is obvious: press on to development or perpetuate mediocrity.

Twenty years after the beginning of NAFTA it is evident that in politics ––be it in the political arena or in that of economic, social or international policy- long-term investment is what pays dividends. Many of the political avatars of past years, and not a few of our economic difficulties, have been the product of short-terms bets, the very ones that never turn out well. NAFTA is the best example that long term vision is what garners results.

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Luis Rubio

At a conference in the Middle East on the future of the region I came upon a response to one of Mexico’s own dilemmas. This is a region that is superlatively complex, where religious, territorial and geopolitical themes are absolutely contentious and some overlap others. In one of the presentations, a conference participant from Qatar in the forum summed up his perspective in the following manner: “In the recent hearing for the nomination as U.S. Secretary of Defense, Chuck Hagel, he mentioned Iran, Israel and China more times than Canada or Mexico. In fact, those countries were not mentioned even once”. Of course, the speaker’s commentary was directed toward showing the importance of the region for the U.S. But the discussion caused me to meditate on the implications of this statement for Mexico: Is it good or bad? In any case, what are its consequences?

If one recalls, throughout the U.S. presidential campaign of 2012, the not infrequent complaint presented itself about Mexico not being mentioned in the debates among the pre-candidates, in the debates between Obama and Romney, in the President’s inaugural speeches or in his State of the Union speech last February. Beneath the surface, the absence of Mexico is read as a slight or, simply, that Mexico is not important to them (except when they spy on the president). One problem of this way of reading into political discourse is that it entails the expectation that Mexico is dependent on them for solutions to our predicaments or that their power is so great that we are unable to do anything without their go-ahead.

It appears to me that the relevant perspective is distinct. On the one hand, not mentioning us implies that Mexico is not a quarrelsome theme in their reading and diagnosis, and even less so when compared with what is occurring in the rest of the world. Mexico is not a topic that generates discord among political parties or that merits incessant discussions and polemics. The latter does not necessarily mean that the Americans are pleased with Mexico’s situation, only that there is no controversy in this regard. Nonetheless, it is much better for Mexico not to be mentioned at all than to be ranked with North Korea or Iran, to mention two obvious cases.

On the other hand, there are nearly 200 countries in the world, and for the overwhelming majority of these the United States is their prime objective, partner and nation of interest. For each of these countries, the important thing is to achieve advancing their interests with respect to the U.S. Seen through the Americans’ lens, some countries are more important than others, but their concentration is inevitably dispersed due to such a wide demand for attention. Rome’s perspective is not the same as that of the far-flung provinces.

But the distance, and the perception (and, for many, the grievance) of asymmetry is not necessarily such that it implies the impossibility of taking action. Some time ago, Joseph Nye, Harvard professor, made mention of this situation in a reference to Cuba (I quote here from memory): “We have always believed that we have control of the situation, but you know what, in Cuba we are faced with an actor whose vision is doggedly riveted on us and who gives us a black eye time after time”. The key subject matter here is that Mexicans have frequently perceived the asymmetry of power and size (in all senses) with respect to the powerhouse to the North as a calamity, when in reality it can be an enormous opportunity. In fact, it can be a comparative advantage.

As when someone armed with a hammer sees everything in the world as nails, from the perspective of the powerful nation, everyone deserves a similar response. From this conception there have emerged schemes of economic policy as well as strategies of combating crime that are supposed to apply everywhere the same way. As in everything else, some work and other don’t. But the salient point is that the weaker nation in this relationship is not required to accept dogmatically or a-critically all of its proposals nor must a distinct perspective imply a new source of conflict.

In an asymmetric relationship, the weaker nation must define the nature of the linkage and devote itself to expediting this definition permanently and systematically. The size of the powerful nation and the diversity and dispersion of its interests demand that the smaller or less powerful nation defines the agenda and win over the larger and more powerful one. In general terms, Mexico has done precisely the opposite: we have waited for the US to set the agenda and then we have enthusiastically protested.

