Luis Rubio

When politicians start making radical adjustments to the fiscal system they run the risk of provoking distortions they could never have imagined. The government presented its fiscal bill, including both incomes as well as expenditures, proposing a “paradigm shift”. This is my reading:

– The objective is commendable. The construction of a social security system would contribute determinedly to curtailing inequality and poverty. However, the content of the initiative is rather weak in relation to a tie-in between objectives and means. The expectation of a 1.4% increase in tax collecting (as a percentage of GDP) is inordinately low and makes it difficult to imagine that such ambitious objectives as have been outlined could be financed. On the other hand, except for a potential increase in consumption (in some lustra), the product of the theoretical diminution of poverty, how the proposed driving of economic growth would be implemented is not obvious.

– In effect, there is indeed a paradigm shift, but very distinct from what the Executive branch made public: this is about a reform that reorients, in concept and focus, the activity of the government with regard to social security and unemployment insurance. But the essence of the new paradigm lies in the re-centralization of spending and its rapid growth, all of it financed with debt and/or, eventually, more taxes. No two ways about it.

– The philosophical lifeblood of the proposal resides in a series of international juxtaposings that compare apples and oranges. The European nations doubtlessly collect many times more taxes, but those nations are not the ones that grow at high speed. The relevant European comparisons would be Poland, Ireland and other like nations, whose tax rates are lower and whose tax collection is higher. In our case, more income to finance poor spending is not exactly an attractive formula for anyone. The example of Brazil does not inspire: this is a country that collects and spends much more but that does not evince a better economic performance: in fact, its performance is much worse.

– It’s nearly axiomatic that when a government speaks of a paradigm shift it is also inevitably speaking of more expenditure, thus higher taxes. Under this heading, the governmental proposal is anything but newsworthy and is unfurling no paradigm shift. It’s more like a return to the past. In fact, the proposal looks very much like the one of 1971 when, in the context of stability, all fiscal balances were broken.

– The governmental proposal rests on three pillars: higher taxes for captive taxpayers, with a surcharge for the emerging middle classes. There’s nothing new in requisitioning greater contributions from businesses and individuals, but the contempt for employers is perceptible, as if assuming that these have no investment alternatives. The second source of financing is more audacious and more interesting: the reduction or elimination of certain special tributary and tax-exemption regimes. And the third, a bigger deficit.

– The numbers don’t lie: we Mexicans pay fewer taxes with respect to the GDP than other nations, but because of a defective tax collecting system and not due to the tax rates. What’s significant is that the government is not even arguing that higher taxes lead to higher economic growth rates. The government implicitly accepts what everyone knows: the population acts as if it’s paying and the government acts as if it’s governing. This is the paradigm that must be shifted because when a better performance of the economy, of education, of the energy entities or of the states, is achieved, no Mexican could be opposed to contributing his corresponding share. This is an issue of citizenship.

– Despite the attractive rhetoric that accompanies the proposal of the reform, with the sole exception of the potential simplification of procedures to comply with tax obligations, there’s nothing in the initiative that contributes to driving greater economic growth. Similarly, although incentives are proposed for promoting the incorporation of informal enterprises into the formal regime are theoretically sound, it is not obvious how they would work in practice. In addition, the tax on cash deposits in banks that was meant to create a negative incentive for the informal economy is eliminated.

– The most important of the initiative’s variables lies in the governmental concern with the null (or negative) growth of productivity during the last decade. The problem of the focus employed is that the averages obscure more than they illumine: there are sectors that experience spectacular productivity growth rates, while others fall behind and contribute negatively. The two great contributors to negative productivity are the State companies, above all Pemex and CFE, and the informal economy. It’s clear that the government trusts that the energy reform would contribute to reducing the sector’s unproductivity, but there’s nothing that enables being optimistic about the informal economy, a complex phenomenon not easy to untangle.

– Instead of the transcendental fiscal reform that the government promised, what the executive has proposed is a clean-up of the tax system (that is to say, not another series of tiny changes and additions on top of endless previous such feats, but a new law that eliminates contradictions and duplicity), but not a new vision of development: only more government without mechanisms that make it accountable. No change at all is proposed on the expenditures side, except to increase them, which is worrisome because part of the absence of legitimacy that our governmental system enjoys has to do with the waste and corruption characterizing public spending. The example of education is evident: Mexico is at the top in the percentage of its GDP that it spends on education and, notwithstanding this, the results are pathetic. The country requires a new system of government, with transparency in spending, control of waste at the state level and favorable results in governmental management. None of that is present in the bill. Without a radical revision of the way the monies are spent, the proposal will not lead to promoting and driving economic growth.

– The great taboo that infringes upon the initiative is that of the fiscal deficit. The notion of spending more than what flows into the coffers is neither good nor bad in itself.  However, it is of concern that the proposed fiscal bill does not even register the reasons for which the dogma of fiscal equilibrium was adopted and, worse, that the latter incurs in large and, potentially, enormous growth in public debt, for which an adjacent bill aims to modify the law of fiscal responsibility that was adopted precisely to make it impossible to break the fiscal balance at will. Failing to remember the causes of the crises could lead to the causing of yet one more, a novelty for the generations that never knew them. The old PRI.

At the end of the day, more than anything else, the initiative is a faithful reflection of the political moment. It is evident that the criteria that in the end prevailed were two: keep the PRD in the Pact for Mexico and pull the rug out from under López-Obrador. The President achieved both; the problem is that these criteria are not conducive to the accelerated growth of the economy.

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@lrubiof

Luis Rubio

A poster by the National Education Workers Coordinator (CNTE) on the trunk of a van led me to reflect on the discussion (because nothing akin to a debate is happening here) that characterizes the educative issue at present in the country.  “Everything starts with 1s self. Rebel!!!” (sic). Beyond the demonstrations, the educative reform and the political dispute surrounding the legislative process of the moment, the debate on the quality of education and its transcendence vis-à-vis the lives of those being educated is universal; few countries are spared. On reviewing the literature on the issue, I found interesting things, some fascinating.

