Luis Rubio

“In a riot, as in a novel”, wrote Alexis de Tocqueville, “the most difficult thing is to invent the ending.” In this same book, Recollections, the astute French observer noted that “I am firmly convinced that chance can do nothing (without considering) antecedent facts, the nature of institutions, turns of mind, the state of mores are the materials from which chance composes those impromptu events that surprise and terrify us”. In the same fashion, the future of Mexican politics, and of the country, will be generated little by little as the result of the existing ingredients and of those added into the mix.

The first ingredient is without doubt the complex history that precedes us and that establishes inescapable frames of reference. For example, one peculiarity of the sort of authoritarianism that existed in the country is that practically no one in the political world recognizes or accepts it. The PRIists always believed the myth that Mexico was a democracy, which makes many of them inert to many of the changes that have occurred. Authoritarianism has not been discredited in many political sectors and many who exercised it (and who, in many instances, continue to be the instrument of its vices) do not assume it. The flip side of the coin is that democracy has become another myth to which bowing and scraping exists simultaneously with attempts to undermine it. The mechanisms for this objective vary, but the essence does not change: the attempt to recentralize the power, the multiple and renovated mechanisms of control, the manipulation exercised by the television networks, the unwillingness to overcome the de facto powers, the attack against the supposedly autonomous entities.

The second ingredient is the way that the processes of transition in the economy as well as in politics were carried out. The country passed from an era of controls to one of fragmentation but without an agreed-upon blueprint, above all in the political ambit. The electoral reforms were reactive; with few exceptions, there was no construction of institutions that are inherent, and necessary, in an open society; liberalization favored the consolidation of de facto powers that systematically defy society and the government; and all this transpired without agreement on the port of arrival. That is what has led to an important part of the people considering that Mexican society is not yet a democratic society while the other thinks that it always was. The contrast with Spain or Chile is extraordinary: in those countries there was a clear project, consensus about the process and a pledge to construct a distinct future. This continues to be the challenge of Mexico.

The previously mentioned fragility of the country’s institutions is the third ingredient: not only have institutions fitting in a democratic schema for making possible the consolidation of a modern society not been constructed, but also the existing ones keep being undermined. Many of the efforts that have taken shape in the civil society have ended up thwarted by these very de facto powers that threaten and nip them in the bud. The government has acted in this dimension but, revealingly, has procured strengthening itself, not creating checks and balances.

The pact, as the fourth ingredient, is a great idea above all because it lends an ear to the enormous frustration characterizing the citizenry in the face of the politicians’ paralysis and immobility, but its nature entails risks for the parties participating in it and on which, in good measure, they have staked their future. On becoming a straightjacket, the pact could end up impeding the opposition parties from serving as representatives of the citizenry, thus turning them into silent accomplices, the old-fashioned PRI way. On the other hand, if the pact becomes an instance of negotiation in which other agendas advance, the country could emerge hugely strengthened: with new institutions and improved performance.

Fifth, no one can doubt that the entire party system is in crisis. Although the PRI is governing and has been able to conceal its fissures, the circumstances of recent times allowed it to regain the power without reforming itself and it is to be anticipated that divisions will surface to the extent that the government attempts to affect interests, a precondition of any reform. The case of the PRD is distinct: product of the fusion of two histories, the historical Left and the PRI Left, the party now encounters the summons to construct a modern social democracy and, concurrently, to recover the voter base that has supported a statist and reactionary project that no longer tallies with the PRI and that is incompatible with a modern and cosmopolitan Left. The PAN finds itself confronting a division and a legitimacy crisis. The division reflects a deep struggle between the Calderon-led forces that were ignorant of how to employ power to construct a party and the more traditional PANists who are the product of the citizenry. The PAN legitimacy crisis pertains to their poor political skill while in government and, above all, the corruption to which they fell prey on being in power.

For different reasons, none of the three great parties has it easy and none has reasons to jump for joy. Not by chance has the president of the PRI himself been the most ardent critic regarding what is necessary for staying in power.

These ingredients constitute the backdrop. What takes place in the upcoming years will depend on the way each of its components acts. In conceptual terms, there are two possible scenarios: one, the product of adjustment or resignation, would lead to waiving the profound changes that the country requires to be successful. The other would imply converting the pact (and other mechanisms) into instruments of institutional transformation. Inevitably, in a presidential system, the government will call the shots. The opposition parties, and the society in general, can cooperate (for better or worse) or can construct alternatives, but the opportunity lies in the hands of the government.

The future will be the result of the actions and incentives constructed to create a new platform of development. One possibility would doubtlessly be abdication and there are many elements that suggest attempts to recreate the past. The alternative would be for the PRI to take itself on as the reform project and champion a whole new era. The irony is that a scenario like this would render the PRI’s permanence much more probable than that of the beaten path of mediocrity bequeathed to us by its de facto powers or its reluctance to have done with them.

The issue is not new. In Carlos Salinas’ presidential campaign, a woman remarked to the candidate: “It’s better to seal off the ravine than to haul out the ox every six years”. The challenge remains the same.

www.cidac.org

@lrubiof

Luis Rubio

In the book “The Power of Productivity”, William Lewis compares the construction industry in Brazil, the U.S., and Mexico. His conclusion is very simple: the Mexican worker without much education or many skills can be as productive as the most qualified German worker. What differentiates countries like Mexico and Brazil from the U.S. and other wealthy countries, says Lewis, is the within context in which enterprises operate and that create conditions for the economy to prosper a little or a great deal. The key to growth lies in productivity and everything that contributes to increasing it favors growth and, vice versa, everything that impedes it reduces it.

This is the reason that the government’s decision to convert productivity into the axis of its economic strategy is so transcendental. “Productivity”, says Krugman, isn’t everything, but in the long term it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”. Productivity is that which results from everything that takes place in the economy, thus constituting a crucial means for the performance of the former. When the government adopts this indicator as the axis, it is declaring to us with full clarity that it is disposed to attack the causes of the very poor levels of the growth of productivity that the country has evidenced in recent decades.