The great exception, and the best sample of how it should conduct itself, is the North American Free Trade Agreement. There it was Mexico that spelled out the agenda, forced Washington to respond, developed a broad and ambitious strategy for redefining the relationship and devoted itself to “selling it” outright: to its entire public, interest groups and key players.

What was most remarkable about the Mexican proposal to Washington at that moment was its deliberate withdrawal from the forms and practices of the past. Mexico did not attempt to defend the existing order, but to lever a trade deal (and, above all, one of investment) that would jump-start its own development and, in any case, to create a new order. Instead of resorting to the well-worn ploy of venturing to bring the status quo to the table, it dedicated itself to constructing a new one. More to the point, Mexico did not attempt to change the U.S. order of things, demanding modifications in its reality, but rather it aimed at transforming the Mexican economy by means of the instrument that was being negotiated. With this I do not wish to suggest that a country should not call for concrete actions by its counterpart, however powerful, but that it should choose its battles. For example, having attempted to modify the property regimen of its airlines or telecommunications industries or having tried to incorporate the issue of migration (three soar issues in Mexico) at that time and into that negotiation would have opened up so many fronts that it surely would have hampered a favorable conclusion. The point is to keenly keep the goal in sight and embark upon it, on all fronts.

Mexico’s differences with the U.S. Government are relatively minor; the significant ones pertain to special interests that defend them to the death or to groups with a political vision or ideology oriented, typically, toward recreating a now impossible past, the same for the Left as for the Right. None of this impedes that, with the suitable strategy, Mexico can advance its priorities.

In his Leviathan, Thomas Hobbes wrote that “So in the nature of man we find three principal causes of quarrel. First, competition; secondly, diffidence; thirdly, glory. The first maketh man invade for gain; the second, for safety; and the third, for reputation”. The nature of countries is not very distinct. The initiatives that are undertaken should advance our development and not wait for others to impose or limit them. To each his own.

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Luis Rubio

“One is not who he is because of what he writes, but because of what he has read.” Jorge Luis Borges

I recently had access to a marvelous read, The Book of Disquiet, by the poet and writer Fernando Pessoa. I had read his chronicles and novels that described Lisbon, his city, in exceptional fashion. This book showed me an author who was many authors in one, with distinct stories, positions, ideological visions and even biographies. The book is a compendium of incomplete writings, notes and diverse paragraphs intended to be the autobiography of one of his characters, an alter ego of Pessoa himself. It is like a diary with prose, poetry and narrative that one cannot put down for even a minute.

The Passage of Power is the fourth volume of the biography that Robert Caro writes about Lyndon Johnson, and comprises the period when Johnson becomes the U.S. Senate majority leader until Kennedy’s death, the fact with which Johnson assumed the presidency. What’s extraordinary about the biography is that it is a blood-and-guts study of power: a detailed and punctilious explanation of bona fide politics. Just for illustration, in the first volume Caro devotes 14 pages to describing how Johnson, a young mover and shaker of 17, became the leader of the senatorial assistants by spending five hours in the Senate restrooms where he shaved 57 times while he won over all of his peers. The Caro biography is somewhat the face side of the coin of Memorias by Gonzalo N. Santos: two politicians out to conquer the world.

A World Transformed is a bit sui generis. Written by President Bush Sr. and his then National Security Advisor, Brent Scowcroft, the book deals with the worldwide transformation that this U.S. President was witness to during his mandate. While this former president could have written any one of the memoirs among the thousands that prominent politicians publish, what is extraordinary about this tome is that it reveals the dilemmas that Bush faced and the way he conducted his administration in attempting to achieve a successful landing of the relationship between the United States and Russia after the fall of the Berlin Wall, the German reunification and the demise of the Soviet Union. An enormous geopolitical transformation related as if observed by its two main protagonists. The book is not new (it was published in 1999) but it is a fascinating story recounted with modesty and aplomb.