In 1962, Richard Hofstadter, in a book entitled Anti-intellectualism in American Life, affirmed that  “A host of educational problems has arisen from indifference”; among these, “underpaid teachers, overcrowded classrooms, double-schedule schools, broken-down school buildings, inadequate facilities and a number of other failings that come from something else: …de-intellectualized curricula, the failure to educate in serious subjects, the neglect of intellectually gifted children”. What most impressed me about the Hofstadter book when I read it for the first time some twenty years ago is that nothing that he affirmed in it had, nor has, changed much. The debate in the U.S. on the matter has evolved into the issues that now appear in the Mexican fore, such as teacher evaluation, but results in the Program for International Student Assessment (PISA) test -administered by the Organization for Economic Co-operation and Development (OECD) and that permits the comparison of some twenty nations- shows that Mexican children are, much like the Americans, considerably behind some other countries that do some things particularly well. We’ve seen the same situation for years and the only thing that’s evident is that the political conflict heats up but the results are progressively worse.

The take-off point in Paul Tough’s book Why Children Succeed: Grit, Curiosity, and the Hidden Power of Character is that everyone supposes that success in life depends on things advancing in childhood that are associated with intelligence: better grades, success in standardized tests and constancy in traditional evaluations. However, says Tough, what really makes a difference, the qualities that effectively lead to success in life are skills such as: perseverance, curiosity, optimism and self-control. That is, the author goes on, the difference lies in the person’s character and that is the key to the educative process, at home as well as at school, to construct a productive and successful life in the adults of the future.

Amanda Ripley takes a different perspective in The Smartest Kids in the World And How They Got That Way. In her view, the whole approach taken in the US towards education, which has fostered the growth of an enormous industry devoted to confronting the educative challenge, is wrong. Monumental budgets are spent on new programs, projects and mechanisms of evaluation and, notwithstanding this, the results not only don’t improve but become worse. She exemplifies with Poland: despite its being a country with a relatively poor population, its educative indices tend to rise. Instead of engaging in polemics about details that tend to stifle debates on international standardized testing (whether the sample is well done, whether it over-represents a certain type of student, whether the teachers union attempts to skew the results, i.e., the sources of universal wrangling on this issue), Ripley applies herself to investigating what differentiates some educative systems from others. She follows three American foreign-exchange students who end up in Finland, Korea or Poland, respectively.

The three American students set out from similar educative circumstances and found themselves in nations that achieve the best PISA test results. The first observation of the students was about how hard their local peers work and how seriously they take their studies. They particularly note how sophisticated the teaching is and the ways in which (apparently) independent programs (like trigonometry, geometry and calculus) interact in real life, acquiring a meaning they had not understood before. What most impressed them was that the teachers were authorities in their field and were treated with the respect due to an exceptional professional.

Two of Ripley’s conclusions seemed particularly relevant with respect to Mexico’s current reality. The first is that teachers in those countries confront ultracompetitive processes for admittance into the teaching profession. In Finland all teachers must have a Master degree, must have written a thesis that was the product of research and, in addition to passing extremely rigorous examinations, must spend a year as teaching assistants of a veteran professor to observe, learn and be evaluated while practicing.

In one passage of her book, Ripley relates an interview with a Finnish professor that evidences an extraordinary clarity of purpose: students are expected to succeed and there are no special concessions. “I don´t want to think about their backgrounds; it’s your brain that counts…I don’t want to have too much empathy for them because I have to teach. If I thought about all of this too much, I would give better marks to them for worse work. I’d think, ‘oh you poor kid, what can I do?’ That would make my job too easy.” Devotion to merit is overarching (and extreme, says Ripley, in Korea).

The second conclusion is that the need for technology in the classroom is oversold. Ripley states that what truly matters is the quality of the pedagogical process because that’s what forms the character of the students. Successful educative programs are those that have a common backbone but that leave the management of the process in the hands of the educator because it is the contact between teacher and pupil that contributes to character formation. It is not calculators or computers that triumph but the focus on academics and student-teacher interaction.

With his accustomed clairvoyance, Eduardo Andere summed up his diagnosis of Mexico’s educative problem in a recent Reforma op-ed. I compile three key points: first, the Mexican government does not understand the rationale, or the political logic, behind the two teachers’ unions that constitute the key counterparts in this process: the National Education Workers Union (SNTE) or the CNTE. Second, starting with the 1992 reforms, the educational system was not well decentralized but now the government is attempting to centralize it. The proper strategy would be to carry out a thorough, and well thought out, decentralization. Third, and most importantly, no educational reform can be conceived without the teachers, which is the reason that the emphasis should be placed on the resolution of the ongoing political conflict so that everyone gets down to work on what’s really key.

The country appears to be on the brink of revolution because of an ill-conceived political process of reform. This will persist as long as the key actors remain adamant in their stance. Only the government can break this perverse dynamic.

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Luis Rubio

All governments, in Mexico and in the world, hit the wall at some point. What’s crucial is not the fact itself but whether Mexico’s possesses the capacity to extricate itself from the jam it got itself into. Victory at the polls leads the winning team to believe that the sky’s the limit, that no confines apply to their activism and, above all, that the outgoing administration ended up on the mat because of its incompetence. The dynamic of the triumph (and the overriding prejudices) are such that no one consigns himself to even considering the possibility that the causes of the crisis reside in the reality and not exclusively in the team that they hasten to replace. Getting into a jam is inevitable and the greater the conceit, the worse the outcome because the other side of the coin is equally true: the few governments that do recognize they are in a bind (50% of the solution) end up transforming themselves and re-launching initiatives that can lead them to achieve their objective.