If one observes the Mexican economy, the first thing that will be obvious is that there are enormous differences among the productivity levels of the millions of enterprises that constitute it. While there are companies that successfully compete with the world’s best, there are others that would be unable to compete with even the most unproductive in their vicinity. These differences in performance illustrate the complexity of the challenge facing the government and the country. Why the differences? Lewis’s argument is quite simple: part of the challenge of productivity lies in the enterprises themselves, but one huge component is found in the environment in which these operate.

The previously cited example, in reference to the housing industry, reveals that a company with good production techniques, intelligent use of the technology and a strategy of project administration can attain a worker with the least qualifications who ends up as productive as the most experienced and qualified. What the company does in terms of quality and production techniques constitutes the essence of the increase in productivity. In this the government affects it relatively little.

Where the government’s intervention is crucial is in the environment in which the enterprises operate and this incidence, states Lewis, is nearly always negative. A very cumbersome and poorly efficient government implies additional costs for the companies (more taxes) without the benefit of better services. Worse yet, the more productive the enterprise the more taxes it pays, a factor that distorts the economy. Protection of particular interests –unions, governmental monopolies, enterprises and favorite entrepreneurs, private monopolistic practices, insecurity, the lack of functionality of the judiciary, high tariff rates, subsidies- implies the discrimination against the rest of these but, in particular, the permanent distortion of the markets in which the enterprises operate. In a word, governmental actions directly impact productivity.  As a result, the government’s challenge is monumental and, fundamentally, internal: all of these interests that benefit from the distortions that the government causes are found in its bosom, within its party or in close proximity to these.

The dilemma is not difficult to visualize. Let’s imagine that a productive company competes successfully in its market niche. It receives raw materials and other goods in the morning and issues finished products in the afternoon. For purposes of this example, what is under its responsibility works well. Its headaches (usually) are not in this area but rather in all of the others: the inconstancy and price of electricity, gas and other sources of energy; the infrastructure (the streets, the traffic, the drainage, the water supply); communications costs; the assaults on their delivery trucks; the years it takes to resolve contract non-compliance; the complexity and costs of obtaining credit; and the monopolistic prices that innumerable suppliers –large and small- impose upon it. All of these factors are the responsibility of the government. There’s no way around it.

The government is facing two enormous challenges. On the one hand we find the quintessential challenge, which consists of attacking the sources and the causes of all of these distortions. Some of these have a bearing on the priorities that, historically, Mexican governments have thrown to the winds and that now have become monumental challenges: among these the most obvious are the entire justice system (from the office of the prosecutors to the courts), public (in)security, and the tolerance of abuse that the energy monopolies impose on the society and the economy. Others are the product of incomplete reforms, of new realities and of problems unattended to. From whichever angle that one contemplates it, the challenge is titanic.

The other challenge is perhaps simpler in concept, but similarly burdensome in practice. The country’s industrial sector is divided into two groups: one that is hypercompetitive and the other that depends on governmental protection. In round numbers, the former represents 80% of the production and employs up to 20% of the manpower; the latter represents 80% of the enterprises and the same proportion of jobs, but produces less than 20% of the total. The problem is not the proportions but, returning to the core problem, that these non-competitive companies (equally large and small) subtract productivity from the economy, thus they penalize growth. Instead of contributing to the development of the country, they limit it. No one in the government is ignorant of this and their dilemma is obvious: eliminating protection would contribute to accelerating growth but would generate a problem of bankruptcy and unemployment. The contradiction is crystal-clear: the very government that makes productivity its own has just raised the protection and subsidies of this very industrial sector.

The only possible solution resides in resolving the problems caused by the government -security, infrastructure, contracts, competence, effectiveness in expenditure and more rational taxes as well as the energy monsters- with the purpose of enticing many more enterprises to want to invest in the country that would allow absorbing the manpower that would result in eliminating the protection. It doesn’t get better than that and there’s no solution without risk: either the government takes the plunge or we remain mired in the bog.

www.cidac.org

@lrubiof

Luis Rubio

“When there is peace under the heavens”, says a Chinese proverb, “the big problems seem small”. When things work well, in normal mode, the defects or deficiencies slip into second place and no one by and large worries about them. Paradoxically, the status quo balks at remediating problems while making it nearly impossible to capitalize on opportunities. Mexico has become familiar with many examples of both situations.

In terms of problems, on many occasions, these come to be resolved over time, rendering irrelevant the complaints or criticisms of us Cassandra-like disbelieved alarmists perennially found in all societies: those of us who fret about the problems or situations that, if not taken care of, would entail colossal risks ahead. The thing changes when a crisis presents itself.

Crises demand response and leadership. These are moments at which the variables that previously functioned in a known manner stop being predictable and the problem-solving capacity depends in good measure on the quality of the leadership with which a society is endowed. A leader must be clear on the objective that he or she pursues to face the crisis, but must also have the capacity to understand the deep-seated causes of the latter, as well as the maturity in the making of decisions –many of these terribly costly- that defeating a crisis requires.

On looking back in time, to the seventies through the nineties during which financial crises proliferated, although not all were managed with the same dexterity, we the citizens entertained the advantage of having the governmental capacity and competency to deal with them. Of course not everyone liked the budget cuts or the decisions vis-à-vis the debt, the banks or the handling of the exchange rate, but this affirmation becomes considerably more relevant when compared with the capacity and disposition that was present then to respond in the face of the crises ensuing in the country, with what has occurred with similar crises that have taken place recently in other societies -from Argentina to Greece and including the U.S.

It is evident that each country’s circumstances condition and determine the latitude that a government retains to respond and that establishes the margin for maneuvering within which to act. In this manner, a country like Argentina, which enjoys an immense food production capacity, can afford to run risks that nearly no other country in the world could manage. On its part, Greece found itself with the decided support of the rest of Europe not because these nations were content with Greece’s performance or with its government’s response capacity, but because all saw their own common currency at risk. The U.S. has secured the privilege of being able to postpone its inevitable fiscal adjustment -above all in relation to social, health and pension programs, the so-called entitlements- to a great extent because it has a reserve currency.