The Law of the Constitution, a treatise on Rule of Law, originally published by AV Dicey in 1885 and only available thanks to the extraordinary Liberty Fund editorial project, constitutes an opus magnum on the contents and nature, but also the limitations, of Rule of Law. The most riveting part of Dicey’s study for me is the comparison of the English and the French legal systems in terms of Rule of Law. For Dicey, this concerns two systems so foreign to each other in fundamental conception that they start with radically distinct ways to understand and conceive of the relationship of the individual and the State. Protection of property as conferred by administrative law (as Dicey calls the French system) before that which the English “common law” confers entails different treatments for investors, commerce and actions on the part of individuals. These differences explain many of the conflicts we observe in the application, for example, competition law in Mexico, (which is based on the English system) before the general legal system, which derives from Roman law.

Wayne A. Leighton and Edward J. López have written a captivating book on the factors that favor or impede change in a society. Their point of departure is that “political change is as follows: Incentives are shaped by the rules of the game, which economists call institutions, and these institutions in turn are shaped by the ideas in a society. In other words, ideas matter”. From this the authors attempt to respond to three queries: Why do democracies generate policies that impose net costs on society? Why do such policies persist over long periods of time, even if they are known to be wasteful socially and there are better alternatives? And why do certain wasteful policies eventually get repealed, while others endure Their response, in Madmen, Intellectuals and Academic Scribblers, is that change comes about when those who create the ideas, those who argue about these and those who decide on political policies rebel against the existing order and become change-promoting “entrepreneurs”.

The most profound and interesting book I have read so far this year was Margaret Thatcher’s authorized biography*, published posthumously. Beyond the biographical data, what was extraordinary with respect to the stateswoman was that, not being a member of the British elite, she came to revolutionize her country and the world. Her instincts were those of an ordinary person who saw the difficulty and complexity of life from below. The book has the virtue of studying the prime minister under her own circumstances, not with the benefit of time: this perspective allows understanding the decision making process, her determination and the enormous risks she was willing to take. The book is fascinating because it permits the reader to understand the dilemmas of power, and precisely therein lies the enormous grandeur of the subject of the biography: a woman who, in effect, took on the world and defeated it. Although her party’s traditionalists would later remove her from office, by that time she had already changed her country and, without doubt, the world.

Erick Schmidt and Jared Cohen, two key Google actors, analyze how the advance of technology affects the power structures. One of their conclusions is that governments that close in the face of technological change will be forever engaged in combating the forfeiture of control that this closure entails. They study the case of Mubarak in Egypt and how his decision to bar access to the Internet might have precipitated his fall from power and how the Chinese government has constructed mechanisms to utilize that same vehicle –the Internet- as a means of control. The authors explore all manner of scenarios: a fragmented world in which national borders are recreated in cyberspace, mechanisms that charge for access to diverse sites, visa requirement for navigating into some sites, and opportunities for personal development never before seen, such as online education. Of particular importance is their analysis of Internet security and the cyber wars that could be brewing. The New Digital Age is a profound book that leaves behind much food for thought.

* Margaret Thatcher-The Authorized Biography, Volume I: From Grantham to the Falklands

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Luis Rubio

Lee Kuan Yew, the universal statesman who made possible the transformation of a filthy harbor, saturated with corruption and all sorts of vices, into one of the most modern city-states of the world, Singapore, has spent decades observing and analyzing with enormous depth and vision what is happening in the world. Supposedly retired, he is a frequent visitor of presidents and prime ministers in Beijing, Washington, Davos and other capitals where his wisdom is always appreciated and respected. Recently, three academics interviewed him and gathered all this wisdom in a small volume* for ordinary mortals.

His comments on China and its evolution over the future of that nation are particularly valuable. The following is a summary of that part of the book:

Are Chinese leaders serious about displacing the United States as the number 1 power in Asia? In the world? “Of course. Why not? They have transformed a poor society by an economic miracle to become now the second-largest economy in the world… They have followed the American lead in putting people in space and shooting down satellites with missiles. Theirs is a culture 4,000 years old with 1.3 billion people, many of great talent -a huge and very talented pool to draw from. How could they not aspire to be number 1 in Asia, and in time the world?”