The electoral triumph of today’s President Peña was clear and indisputable, but it is possible that his team deduced a mistaken lesson from the election’s dynamic: that the discrepancy between the opinion surveys and the final result was due to the fact that the decisive vote was the product of the split of the voters who made up their minds last into two negatives, the anti-PRIs vs. the anti-AMLOs. That dynamic implied that Peña-Nieto won because more Mexicans feared López-Obrador, many of these PANists who deserted their candidate, than because of a true preference for the PRI. Such a hypothesis would thus explain the errors in economic management, the cost of ignoring or underestimating the problem of security, the waste of the good-will generated by the detention of “the teacher”, the union leader, and the popular undercurrent against reforms, tax increases, and the renaissance of corruption. The government did not earn a free hand to do as it pleases: its great capacity of execution and its overriding formality are not sufficient; substance matters.

The events of the past weeks are suggestive: although no one in the country is condoning the behavior of the CNTE, the dissident Teachers Union, on paralyzing Mexico City, the population has not shown the government support or confidence in its ability to deal with the challenge. Like the proverbial deer in the headlights of a car, the government was taken by surprise and has been incapable of advocating, defending and winning the population over to the rationality of its educative proposal and is losing the leadership of that of energy. The only person drooling is López-Obrador, who espies carte blanche for his survival venture in the government’s and the Congress’ manner of conducting themselves.

What’s evident to date is that economic leadership has been atrocious and worse yet given the upswing experienced by that of the U.S.: there’s no way to hide the poor performance or where the responsibility dwells. The extraordinary ability to communicate, which stands in stark contrast with previous administrations -mostly via the foreign press, with which it began- turned out to be premature, thus counterproductive. The few advances in matters of transparency that had been reached are disappearing and the return of a PRIist government has served as an excuse for the resurgence of corruption in all corners of the country, without the government seeming to care one bit. These months have demonstrated that legislation of the most diverse sort can be approved and, notwithstanding this, change nothing. There was a moment when Fox, as salesperson, pleaded for a fiscal reform, whatever it might be. The current government is starting to seem like that: as if the content were irrelevant. The problem is that in the content of the reforms and, above all, in their implementation, lies their transcendence. The very notion that a monster like Pemex can be changed by the single fact of changing the law says it all.

All governments begin their mandate confident of being able to count on popular support and that by its sole existence the country will be transformed. History and perspective place something distinct in evidence, that which differentiates great government from small ones. During the past twenty years, three Mexican governments were absolutely incapable of achieving anything because they suffered from the lack of a viable project and one likely to win the support of at least key sectors and groups of the society, but also -and particularly- because they lacked the capacity of political operation that President Peña has shown in spades and then some. In contrast with those governments, the president has the key asset: the know-how. What he doesn’t have is an eminently suitable and viable development strategy, one capable of garnering popular support, at least sufficient support to clearly marginalize the interest groups -political or ideological- that these days have paralyzed the government and the country.

Tony Blair wrote in his memoirs that the worst moment in a reform process comes when everything would appear to be collapsing, when the opposition paralyzes it all and the days seem black from beginning to end. The situation, says Blair, improves when the storm begins to die down and things start to acquire their true dimension. It is at that time that the man in charge realizes that it would have been equally easy or difficult to approve an ambitious reform or a mediocre one: the cost and the process is the same, but the result can be radically distinct. That’s precisely where the government is in a jam today: change what’s necessary or do a mere quick fix on the façade.

The matter of today boils down to what kind of government the country will have and what the relationship will be between the government and the society. Historically, PRIist governments dominated and controlled everything, until they ended producing interminable crises and lost all semblance of control. The PAN tried to manage what existed without changing anything while AMLO proposed restoring the Old Order. The current government forestalled these considerations and rushed to attempt to recreate a system of government no longer viable because in this era attempting to control everything hinders development, because corruption no longer smoothes things over and because an excess of government activism generates crisis. A strong government is not equal to control. The reality calls for a new strategy, one compatible with the complexities of the globalization era and the expectations of a demanding population.

The country requires a government in form and a president above everyday discord. President Peña-Nieto has performed this function with extraordinary ability, but reestablishing presidential authority is not enough; what’s crucial is to turn that authority into the pivot that makes possible the transformation of the country with a vision towards the future.

Blair explains the vicissitudes with which the leader must live and the fragility of the political processes on which he depends, including the personnel responsible for leading them. That is what will define whether the president capitulates in the face of the obstacles he is facing or converts them into an opportunity. The president must choose between accepting the imposition of the CNTE (and all those that will follow) or redefining his government on the substantive issues for the sake of constructing a truly transformative project.

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Luis Rubio

At the heart of criminality, says Mark Kleiman, lies impunity. When crime is not punished, it recurs. On the other hand, if the punishment is disproportionate or, simply, not credible, its dissuasive power is irrelevant, if not negative. What’s required, says this specialist with a long career in law enforcement prior to devoting himself to studying the phenomenon, is an intelligent strategy based on the existence of very clear rules for social behavior, but rules with which the State has the capacity of enforcing. In the latter resides the key.

Although focused on the criminal phenomenon in the U.S.*, Kleiman´s conceptual proposals are as valid there as elsewhere, in addition to his previously having trained his crosshairs on Mexico’s case**. In essence, the proposal is the following: it must be accepted that crime is a real problem, that there are too many myths and prejudices about the way the political world focuses on it and that the solutions, which I would sum up as “tough-fisted”, are not liable to resolving it. What is required is an integral strategy. What follow are core elements of Kleiman’s argument:

• The Left must abandon the view “that crime is mostly an imaginary problem, vastly overstated by the Right to put racial fears in socially acceptable code; that the root of criminal activity is inequality and injustice, and that only basic social reform can control it; that the criminal-justice system functions primarily as an engine of racial and social-class oppression, as evidenced by the huge disproportion between the racial makeup of the prison population and the racial makeup of the country as a whole; and that enforcement should focus on white-collar crime”, the corruption of the politicians, the all-powerful or the wealthy.
• On its part, the Right must stop “regarding “victims” and “perpetrators” as distinct groups—as if most criminals hadn’t first been victims—and punishment as good, and more punishment as better, conditional only on actual guilt and some sort of due process”. In other words, that the context within which crime flourishes and develops produces much of the criminality.
• What’s required is a strategy against criminality that utilizes punishment in an intelligent manner, which means using it as sparingly as possible but also as much as necessary.
• A better police system and one designed for the pursuit of justice should be the heart of a strategy against crime.
• “By asserting lawless power over the victim, the perpetrator not only puts the victim in fear of the event happening again (with or without a change of victimizer) but also acts out the message that the victim is not someone whose person or property others need to respect”. That is, impunity should be fought against not only as the cause of the crime but also as a strategy to combat it.
• Punishment –the fact and its form- is important because it is the main dissuasive principle of crime, but also because it avoids that victims respond with a lawsuit to punish whomever, independently of whether he is the real criminal, at whatever price. “This helps make sense of the demand of victims and their families that someone—even, sometimes, the wrong person—be punished, to give the victims ‘closure’.” (case in point, Cassez).
• The absence of a response on the part of the authority –impunity- generates its own dynamic. People lock themselves in, abandon public spaces and avoid frequenting zones with high criminality rates. While explainable, all of these attitudes and actions have consequences: they consolidate crime zones “Living in chaos makes people more present-oriented and less averse to risk, two characteristics that make crime, with its immediate and certain gains and its deferred and uncertain losses, appear more attractive” (essentially because the person in this situation has nothing to lose) and creates or sharpens social divisions that later are nearly impossible to moderate. “Converting imprisonment from a shocking disgrace to a routine incident of early manhood greatly reduces the stigma that carries much of its deterrent power when it is sparingly used”.  Spending time in jail, with punishment thus becoming a rite of initiation, is precisely the opposite of what should be sought.
• The economic conception of crime (that the potential delinquent formulates a rational calculation of the risk of committing a crime) resides in the construction of incentives that dissuade them. However, the evidence suggests that criminals are not rational actors in this economic sense. The bedrock cause of criminality is poor calculation by the criminal and the solution to it must be a combination of strategies that improve his decision-making process while developing a credible threat that in effect serves as a dissuasive factor. This is not achieved with the current system of severe sentences or impunity.
• To comply with its pledge, punishment must be swift and certain. What’s fundamental is not its being severe but it’s being effective. What’s crucial is that the potential criminal is sure that he’s going to receive immediate and merciless punishment, that the authority will take action and not hesitate.
• The key for the authority to be successful is for there to be an effective police corps and a judiciary that complies with its function. There are numberless experiments in diverse cities (referring to the U.S.) that illustrate distinct forms of police effectiveness and, in the majority of cases, success does not lie in aggressiveness but rather in the intelligent use of force and of technology, in addition to achieving a certain propinquity with the population.
• The most effective way to decrease crime is to establish a tidy set of rules that everyone knows: that they understand what is acceptable behavior and which is not, and that all know what will happen if the rules are broken. The rules should be accompanied by an effective surveillance system and the sanctions for whatever transgression should be swift and certain.

Kleiman’s concept is clear: criminality and violence cannot be permitted to prosper, but to attack them it is necessary to construct an intelligent strategy that departs from the elemental principle that people respond when they are clear about the cost of breaking the law.

My reading of the proposal in terms of the concept’s potential application to Mexico is the following:

• The key factor lies in the construction of State capacity, that is, the development of police and judicial systems that are competent and capable of controlling criminality and maintaining order. That should be the goal.
• While this capacity is being constructed, action must be taken with the resources in existence at the moment.
• The first step would consist of establishing rules: what’s acceptable and what’s not and which punishment will be imposed in the face of a transgression. The rules and the punishments must match the existing State capacity at that moment; that is, a rule cannot be announced if its compliance cannot be enforced. As State capacity is strengthened, the rules are made more stringent and specific until, eventually, the objective is achieved: maintaining the peace by means of a believable threat.
• To develop modern police systems that get closer to the population and in which the relationship with it constitutes a dissuasive factor.

There’s no, pardon the catchphrase, magic bullet, but the condition sine qua non is starting to act. The problem doesn’t go away because it’s not a buzzword any more.

*Smart on Crime, http://www.democracyjournal.org/28/smart-on-crime.php?page=all y

**Smarter Policies for Both Sides of the Border, Foreign Affairs, September/October 2011

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@lrubiof

Luis Rubio

In 1904, Stanley, an Anglo-American journalist, went to Africa in search of a Scottish scientist and missionary about whom nothing had been known for some time. The legend goes that Stanley, on finding the Scotsman and without even asking first, affirmed “Dr. Livingstone, I presume”, after which there followed tea at five, so characteristic of the English culture. The interesting part is the latter: it doesn’t matter where two Englishmen are found, at five they having afternoon tea. The culture runs in their veins and, more importantly, everything that this conveys with it: customs, practices, behaviors. It is within that context that the matter of the legalization of drugs in Mexico should be analyzed.

Legalization as a mechanism to eradicate violence is elegant, attractive and analytically sustainable.  As the liberal that I am, I reject the notion that the government should assume the role of nanny and deciding what a person can eat, smoke or consume: each person is the one responsible for his or her actions and decisions and there is no reason for the government to meddle in these matters, all of this whensoever third parties are not affected. And that’s the problem of legalization in our context: if we don’t want to end up with another of the many disillusions and unfulfilled promises that has characterized the country for so long, we first have to understand well the factors that would make the legislation viable because nothing’s more powerful than an idea but there’s also nothing riskier than an idea that is not upheld or one without the platform necessary for it to be successful.

Beyond ideological preferences, the notion of legalization makes all the sense in the world as a means of reducing the profitability of the mafias, eliminating with that the prime incentive prompting the business. If the drug is legal (and if the practical problems of how to produce it, distribute it and regulate it have been worked out), the mafias that proliferate due to its being an illicit market would cease to exist. The economic reasoning is robust and impeccable.