Robert Samuelson, an economic analyst for the Washington Post, has much criticized President Obama for not assuming the leadership that the crisis calls for. According to Samuelson, “only the occupant of the bully pulpit can yank public opinion back to reality” because his executive function grants him the possibility of doing so, and in fact converts him into the sole political actor who can. Only the president, insists the analyst, has the capacity of exercising what the situation demands. The result of not doing this, and one that severely affects the Mexican economy, is that the U.S. is confronting a crisis of confidence that is reflected in low investment levels, hence prolongation of the crisis.

Beyond the critical situation, another way to squander time and resources is not to exploit opportunities. Perhaps the main difference between the success of a good part of the Southeast Asian countries and the relatively poor performance of Mexico’s economy in the past decades lies less in what was done than in what wasn’t. For example, with import liberalization, in the eighties a radical turnabout in the direction of the Mexican economy occurred. However, it took twenty years for that decision to begin to exert a notable impact on the economy’s growth rate. As Andrés Velasco, an ex-Secretary of the Treasury of Chile says, a critical mass of exporters had to be reached for the benefit to be perceivable. However, he states, as in Chile a decade earlier, once companies adjust to the new circumstances, the economy becomes much more flexible and its capacity for adapting to a changing world grows.

Although the delay in adaptation can be explained, not so the total absence of public policies designed to accelerate it. Perhaps the best positive example in this respect is the impressive aeronautical industry that was born, practically from nothing, in Queretaro. While less visible than its Brazilian counterpart (which has its own brand of planes) according to some studies, that industry today adds more value in Mexico than in Brazil. Mexico may not have its own airplanes, but its aeronautical industry pays better salaries and produces more wealth than its southern counterpart. What’s interesting is that its genesis is directly related to the State of Queretaro’s decision to create a university major in aeronautical engineering, generating with this the personnel who have made the rise of the industry possible. Of course, there is no guarantee that the establishment of a university career major (or something similar) will translate into the development of such an important industry, but the question of how many opportunities have been lost due to lack of vision, foresight and governmental conscience at all levels is not unwarranted.

What’s impacting about the Queretaro example is that the cost incurred in the development of the industry was not extraordinary: an existing vehicle was taken advantage of (the university) and a university career major was constructed that, if not having jelled in the locality, would have provided qualified manpower for other latitudes. In other words, it entailed a moderate wager that has had an extraordinary benefit. Unfortunately the commonplace –about which there are lamentably many examples – concerns enormous wagers with no benefit at all.

The country does not lack good decisions, but it has indeed suffered from trifling clarity in its leadership in the area of opportunities that would expedite its transformation. Just as the crises necessitated fiscal prudence, the gradual reconfiguration of the national economy and that of the North American region lays bare opportunities that we should not pass up, one more time. The key is not more spending but intelligent prodding, if only from the pulpit.

www.cidac.org

@lrubiof

Luis Rubio

Two things are vital for a surgical procedure to be successful, my father used to say: the surgeon knowing what to do and how to do it. As the dedicated and meticulous surgeon that my father was, he never would “go into”, as he used to say, a patient if both conditions were not present, nor would he permit any of his team in the operating room to act without knowledge and skill. The same is true for the development of the country. Governing and lifting the country out of the rut it’s in also requires two things: political capacity to get things done and utter clarity in what needs to be done. These two conditions have not been present since 1994.

It’s important to call this story briefly to mind because it explains much of the present dilemma. With the 1968 Student Movement, the so-called “stabilizing development” economic strategy was abandoned and a decade of growth commenced based on deficit spending, financed with the foreign debt. That era ended obstreperously when the combination of inflation, indebtedness and recession practically bankrupted the country. The worst thing was that it left in its wake a trail of consequences and distrust that have yet to be erased from the minds of citizens and investors alike. In the eighties there began a process of economic reforms that, little by little –often reluctantly and not always integrally-, started parceling out viability to the country.

Regrettably, this impetus was lost once again with the Zapatista uprising, the governmental turmoil, the political assassinations and the 1994 financial crisis. At the beginning of that year the bearings were lost of the development adopted in the previous decade and, although stability was maintained (not a lesser feat) the country was not to procure a total transformation.

During the present decades, the country has survived and prospered thanks to two circumstances: on the one hand the financial stability that has enabled very low interest rates, growth of consumer credit and the gradual consolidation of a middle class that has become the cardinal factor of both the economic as well as the political stability the country possesses. On the other hand, the backbone of all this has been the North American Free Trade Agreement (NAFTA) that has converted exports into the motor of the Mexican economy and that has slashed the prices of all sorts of consumer goods, allowing the acquisition of consumer staples (above all food, clothes and shoes) with a declining percentage of available family income, all culminating in better quality of life levels. Absent still is for the whole economy to join this transformation process in order to magnify the benefit for the entire population.

To achieve this transformation two simultaneous ingredients are required: a development strategy and the capacity to put it into practice. Both components are necessary and each entails its own characteristics. The strategy must be compatible with the environment in which it is to be implemented (NAFTA, financial stability, exports, the “old” manufacturing sector that languishes away) while it maximizes the potential of increasing the productivity of the economy in general. This combination of leveraging what’s successful and driving the growth of productivity forward could be the determining factor of the future of the country’s economy. For its part, the capacity to manage this political complexity is a sine qua non for implementing the strategy that the government decides to adopt.

Over the past two decades many ideas have been conceived for accelerating the growth of the economy, but a growth strategy has never been consolidated. Whatever the case, in all of this time the great absentee component in the mix has been the political skill to get things done; that is, even if there had been a viable strategy, the political incapacity would have made it irrelevant, as it actually did. Under the necessary conditions and in the presence of experts and well qualified advisors, the strategy could have been constructed with relative celerity. However, if the political side is lacking, the strategy may be extraordinary but it cannot be implemented. In other words, the strategy is necessary but it is not enough of a factor: it requires the capacity of political instrumentation.