“The concern of America is what kind of world they will face when China is able to contest their preeminence… Many medium and small countries in Asia are also concerned. They are uneasy that China may want to resume the imperial status it had in earlier centuries and have misgivings about being treated as vassal states having to send tribute to China as they used to in past centuries. They expect Singaporeans to be more respectful of China as it grows more influential”.

“The Chinese have concluded that their best strategy is to build a strong and prosperous future, and use their huge and increasingly skilled and educated workers to out-sell and out-build all others. They will avoid any action that will sour relations with the U.S. To challenge a stronger and technologically superior power like the U.S. will abort their ‘peaceful rise'”.

“The Chinese have calculated that they need 30 to 40, maybe 50, years of peace and quiet to catch up, build up their system, change it from the communist system to the market system. They must avoid the mistakes made by Germany and Japan. Their competition for power, influence and resources led in the last century to two terrible wars…”

“China will inevitably catch up to the U.S. in absolute GDP. But its creativity may never match America’s, because its culture does not permit a free exchange and contest of ideas. How else to explain how a country with four times as many people as America -and presumably four times as many talented people- does not come up with technological breakthroughs?”

“China faces enormous economic problems -a disparity in income between the rich coastal cities and the inland provinces, and in income within the coastal cities. They have got to watch that carefully or they might get severe discontent and civil disorder. Technology is going to make their system of governance obsolete. By 2030, 70% or maybe 75% of their people will be in cities, small towns, big towns, mega big towns. They are going to have cell phones, Internet, satellite TV. They are going to be well-informed; they can organize themselves. You cannot govern them the way you are governing them now, where you just placate and monitor a few people, because the numbers will be so large”.

“Straight-line extrapolations from such a remarkable record are not realistic. China has more handicaps going forward and more obstacles to overcome than most observers recognize. Chief among these are their problems of governance: the absence of the rule of law, which in today’s China is closer to the rule of the emperor; a huge county in which little emperors across a vast expanse exercise great local influence; cultural habits that limit imagination and creativity, rewarding conformity; a language that shapes thinking through epigrams and 4,000 years or texts that suggest everything worth saying has already been said, and said better by earlier writers; a language that is exceedingly difficult for foreigners to learn sufficiently to embrace China and be embraced by its society; and severe constraints on its ability to attract and assimilate talent from other societies in the world”.

“China is not going to become a liberal democracy; if it did, it would collapse. Of that, I am quite sure, and the Chinese intelligentsia also understands that. If you believe that there is going to be a revolution of some sort in China for democracy, you are wrong. Where are the students of Tiananmen now? They are irrelevant. The Chinese people want a revived China”.

“To achieve the modernization of China, her Communist leaders are prepared to try all and every method, except for democracy with one person and one vote in a multi-party system. Their two main reasons are their belief that the Communist Party of China must have a monopoly on power to ensure stability; and their deep fear of instability in a multiparty free-for-all, which would lead to a loss of control by the center over the provinces, with horrendous consequences, like the warlord years of the 1920’s and ’30s.”

Finally, his rosy thoughts on how he expects China to evolve to 2050: “China discovered that to run a modern state it needed the rule of law. It had a comprehensive set of legal codes by 2035 and found that a stable legal system, together with clear administrative rules, actually strengthened central authority. Erring provincial and local governments were brought to book through due process of law, a method more effective than the endless negotiations that had been the practice before. Also, with the rule of law, ordinary citizens are now protected from the arbitrary authority of officials. Business enterprises are also able to plan large long-term investments. The independence of the judiciary took another 20 years to achieve in practice, because historical tradition, which required magistrates, as officers of the emperor, to carry out imperial orders, was deeply embedded in Chinese officialdom”.

In this book Lee says a lot more, not all commendable, about Mexicans, democracy and globalization. Talented and highly intelligent, he has thought about the key issues of the future on which it is imperative to reflect.

*Allison, Blackwill and Wyne: Lee Kuan Yew: The Grand Master’s Insights on China, The United States and the World, MIT Press, Cambridge, 2013

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