However, for there to exist a legalization strategy in our context (and here yes, geography makes us distinct from remote climes such as Uruguay or Portugal), at least three key matters would have to be settled. First, that legalization would involve the relevant market. Second, that it would include all of the significant items, in this case the various drugs. And, third, that a perfectly established, real and effective, capacity of regulation of the respective markets for the entire loop ranging from production to consumption be in place; that is to say, so that no leaks and children would not have access to the substance. If one observes the cases existing in the world, typically it is in these latter issues that things get sticky.

According to the National Addictions Survey, drug consumption in Mexico is exceedingly small, concentrated in certain sufficiently specific localities and, although growing rapidly, the base is so small that, with the exception of some neighborhoods or social groups, there is not so to speak a severe drug addiction problem. This being the case, it is obvious that the violence in the country cannot be explained by the consumption of drugs. The violence occurs due to two circumstances: one, the main one, Mexico’s geography that positions it as the means of access to the market of the U.S., the world’s greatest consumer. The remaining factor, and not the lesser of the two, is that Mexico is the locus-of-choice for the transit of much of this drug because there are no real and effective barriers to its production or transport, that is, because we don’t have police and judicial institutions devoted to enforcing the law maintaining order (the essence and minimal responsibility of any State). Drugs pass through Mexico because nothing stops them from passing or, in any case, regulates their passing through.

In this sense, the first key matter that would have to be resolved for legalization to be effective would of necessity be that it encompasses the relevant market. That market is not the Mexican one but rather the U.S. one. To rephrase this: nothing would change if drug consumption were legalized in Mexico if this were not to occur in the U.S., from whence the profits derive that make them relevant. For legalization to exert the desired effect in Mexico, the country would have to move to the Atlantic, that is separate itself from the border, or convince the Americans to legalize it also so that Mexico would cease to be the conduit of access to its market. If Mexico liberalizes consumption but the Americans stay the same everything would stay the same.

The second key matter is for legalization to embrace all of the relevant drugs. Supposing that the U.S., by some miracle, were to abandon its prohibitionist strategy, the question becomes: are all the drugs in play or only some of them. In terms of profitability and impact, the really significant drug is not marijuana (which is produced in Mexico), but cocaine and methamphetamines. If these are not included in the legalization package, the effort would remain incomplete and would be, to a good degree, to no avail. I don’t know of a sole proposal to legalize these other drugs. In this a smidgen of an advance implies no advance at all.

Finally, the idea of legalizing stands on the assumption that a legal market can be regulated and that this isn’t going to negatively affect the population, above all that which chooses not to consume drugs or to participate in the market. This is the crucial point and the one that from some time ago leads me to be reluctant with respect to legalization. Given that Mexico’s problem is not one of consumption but of the absence of State or, i.e., of “law and order”, what Stanley and Livingstone took for granted, legalizing drugs without strong institutions would not reduce the violence: the criminal activities would increase of unemployed narcos who would go on to other criminal businesses. Also, eliminating the illegality of the drug would increase availability and its social acceptance, raising health costs. As in Guatemala, the government could ignore the narco, but its situation would not improve because the problem is not one of drugs but of the weakness of its own system of government. The reality of extortion, kidnapping and narcotrafficking would have changed not one iota.

All things considered, the relevant market for legalization to be fruitful is the American one. If they liberalize their market, things could change fast. However, whether they legalize or not, criminality, abuse, extortion and kidnapping in Mexico would continue exactly the same with legalization or without it because that’s not the problem. What Mexico urgently requires is a government that acts the part and honors its mission.

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@lrubiof

FORBES – Luis Rubio

A survey taken by the UNAM several years in a row in the 80s and 90s concluded that Mexicans abhorred the government, saw few alternatives and had a great fear of violence. The history of recent decades appears to justify the three conclusions: we have not been able to upgrade the quality of government, the opposition has not been particularly good at governing and violence has taken possession of vast regions of the country. Were there a social consensus, perhaps it would be possible to attack the causes of these phenomena; however, the persistence of political conflict stymies even beginning to define the problem.

There are at least three sources of political conflict. One derives from the combination of political decentralization (and the budget) together with the centralization of power of organized crime: “formal, legal” power was decentralized but the governors did not construct police, public prosecutors, and, in general, State capacity that would substitute for the vertical control previously exercised by the federal government and that, for a long time, allowed maintaining a semblance of order. This happened precisely when the Americans had sealed off Caribbean drug access routes, the Colombians had recovered control of their country and, after 2001, the Americans had beefed up the border. All this concocted a lethal mix: a brutal fortification of the criminal mafias vs. a weak system of government. The challenge is thus phenomenal and is not solved merely with a federal government that is forceful, although without one it would be impossible to achieve this.

The second source of conflict has its origin in community conflicts (land, regional control, local bosses or caciques) that have always existed but that for lengthy periods were controlled from above and whose hands were tied by a weighty political system that never dealt with resolving the sources of conflict but merely kept these from flaring up. The capacity for control disappears and the conflicts escape to the surface. In many cases, this is concerned with deeply ingrained social movements that cannot be resolved by repression, but that, rather, demand new forms of political participation. Inevitably, above all when this has a bearing on drug routes, community-engendered movements are not infrequently found enmeshed in organized crime, sowing the seeds that could eventually lead to the collapse of any vestige of order and functional government. Michoacan is a good case in point.

Finally, the third source of conflict is the result of the disagreements that are the product of a political system well past its prime that refuses to transform itself: a pre-modern political system, a medieval judiciary and non-democratic canons of political action. The legislators protest because of what they see in the Pact for Mexico as the usurpation of their functions and responsibilities. The governors exercise the budget with no accountability. The three branches of government have ill-defined self-limits and no checks and balances. In a word, institutions and old ways survive that are incompatible with a transformed reality.

The country’s structural problems have not barred its economy from progressing, but have unavoidably become an encumbrance that impedes productivity from growing, new sources of wealth from taking root and development from being less inequitable. That is to say, conflict and the peculiar approach to dealing with it –not confronting it but steering clear of it- do nothing other than postpone the solutions, tap into the Mexican’s traditional cynicism and, most importantly, constitute an impediment to exploiting the opportunities that come about.