The great opportunity that the country has before it is precisely that, as it has demonstrated in the last few months, the government today has more than sufficient political capacity, something not seen since January of 1994. What’s missing is an economic development strategy that transcends the commonplace scenarios, the list of occasionally disjointed reforms and the revamped mechanisms of political control. The government certainly knows how to do this. What’s needed now is for the government to clearly define what must be done. And to do it.

www.cidac.org

@lrubiof

Luis Rubio

A Canadian university professor was famous for never failing anyone in his classes. One day, some of his students argued in a debate that the policies of the government would eliminate poverty and would become a great equalizing factor of the society. Skeptical, the professor proposed an experiment to them: from that moment on, he would average the grades of the entire class group and no one would get an A (a 10 in Mexico) and no one would flunk the course. The first exam came and went, the professor averaged the scores and everyone got a B. Those who had studied hard were upset, while those who had studied little were content. Then came the second exam: the students who had studied hard for the first exam studied less and those who had studied less for the first one didn’t study at all for the second. The average grade was D. In the third exam the average was F, representing a failing grade. The experiment illustrated a facet of human nature with which politicians worldwide in general have not yet come to terms: a result cannot be legislated.

Politicians can legislate a set of rules (laws) and regulations that, they trust, will produce the desired results, but they can never determine the way that millions of citizens will react in terms of their preferences or objectives. Neither prosperity nor poverty can be legislated; neither can a healthy financial system nor can less traffic in a city, nor can wealth be multiplied when it is divided, be legislated. Human nature is not inert: individuals perennially respond in favor of survival despite politicians’ bad ideas and to preserve what’s important to them: they do things that even the most inured of politicians could not predict or ever even dream of their doing.

In past decades, U.S. politicians, employing fiscal mechanisms, obliged banks to make mortgage loans in massive fashion to low-income persons who had no possibility of paying these back. Thus was born the crisis of recent years: bold as brass, but deliberately in the knowledge that there was no possibility of utilizing traditional mortgage loans for this segment of the population, the bankers thought up a type of credit, the so-called “subprime loan”, especially designed for individuals with low incomes: the monthly payment for the initial years was very low and easy to pay, but the payment rose suddenly some time afterward. Millions of persons acquired homes in this manner that later, when the payment went up, these ended up being abandoned. All the while, the bankers had converted these credits into values that were resold throughout the world. Eventually the bubble burst with the consequences that we all know.

The lesson seems very evident to me: when politicians utilize subsidies, taxes, preferences or protection for the benefit of certain social groups or to advance their own agendas they end up distorting the economic rationality embodied by everyone in their being –human nature- and producing results that are not always desirable. The point is, in their actions, politicians create incentives that they not always (or nearly never) thoroughly understand.

In Mexico City, in the eighties, the government had the brilliant idea of limiting automobile use through the program known as “a day without driving”. The program was announced over a three-month period and exerted a notable effect in some weeks, because one fifth of vehicles disappeared from the streets. However, at the end of the trimester, the local government made the program permanent, with which it changed the scheme of incentives: the population had responded precisely as the government had wanted while the program remained a temporary one because everyone understood the consequences in terms of the environmental effect of automobiles. However, once the program was made permanent, the population responded in logical fashion: buying an additional vehicle. The effect on contamination was fatal not only because the original number of vehicles returned into circulation, but also because the majority of the cars added to the mix were clunkers, thus they contaminated more. The result was that the number of vehicles and the contamination increased.

The matter didn’t end there. Between the end of the eighties and the present, everything possible has been done to increase the number of vehicles in circulation: second-storey traffic arteries above the first have been constructed, real estate projects are ever more off in the distance, the price of new cars diminishes in real terms, public transportation has not grown significantly and all gasoline types are highly subsidized. That is, every imaginable type of incentive has been created for the population to be able to acquire more automobiles. What is the government’s response? You can readily imagine it: it wants to go back to limiting the number of vehicles in circulation, this time coercively. It’s not difficult to anticipate the outcome, except if one is the politician charged with making the decision.

The financial legislation that the government has proposed follows the same line. Its objective is praiseworthy: it wants to increase credit as a percentage of the GDP and is attempting to create incentives for this to happen. The legislature proposes two mechanisms, one positive and the other negative. The positive one, which takes as its model the Brazilian Development Bank (BNDES), consists of endowing national development banks with mechanisms for these to support the productive plant. Nothing wrong with that, except that the Brazilian example itself has poignantly brought to light the risks of lending to companies that are not financially viable, because if they were, the commercial banks would already be lending to them. On the negative side, the bill proposes impeding commercial banks from buying up government bonds with the resources that they are not employing for loans. The objective is to provide incentives for banks to increase extending credit with these resources. As with the Mexico City traffic it is easy to predict that, before extending risky credit, banks will seek other things in which to position their resources, such as in real estate or in instruments that typically creative minds will develop to preserve their own interests. Again, a result cannot be legislated.

“Public policy”, wrote Thomas Sowell, “must be understood by the actual structure of incentives that it creates rather than by the rhetoric of hope of the makers of the policy”. The Mexican is as intelligent and competent as any other human. Betting on his stupidity or on his disposition to submit to the desires of bureaucrats does no more than cast doubt on the character of the bettor.

www.cidac.org

@lrubiof

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

Luis Rubio

A Canadian university professor was famous for never failing anyone in his classes. One day, some of his students argued in a debate that the policies of the government would eliminate poverty and would become a great equalizing factor of the society. Skeptical, the professor proposed an experiment to them: from that moment on, he would average the grades of the entire class group and no one would get an A (a 10 in Mexico) and no one would flunk the course. The first exam came and went, the professor averaged the scores and everyone got a B. Those who had studied hard were upset, while those who had studied little were content. Then came the second exam: the students who had studied hard for the first exam studied less and those who had studied less for the first one didn’t study at all for the second. The average grade was D. In the third exam the average was F, representing a failing grade. The experiment illustrated a facet of human nature with which politicians worldwide in general have not yet come to terms: a result cannot be legislated.

Politicians can legislate a set of rules (laws) and regulations that, they trust, will produce the desired results, but they can never determine the way that millions of citizens will react in terms of their preferences or objectives. Neither prosperity nor poverty can be legislated; neither can a healthy financial system nor can less traffic in a city, nor can wealth be multiplied when it is divided, be legislated. Human nature is not inert: individuals perennially respond in favor of survival despite politicians’ bad ideas and to preserve what’s important to them: they do things that even the most inured of politicians could not predict or ever even dream of their doing.

In past decades, U.S. politicians, employing fiscal mechanisms, obliged banks to make mortgage loans in massive fashion to low-income persons who had no possibility of paying these back. Thus was born the crisis of recent years: bold as brass, but deliberately in the knowledge that there was no possibility of utilizing traditional mortgage loans for this segment of the population, the bankers thought up a type of credit, the so-called “subprime loan”, especially designed for individuals with low incomes: the monthly payment for the initial years was very low and easy to pay, but the payment rose suddenly some time afterward. Millions of persons acquired homes in this manner that later, when the payment went up, these ended up being abandoned. All the while, the bankers had converted these credits into values that were resold throughout the world. Eventually the bubble burst with the consequences that we all know.

The lesson seems very evident to me: when politicians utilize subsidies, taxes, preferences or protection for the benefit of certain social groups or to advance their own agendas they end up distorting the economic rationality embodied by everyone in their being –human nature- and producing results that are not always desirable. The point is, in their actions, politicians create incentives that they not always (or nearly never) thoroughly understand.

In Mexico City, in the eighties, the government had the brilliant idea of limiting automobile use through the program known as “a day without driving”. The program was announced over a three-month period and exerted a notable effect in some weeks, because one fifth of vehicles disappeared from the streets. However, at the end of the trimester, the local government made the program permanent, with which it changed the scheme of incentives: the population had responded precisely as the government had wanted while the program remained a temporary one because everyone understood the consequences in terms of the environmental effect of automobiles. However, once the program was made permanent, the population responded in logical fashion: buying an additional vehicle. The effect on contamination was fatal not only because the original number of vehicles returned into circulation, but also because the majority of the cars added to the mix were clunkers, thus they contaminated more. The result was that the number of vehicles and the contamination increased.

The matter didn’t end there. Between the end of the eighties and the present, everything possible has been done to increase the number of vehicles in circulation: second-storey traffic arteries above the first have been constructed, real estate projects are ever more off in the distance, the price of new cars diminishes in real terms, public transportation has not grown significantly and all gasoline types are highly subsidized. That is, every imaginable type of incentive has been created for the population to be able to acquire more automobiles. What is the government’s response? You can readily imagine it: it wants to go back to limiting the number of vehicles in circulation, this time coercively. It’s not difficult to anticipate the outcome, except if one is the politician charged with making the decision.

The financial legislation that the government has proposed follows the same line. Its objective is praiseworthy: it wants to increase credit as a percentage of the GDP and is attempting to create incentives for this to happen. The legislature proposes two mechanisms, one positive and the other negative. The positive one, which takes as its model the Brazilian Development Bank (BNDES), consists of endowing national development banks with mechanisms for these to support the productive plant. Nothing wrong with that, except that the Brazilian example itself has poignantly brought to light the risks of lending to companies that are not financially viable, because if they were, the commercial banks would already be lending to them. On the negative side, the bill proposes impeding commercial banks from buying up government bonds with the resources that they are not employing for loans. The objective is to provide incentives for banks to increase extending credit with these resources. As with the Mexico City traffic it is easy to predict that, before extending risky credit, banks will seek other things in which to position their resources, such as in real estate or in instruments that typically creative minds will develop to preserve their own interests. Again, a result cannot be legislated.

“Public policy”, wrote Thomas Sowell, “must be understood by the actual structure of incentives that it creates rather than by the rhetoric of hope of the makers of the policy”. The Mexican is as intelligent and competent as any other human. Betting on his stupidity or on his disposition to submit to the desires of bureaucrats does no more than cast doubt on the character of the bettor.

www.cidac.org

@lrubiof

Luis Rubio

The country is going through difficult times, which does not cease to be paradoxical to many. For the PRIists, who feel that they’ve “made it”, everything seemed to be moving forward without a hitch. For the general population, who just wants to live in peace, the sense of order that the new government has brought seemed to offer the opportunity to make that desire true. However, the only thing that is clear is that the real problems, those at the core, have not changed and, if anything, have intensified. Thinking about this, I recalled the famous phrase of Paul Valery that “The trouble with our times is that the future is not what it used to be.”

Part of the problem Mexico faces has to do with the fact that the discussion is marred by explanations, proposals, desires and interests, all legitimate, but that end up distorting rather than clarifying the picture. What follows is the way I understand and see the moment that Mexico is going through and how it got there.

•    The old system stabilized the country after the revolutionary epic, but ended up being unsustainable. It worked well for a while (especially between 1950 and 1970), but collapsed in part due to its own contradictions and partly by its success in creating an urban middle class that rebelled against “the system”.

•    Echeverria’s response was to inflate the economy to make room for all claimants, which created a caste of entitled beneficiaries (unions, business groups, peasants and politicians) who continue plundering and subtracting productivity from the economy as a whole. He also unleashed an era of economic crises and social conflict.

•    The reforms of the 80s and 90s sought to build a new platform for economic growth and laid the foundations of prosperity that the modern industrial sector enjoys today. Unfortunately, the folly of protecting entrenched PRI interests deepened and reinforced the contradictions that are obvious to all: protected sectors, lack of competition, powerful monopolies and, in general, very low productivity growth in the economy.

•    Despite this, prosperity has been real and has made it possible for the country’s politics to evolve toward democratic competition. Electoral reforms led to the defeat of the PRI in 2000 and to the alternation of parties in government. As in the economy, a reluctance to build modern institutions led to the contradictions that characterize today’s political life, above all the proliferation of conflicts for which the old institutions are inadequate. They cannot respond to the new issues or channel conflicts and pacify the country. They were created for a different era and not to foster citizen participation or to solve problems.