How to break the vicious circle? Theories and proposals in this respect abound: my observations along three decades tell me that ideas and proposals are indispensible, but that the crucial factor is a leadership well-disposed to head a great transformation. Cases in point: Felipe González, Nelson Mandela, Ricardo Lagos, Margaret Thatcher. Eminently distinct, but with a common denominator: the desire to construct and the clarity that their mandate was finite. That simple.

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Luis Rubio

The problem with the political-electoral reform proposals that, from the one in 1977, swarm about the scenario after each election is that their motivation is not constructive but rather arises from a spirit of revenge and impotence. Revenge for not having won, impotence for being unable to win. From there, the contents of the initiatives that emerge and that are being discussed at present have little to do with the problems facing the country, those that require solutions and actions to advance in both the political arena as well in the economy, and that respond exclusively to the relative positions of the actors at this moment in time. Consequently, it’s no accident that every reform that there has been in the last decades has tended to make the governing of the country more difficult instead of easier.

The 1977 reform proposed broadening the legal and legitimate space of the political contest (or, at least, the representation thereof). From then on, the reforms, all of them, have been oriented toward skewing the results, weakening the presidency or making the electoral and legislative process more complex, respectively. None focuses on the sole undertaking that is important: to construct a functional political system with accountability to the citizen and one that makes a beeline toward prosperity. As simple as that.

Mexico’s problem is one of essence: how is it going to govern itself. That’s the issue that should be tended to and that should transcend the prescriptions being floated around. In their most minimal expression, the necessary actions would have to deal with the structure of the presidency and its instruments, the capacity to construct legislative majorities and the equilibrium between the two branches of government. However, the existing reform proposals deal with the immediate point in time: how to weaken the adversary and strengthen oneself. When the PAN was in the presidency, the PRI proposed fortifying the legislative; today it’s the PAN that’s driving this very proposal. Everything is short term and dedicated. There is no long term vision.

Implicitly, all of the parties recognize that the essential problem is one of governance. Were this not the case, none of them would have endorsed the Pact for Mexico. The Pact is a proxy that makes up for the inexistence of a mechanism that facilitates the construction of legislative majorities, a condition necessary for the approval of relevant reforms as well as for imparting stability and viability to the government of the day. There are societies that, for historic or cultural reasons, expedite this path, but ours not only rejects it, but also stigmatizes it: that’s how the neologism concertacesión (i.e. conceding rather than compromising) came into being. To negotiate, to forge a pact, to reach agreement among different political groupings is not something exceedingly Mexican: any agreement is viewed as capitulation, hence out of the question. Thus, paradoxically, instead of advancing reforms susceptible of changing reality for the better, everyone prefers an absurd consensus whose only benefit is that the costs are shared. But, deep down, there is also a lesson here: lacking a functional institutional structure, the need for consensus is a form of recognizing that what exists is not adequate and that other mechanisms are required to govern effectively.

In this context, the Pact is a new breed of consensus: while not perfect nor resolving the internal conflicts within each of the political forces, it empowers a partial functionality. Not surprisingly, the decision has been made to process prickly matters, such as those of energy, outside of the Pact, another indication that the problem is one of governance and of the lack of institutions to achieve it.

Mexican politics confronts two challenges: governance and accountability. Neither can be fixed with a second electoral round nor, by itself, with reelection. Governance requires a strong government as well as a limited government, thus the reform must respond to these issues or it will become another of the many that are approved once they have been duly “tropicalized”, watered down and submitted to a consensus. This to not affect any special interest or to exert any impact on the reality other than that of extolling the proponents’ vanity (while, of course, complicating political life even more so). The alternative would be for the reform, a true reform, to be advanced from the power that everyone else wants to dilute, that is, from the presidency.

At the heart of the question of governance lies the system of government that was constructed for an era that in no way resembles the current one. At the end of the Revolution, Calles structured a system that consolidated all of the power in one person who, within the context of a population that was relatively small, very controlled and isolated from the rest of the world, permitted some decades of peace and prosperity. Today, the Mexican population is a diverse and disperse society, very large in size and totally integrated into the commercial, technological, productive and criminal circuits of the world: from the modest Chiapanecan Indian who lives in Chicago to the Querétaro-based supplier of auto parts for the most modern car that is about to come off the assembly line at a factory in Yokohama, but also including the businessman hounded by extortion who lives in Torreón. The country requires a system of government that is appropriate for these new realities, distinct as they are from those of long ago.

The problem with proposals like those of the PAN-PRD is that they do not pay heed to the central matter. They limit themselves to their own interests without recognizing the essential. Contrary to the heart of their proposal, Mexico calls for a strong presidency, but this must be limited by effective mechanisms of accountability. One of these mechanisms, the most important one, has to be the legislative power, which also must be reformed to facilitate the construction of majorities (which would render the Pact unnecessary), not by artificial means such as modifying the “governability clause” of the current electoral law (that confers an automatic legislative majority to the party that wins more than 42.8% of the vote), but rather through incentives that satisfy another of the requisites of a functional political system: that politicians render accounts to the citizen and not to their political party bosses. Reelection could be a way to achieve this.

A true reform will only be effective the day that the country lives under the rule of law, which implies one very simple thing: in the words of Fukuyama, “that the individual holding political power feels bound by the law”, that is, that he cannot do “whatever he so desires”, but that his power is limited, which doesn’t mean that he doesn’t have it or that he cannot employ it to govern effectively in order to generate prosperity. A reform with a spirit of revenge or impotence at its source will never achieve this.

The opposition parties appear to be decided on conditioning their legislative support to the approval of another electoral reform. It would be much more transcendent if the president himself were the one to propose a real, transformative political reform, one that would give the country viability for decades and not only until the next revenge, I mean election.

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Luis Rubio

What happens when an irresistible force meets an immovable object? When the economic reforms began and the North American Free Trade Agreement (NAFTA) was negotiated at the end of the eighties, the irresistible force was the urgency to achieve a high rate of economic growth. The immoveable object was the imperious need not to alter the status quo.