•    Mexico is an extraordinarily complex country that is very difficult to govern. The ethnic, religious, geographic, cultural and economic diversity and dispersion and the contrasts among regions require exceptional political skills. Historically, the system worked when there was a functioning central government in conjunction with skilled and effective local governments. As Dudley Ankerson argues, the PRI ruled for decades with methods that today are perceived as intolerable but that had the effect of making it appear easier than it actually was. The PAN governments believed that it was just a matter of removing the PRI. Today Oaxaca, Guerrero and Michoacán put in evidence how the old PRI methods are no longer viable. The same goes for PAN’s naiveté.

•    The crises, errors, corruption and incompetence of the country’s rulers discredited the political class. The arrogance of politicians (and their relatives) and their parasitism, the abuse by officials, the persistence of the excesses engaged in by labor leaders (which may change but which always remain the same) and the mockery that the government has made of the transparency mechanisms, all but justify and deepen the cynicism and mistrust characteristic of the Mexican.

•    These realities make it indispensable to carry out a real political reform. The Pact that the current government has devised is better than the paralysis of the past decades but is a poor substitute for a system of effective government (executive-legislative).

•    Beyond its specific traits, a political reform would have to achieve the following: a) politicians must be accountable to the electorate and not to their bosses; b) mechanisms to allow the formation of legislative majorities, c) a system of effective governance, both to make it possible for the government to actually govern, as well to resolve the looming security crisis. There is no one way to achieve these goals: the important thing is to achieve them. Some prefer a second electoral round, others a semi-parliamentarian system; some will want re-election, others a strong executive power; some prefer proportional representation, others a direct system. What matters is not the form but the result and the flexibility to correct the system until it works.

•    While politicians fight among themselves, opposition parties agonize and the government pretends to reform, the lives of the citizenry are increasingly beset by organized crime: extortion and kidnapping have become daily events in much of the country. The issue is not whether the previous government had the right strategy or the wrong one, or whether the current one can solve the problem without defining a different strategy. The issue is that organized crime is eroding the fabric of society and, if not addressed, will end up destroying it. It has happened elsewhere.

•    Therefore, it is urgent to launch a real reform of the justice system, of the office of the prosecutors, the police and, in general, of the entire security system. Mexico’s problem is not drug trafficking as such, but State capacity: the lack of basic law and order, law enforcement and justice for maintaining peace, security and justice. Rule of law. In a word, Mexico needs to become a modern country.

•    In addition to the above, it is imperative to transcend the notion that a few constitutional reforms will transform the country. What will transform it is the actual implementation of reforms on issues such as education, labor and social security, all of which entail the undermining of powerful interests of all kinds. The same is true of the energy sector and the tax and spending system and their supervision. It is there, not in legislative awards ceremonies, where the government’s success will be measured. At the end of the day, what counts is productivity growth: all the rest is mere rhetoric.

•    The current government has a clear sense of government and power, including extraordinary communications skills. However, it is essential to advance these characteristics and skills but they are not sufficient in themselves for achieving the government’s  mission. The country requires a new and modern institutional system, which is a clear break with the past, which keeps dragging it down and hindering its potential. Without that, not even the most competent government politically could be successful.

www.cidac.org

@lrubiof

Luis Rubio

The country is going through difficult times, which does not cease to be paradoxical to many. For the PRIists, who feel that they’ve “made it”, everything seemed to be moving forward without a hitch. For the general population, who just wants to live in peace, the sense of order that the new government has brought seemed to offer the opportunity to make that desire true. However, the only thing that is clear is that the real problems, those at the core, have not changed and, if anything, have intensified. Thinking about this, I recalled the famous phrase of Paul Valery that “The trouble with our times is that the future is not what it used to be.”

Part of the problem Mexico faces has to do with the fact that the discussion is marred by explanations, proposals, desires and interests, all legitimate, but that end up distorting rather than clarifying the picture. What follows is the way I understand and see the moment that Mexico is going through and how it got there.

•   The old system stabilized the country after the revolutionary epic, but ended up being unsustainable. It worked well for a while (especially between 1950 and 1970), but collapsed in part due to its own contradictions and partly by its success in creating an urban middle class that rebelled against “the system”.

•   Echeverria’s response was to inflate the economy to make room for all claimants, which created a caste of entitled beneficiaries (unions, business groups, peasants and politicians) who continue plundering and subtracting productivity from the economy as a whole. He also unleashed an era of economic crises and social conflict.

•   The reforms of the 80s and 90s sought to build a new platform for economic growth and laid the foundations of prosperity that the modern industrial sector enjoys today. Unfortunately, the folly of protecting entrenched PRI interests deepened and reinforced the contradictions that are obvious to all: protected sectors, lack of competition, powerful monopolies and, in general, very low productivity growth in the economy.

•   Despite this, prosperity has been real and has made it possible for the country’s politics to evolve toward democratic competition. Electoral reforms led to the defeat of the PRI in 2000 and to the alternation of parties in government. As in the economy, a reluctance to build modern institutions led to the contradictions that characterize today’s political life, above all the proliferation of conflicts for which the old institutions are inadequate. They cannot respond to the new issues or channel conflicts and pacify the country. They were created for a different era and not to foster citizen participation or to solve problems.

•   Mexico is an extraordinarily complex country that is very difficult to govern. The ethnic, religious, geographic, cultural and economic diversity and dispersion and the contrasts among regions require exceptional political skills. Historically, the system worked when there was a functioning central government in conjunction with skilled and effective local governments. As Dudley Ankerson argues, the PRI ruled for decades with methods that today are perceived as intolerable but that had the effect of making it appear easier than it actually was. The PAN governments believed that it was just a matter of removing the PRI. Today Oaxaca, Guerrero and Michoacán put in evidence how the old PRI methods are no longer viable. The same goes for PAN’s naiveté.

•   The crises, errors, corruption and incompetence of the country’s rulers discredited the political class. The arrogance of politicians (and their relatives) and their parasitism, the abuse by officials, the persistence of the excesses engaged in by labor leaders (which may change but which always remain the same) and the mockery that the government has made of the transparency mechanisms, all but justify and deepen the cynicism and mistrust characteristic of the Mexican.

•   These realities make it indispensable to carry out a real political reform. The Pact that the current government has devised is better than the paralysis of the past decades but is a poor substitute for a system of effective government (executive-legislative).

•   Beyond its specific traits, a political reform would have to achieve the following: a) politicians must be accountable to the electorate and not to their bosses; b) mechanisms to allow the formation of legislative majorities, c) a system of effective governance, both to make it possible for the government to actually govern, as well to resolve the looming security crisis. There is no one way to achieve these goals: the important thing is to achieve them. Some prefer a second electoral round, others a semi-parliamentarian system; some will want re-election, others a strong executive power; some prefer proportional representation, others a direct system. What matters is not the form but the result and the flexibility to correct the system until it works.

•   While politicians fight among themselves, opposition parties agonize and the government pretends to reform, the lives of the citizenry are increasingly beset by organized crime: extortion and kidnapping have become daily events in much of the country. The issue is not whether the previous government had the right strategy or the wrong one, or whether the current one can solve the problem without defining a different strategy. The issue is that organized crime is eroding the fabric of society and, if not addressed, will end up destroying it. It has happened elsewhere.

•   Therefore, it is urgent to launch a real reform of the justice system, of the office of the prosecutors, the police and, in general, of the entire security system. Mexico’s problem is not drug trafficking as such, but State capacity: the lack of basic law and order, law enforcement and justice for maintaining peace, security and justice. Rule of law. In a word, Mexico needs to become a modern country.

•   In addition to the above, it is imperative to transcend the notion that a few constitutional reforms will transform the country. What will transform it is the actual implementation of reforms on issues such as education, labor and social security, all of which entail the undermining of powerful interests of all kinds. The same is true of the energy sector and the tax and spending system and their supervision. It is there, not in legislative awards ceremonies, where the government’s success will be measured. At the end of the day, what counts is productivity growth: all the rest is mere rhetoric.

•   The current government has a clear sense of government and power, including extraordinary communications skills. However, it is essential to advance these characteristics and skills but they are not sufficient in themselves for achieving the government’s  mission. The country requires a new and modern institutional system, which is a clear break with the past, which keeps dragging it down and hindering its potential. Without that, not even the most competent government politically could be successful.

www.cidac.org

@lrubiof

Luis Rubio

“No immigration reform can expect to be successful if it clashes with human nature”. That is the way Demetrios Papademetriou sums up his view with respect to the U.S. migratory reform in a report* that he presented in Mexico this week. The immigration issue involves millions of Mexicans and persons of other nationalities who embarked upon the promising, but also dangerous, path in search of employment in the U.S. Now that the possibility is being discussed of a profound reform in the U.S., Mexico is faced with difficult decisions that would be indispensable for the legalization (immediate or protracted) of these millions of migrants.

The report of the Migration Policy Institute is oriented toward the U.S. discussion but, as the product of a study group that worked for more than two years –and that it involved numerous Mexicans including the group’s co-president, Mexico’s former President Ernesto Zedillo-, it embodies a great number of detailed analyses** on the nature of migration, the factors leading the potential migrant to undertake the complex process, the security conditions existing along the way and the political, economic and social problems that characterize Central America and Mexico, nations constituting an overwhelming proportion of the undocumented population. Whoever reads the report will be privy to a broad panorama of the changing dynamic of the migratory phenomenon, the complexity -political and practical- the possible solutions and their long-term implications for the U.S and for Mexico and Central America. The reader will also be able to appreciate that this reform, if approved, would be the last in a long time because, in contrast with the past, it boasts the active participation and responsibility of the employers.

The report sets out from the principle that immigration is sovereign in character –each country has full right to decide its population policy- but that this sovereign decision cannot ignore the changes that are taking place in countries such as Mexico. Although evidently a person who enters a country distinct from his or her own without first going through an immigration sentry terminal is breaking the law, the motivation of the vast majority of migrants is economic: the job market across the border is completely integrated and, with the exception of the growing difficulty of crossing the border itself, works in a highly efficient manner: when there is a demand the migratory current flows (as happened in the nineties), and when there isn’t one, the flow is negative. The report also emphasizes another key factor: Mexico has been experiencing basic changes in its economic structure and in its demographic profile, circumstances that allow consideration of a distinct economic future for the region, a future that could convert North America into a highly competitive region, very superior to that currently envisaged.

The changes that Mexico has undergone –some as the result legislative reforms, others as a consequence of the violence- have altered the migratory patterns, have modified the population type that migrates, how many do so and what motivates their decision. For example, a first effect of the pattern in migratory change is that the average schooling and skills of the most recent migrant are notably superior to those of the former cohorts. All this suggests, states the report, that the future of migratory matters is going to be very distinct from that of the past.

The most patent changes that have occurred in Mexico stem from the financial stability that the country has enjoyed for fifteen years (generating sources of  credit for housing and consumption that were previously inexistent); liberalization of imports (which has drastically diminished the proportion of the disposable income that families spend on food, clothing and shoes); the growing competitiveness of the domestic productive plant, as can be observed in industrial exports and that entails more, better paid, jobs; the remittances that have created a rural middle class, a factor that should modify the dominant perception in the U.S. about Mexico as an impoverished, corrupt and violent country. A person who already has a stable income and opportunities to raise his levels of consumption has a much lesser incentive to migrate than those of a farmer without a fixed income nor job options. In turn, insists the report, the demographic transitions that the country is experiencing (the birth rate has diminished drastically since the seventies), permits improvement in life levels and, eventually, will translate into smaller migratory flows.

Mexico has become a destination point for migrants from other latitudes, mainly from Central America, creating novel social and political realities. Many victims of the violence that has characterized the country are migrants from other nations and Mexico’s southern border has become the focus of enormous scrutiny.