Quite infrequently appreciated is NAFTA’s political dimension or the context within which the first series of economic reforms were undertaken nearly three decades ago. That context was key for defining the nature and content of the reforms but also their limitations. The reforms were launched when the economy experienced unprecedented turbulence. The old economic model (“Stabilizing Development”) had collapsed; the government had extended its tentacles throughout the economy, paralyzing many sectors and thwarting entrepreneurship and investment; the huge debt made it impossible any movement; and much of the private sector faced bankruptcy. The reforms and privatizations were meant to revive the economy but without threatening the PRI’s monopoly of power. This condition led to contradictory decisions; an insufficient, but above all incoherent economic liberalization; notorious favoritism; and, on the whole, an unwillingness to create conditions for the reforms themselves to be successful.

Now, in a radically distinct political context, the country is facing novel challenges, some old and pending, and fundamental decisions, each of which entails definitions. Negotiation of the Trans-Pacific Partnership (TPP) agreement and the possibility of the U.S. negotiating a trade agreement with the European Union oblige us to define whether Mexico is amenable to advancing its development and confronting the challenges implicit in both projects.

The contradictions inherent in the reforms of the eighties and nineties explain in good measure their limited results: liberalizing without liberalizing, institutionalizing but without institutions, growing but at no cost. In contrast with Canada, which saw NAFTA as the beginning –as an instrument- of its internal transformation, in Mexico it was seen as the end of a process of reform. While Canadians dedicated themselves to constructing infrastructure, supporting the adjustment of their economy and affording facilities to their citizens for achieving a successful transition, the Mexican Government slept on its laurels. Not losing power was enough.

The cost of this truncated vision is patent in many ways: there was no recognition of the urgency of adapting the economy and the perceptions of the population, starting with the business community; the manner of organizing economic activity did not change nor did the relationship between the government and productive activity. Success ended up depending on each individual company. Despite the fact that the economy changed radically, a strategy never came about that was designed to take advantage of the North American market or for companies to adjust to the new source competition. In any case, the contrary was true: as quickly as possible, diverse subsidy and protection mechanisms were reestablished that have not exerted a greater effect than impoverishing the country and avoiding the adjustment that is bound to take shape sooner or later.

A quarter century later the country again is facing the urgency of defining itself. There are three reasons for this. The first is that the economy’s growth rate continues to be pathetic. It might be much better than other countries at this moment, but that’s no consolation. The second resides in the transformation of the North American region’s energy horizon. Finally, the US is and will continue to be Mexico’s economic factotum, and it has to find a way to increase (as well as avoid the risk of losing or seeing diluted) the NAFTA advantages. These are, at the end of the day, the factor that explains practically the totality of the growth of the economy over the past decades, to a great extent because it comprises the sole credible institution for entrepreneurs and investors.

Growth is much lower than it could be because, outside NAFTA, there is no certainty for investment; because there are key sectors of the Mexican economy –above all energy- that are not part of the investment market; and because Mexico is still bound -and limited- by the six-year political cycle, which means that everything depends on the decision and mood of the current head-of-state. The irony of the latter is that the success achieved by President Peña in just a few months reinforces the notion that everything depends on the decisions of one person, thus there are no lasting certainties, those that can only be guaranteed by the existence of permanent and solid institutions, not subject to political comings and goings.

The energy revolution that our northern neighbors are currently experiencing is changing the history of the world. The U.S. is on the brink of becoming the greatest oil producer worldwide and could reach energy independence in the upcoming years. Canada, another world giant, is undergoing a radical transformation. The fall in natural-gas prices is revitalizing the U.S. manufacturing industry and in a short time could remove all advantages afforded to us by the vicinity. If we don’t transform the Mexican energy industry, we could be saddled with a great deal of petroleum that nobody wants and without the industry on which the general population’s well-being –and its income and employment- depends. This is not chicken feed. Continuing to bestow privilege on interests that prey upon the two energy monsters could lead us straight to the gallows.

When Mexico proposed the NAFTA negotiations to the U.S., Canada found itself between a rock and a hard place. It was just emerging from a very difficult adjustment process to its own FTA with the U.S. and the instrument was decidedly unpopular. On the other hand, staying outside of such an important negotiation in its own region was a luxury that could not be indulged in. With its incorporation into the negotiations, Canada ensured the advance of its own interests. Mexico today is found in the same tessitura: we must be part of these negotiations.

The problem, the true challenge, is not that they accept Mexico in the process (although this is not obvious either), but that in order for us to participate we would find ourselves obliged to do everything that was not done twenty five years ago. Mexico possesses institutions that are not institutions: they are not permanent, they are not independent of the political ebb and flow and, in the case of regulatory institutions, these are not focused on productivity growth. If we want to be in the big leagues, we have to devote ourselves constructing the scaffolding that is the sine qua non for doing it. In this no shortcut is worth its salt.

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WILSON CENTER – Mexico Institute – By Luis Rubio and Luis de la Calle

 While Mexico’s society is evolving fast, it surely has not become a fully transformed, democratic, wealthy Western country, but it is clearly moving in that direction. In our book, Mexico: A middle class society, Poor No More, Developed Not Yet, we argued that the country is no longer fundamentally poor. The numbers published by CONEVAL recently, together with other data previously produced by INEGI do not contradict our basic thesis. If one agrees that companies such as Cinemex, Cinepolis and Walmart are not in the business of losing money, then there is no way to explain their extraordinary pace of growth throughout the country. Mexicans are becoming better off even if not wealthy in any sense, the subtitle of our book.

The reasons why Mexicans are better off, or less bad, are critical to understanding what has changed and why. First and foremost, financial stability has drastically lowered the cost of money and an ever larger number of Mexicans have gained access to credit in the past two decades, particularly to mortgages, thus creating a solid foundation for family stability and economic improvement. Second, trade liberalization has radically lowered the cost of basic goods and staples: from clothing and shoes to foodstuffs. Mexicans are spending less money on basic goods, have a more solid family foundation and are spending some money on goods and services they could never have fathomed before. Third, as Mexico begins to enjoy a strong demographic shift parents are able to invest their scant resources in fewer children. This provides the foundations for accelerated growth if necessary reforms are implemented and stability is preserved.  Finally, household income has improved as families’ pool their earnings from all sorts of sources: steady jobs and the informal economy, scholarships and remittances. Each of these sources is important and the diversity has transformed the lives of a significant number of Mexicans.

The extraordinary fact is that a majority of Mexicans are no longer poor, which goes counter to perceptions in both Mexico and abroad. This may not change many things but, as Macario Schettino argues, to be wealthy one has to first imagine it. An ever larger number of Mexicans now have a chance to imagine it. And that changes everything.

Mexico: Still a Middle Class Society? – The Expert Take

Luis Rubio

In his book From Beirut to Jerusalem Thomas Friedman describes his experiences as a correspondent in the Lebanese capital at the middle of the civil war that characterized that country some decades ago. In an especially vivid scene, while mortar explosions and shots were heard through the window, the hostess at a dinner party asked without the least hesitation, “would you like to eat now or wait for the cease-fire?” Unfortunately for millions of businesses and unpretentious Mom and Pop-type grocery/variety stores, the ceasefire of municipal presidents never seems to make an appearance.

Businesses, above all small ones, live amid a war of annihilation and extortion and not only from criminals; given the circumstances, it would be a relief if the author of the attack was only organized crime. As such it could be expected that, some day, when the umpteenth governmental strategy was at last successful, the abuse would come to a halt. Regrettably, the great mafia encountered by shops, restaurants, companies and variety stores throughout the country stems from the municipalities and delegations in the case of Mexico City. It is there that a true war is being waged against business.

Businesses, shops and variety stores are the favorite target of municipal presidents and delegates, because from these flows an apparently inexhaustible source of income and bribes. As sovereign entities established under Article 115 of the Mexican Constitution, municipalities levy ever more creative taxes, dispatch inspectors to strong-arm owners and to exact legal and illegal contributions in systematic fashion. The harassment is permanent and nonstop. Paraphrasing Winston Churchill, “some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow to be milked. Not enough people see it as a healthy horse, pulling a sturdy wagon”.

The war being waged against small and medium businesses (SMBs) in Mexico (PYMES, their antonym in Spanish) is pathetic not only because it reduces, if not extinguishes the economy of the families that create employment and wealth in each locality, but also because it impedes the remaining half of what Churchill said in his previous phrase: that these authorities do not recognize that it’s about the horse that pulls the cart of development. The system is designed to prey upon, not be advantageous to the growth of the economy.

According to INEGI calculations and to those of UN entities committed to small and medium businesses, small companies represent the overwhelming majority of employers (more than 90%) and more than 50% of jobs created in the country, in addition to having created more than 65% of all new jobs in recent decades. While many large companies systematically raise their production levels and lay off employees, small companies –formal and informal- tend to be the main source of new jobs.

With this I do not pretend to argue that the low productivity characterizing a great part of small businesses is good or that constant expansion of the informal sector is desirable. However, if one sticks to the facts, what is indisputable is that without this economic sector, half of the country’s population would be unemployed. In this sense, it is impossible to ignore its social and political transcendence. Thus, the war unleashed by delegates and municipal presidents against these businesses is that much more disturbing.

The war takes on distinct forms. It begins with the famous “permit-ology”, the interminable number of red-tape bureaucratic procedures with which a person is required to comply to open a workshop, restaurant or company. Each procedure is accompanied by its respective snares, all tailored to grease palms. Many establishments forsake the process along the way and many others don’t even bother to attempt it. Informality ends up being an option but only temporarily for, from the perspective of the delegate or the municipal president, the existence or not of the permit ends up being the same thing. Both are legitimate quarry.

Extortion has many guises but all entertain the same objective: to exploit the entrepreneur or the variety store owner. The instrument the so-called authorities make use of is the threat of closure. As if they were appraisers, the governmental inspectors know that a variety store cannot survive more than a minimal number of days after closing, so they tighten the screws sufficiently for the extortion to work, but not enough to kill the goose that lays the golden eggs.

The war is real and proceeds to wipe out the main means of survival of the vast majority of the population. In this context, it’s not coincidental that, when one talks with Mexican migrants in the U.S., the first thing they say is that they feel free of the abuse of the authorities. Those able to launch their own business take pride in the fact that there everything is destined for them to be successful. The municipal authorities help, first, by not getting in the way; later, by facilitating the procedure so that whatever the permit required, the rules are clear and easily complied with. When one observes the contrast in the performance of the small businesses of Mexicans outside the country with that of those in Mexico, most noteworthy is the difference in the system of government. In both cases the person –the Mexican- is one and the same; what changes is the government, the quality of the government. Here it is designed to pillage, there to help. The difference is not minor.

Now that a new fiscal structure is being forged for the country –regarding tax collection as well as the relation between the federal government and the states and municipalities- it would behoove us to mull over the costs of the way our system of government operates. If in the last analysis, as they say in the detective films it’s all about money, the federal government has a very powerful weapon in its hands for forcing local governments to deregulate, transform themselves and become wellsprings of opportunity for the development of the country. While any state or municipality would be delighted to attract the new investment of a large automotive company, to cite the prototypical example, to its locality, the majority of jobs would continue to become available from SMBs. Killing them off bit by bit as our diligent authorities do is not a good way to ensure neither the locality’s development nor that of the country.

When the causes are discussed of the economy’s poor performance the great problems of infrastructure, competition for foreign investment or the confidence of foreign businesses in the country tend to be found at fault. However, often the problem lies, uncomfortably, much closer to home. As Hemingway wrote in For Whom the Bells Toll, “Was there ever a people whose leaders were as truly their enemies as this one”?

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