Regarding the future, the report is very clear in its insistence that an immigration reform in the U.S. could be the solution for persons who are already there, but that the success of the migratory issue will depend in immense measure on the actions that the Mexican government is willing to take. Given that a great proportion of migrants who enter the U.S. illegally are Mexicans or individuals who transit through Mexico, the report proposes a joint set of responsibilities that Mexico would be required to assume in order for the proposed reform to be approved as well as for the beginning of the construction of a new regional development scheme.

In particular, Mexico would have to advance seriously on two fronts: first, control of its border to the South with the purpose of the country’s becoming a trustworthy partner which radically reduces regional vulnerability to the access of undocumented and unwanted individuals. This is what nations such as Poland, Bulgaria and Romania in the European Union committed to and carried out with great success. Secondly, Mexico would have to commit to regulating migratory flows to the North. The latter would constitute a radical departure from Mexican tradition, in that it would imply that instead of de facto promoting and facilitating migration, the Mexican government would act as the guarantor of that only those who have obtained a U.S. work visa could transit the country.

The benefit of all this, as in the case in Europe, could be assessed by greater economic growth, growing regional competitiveness, further industrial integration, more exports and better living standards. In the end, there’s nothing like economic growth to ease political tensions.

*http://www.migrationpolicy.org/pubs/RMSG-FinalReport.pdf

**All available at http://www.migrationpolicy.org/

www.cidac.org

@lrubiof

Luis Rubio

“No immigration reform can expect to be successful if it clashes with human nature”. That is the way Demetrios Papademetriou sums up his view with respect to the U.S. migratory reform in a report* that he presented in Mexico this week. The immigration issue involves millions of Mexicans and persons of other nationalities who embarked upon the promising, but also dangerous, path in search of employment in the U.S. Now that the possibility is being discussed of a profound reform in the U.S., Mexico is faced with difficult decisions that would be indispensable for the legalization (immediate or protracted) of these millions of migrants.

The report of the Migration Policy Institute is oriented toward the U.S. discussion but, as the product of a study group that worked for more than two years –and that it involved numerous Mexicans including the group’s co-president, Mexico’s former President Ernesto Zedillo-, it embodies a great number of detailed analyses** on the nature of migration, the factors leading the potential migrant to undertake the complex process, the security conditions existing along the way and the political, economic and social problems that characterize Central America and Mexico, nations constituting an overwhelming proportion of the undocumented population. Whoever reads the report will be privy to a broad panorama of the changing dynamic of the migratory phenomenon, the complexity -political and practical- the possible solutions and their long-term implications for the U.S and for Mexico and Central America. The reader will also be able to appreciate that this reform, if approved, would be the last in a long time because, in contrast with the past, it boasts the active participation and responsibility of the employers.

The report sets out from the principle that immigration is sovereign in character –each country has full right to decide its population policy- but that this sovereign decision cannot ignore the changes that are taking place in countries such as Mexico. Although evidently a person who enters a country distinct from his or her own without first going through an immigration sentry terminal is breaking the law, the motivation of the vast majority of migrants is economic: the job market across the border is completely integrated and, with the exception of the growing difficulty of crossing the border itself, works in a highly efficient manner: when there is a demand the migratory current flows (as happened in the nineties), and when there isn’t one, the flow is negative. The report also emphasizes another key factor: Mexico has been experiencing basic changes in its economic structure and in its demographic profile, circumstances that allow consideration of a distinct economic future for the region, a future that could convert North America into a highly competitive region, very superior to that currently envisaged.

The changes that Mexico has undergone –some as the result legislative reforms, others as a consequence of the violence- have altered the migratory patterns, have modified the population type that migrates, how many do so and what motivates their decision. For example, a first effect of the pattern in migratory change is that the average schooling and skills of the most recent migrant are notably superior to those of the former cohorts. All this suggests, states the report, that the future of migratory matters is going to be very distinct from that of the past.

The most patent changes that have occurred in Mexico stem from the financial stability that the country has enjoyed for fifteen years (generating sources of  credit for housing and consumption that were previously inexistent); liberalization of imports (which has drastically diminished the proportion of the disposable income that families spend on food, clothing and shoes); the growing competitiveness of the domestic productive plant, as can be observed in industrial exports and that entails more, better paid, jobs; the remittances that have created a rural middle class, a factor that should modify the dominant perception in the U.S. about Mexico as an impoverished, corrupt and violent country. A person who already has a stable income and opportunities to raise his levels of consumption has a much lesser incentive to migrate than those of a farmer without a fixed income nor job options. In turn, insists the report, the demographic transitions that the country is experiencing (the birth rate has diminished drastically since the seventies), permits improvement in life levels and, eventually, will translate into smaller migratory flows.

Mexico has become a destination point for migrants from other latitudes, mainly from Central America, creating novel social and political realities. Many victims of the violence that has characterized the country are migrants from other nations and Mexico’s southern border has become the focus of enormous scrutiny.

Regarding the future, the report is very clear in its insistence that an immigration reform in the U.S. could be the solution for persons who are already there, but that the success of the migratory issue will depend in immense measure on the actions that the Mexican government is willing to take. Given that a great proportion of migrants who enter the U.S. illegally are Mexicans or individuals who transit through Mexico, the report proposes a joint set of responsibilities that Mexico would be required to assume in order for the proposed reform to be approved as well as for the beginning of the construction of a new regional development scheme.

In particular, Mexico would have to advance seriously on two fronts: first, control of its border to the South with the purpose of the country’s becoming a trustworthy partner which radically reduces regional vulnerability to the access of undocumented and unwanted individuals. This is what nations such as Poland, Bulgaria and Romania in the European Union committed to and carried out with great success. Secondly, Mexico would have to commit to regulating migratory flows to the North. The latter would constitute a radical departure from Mexican tradition, in that it would imply that instead of de facto promoting and facilitating migration, the Mexican government would act as the guarantor of that only those who have obtained a U.S. work visa could transit the country.

The benefit of all this, as in the case in Europe, could be assessed by greater economic growth, growing regional competitiveness, further industrial integration, more exports and better living standards. In the end, there’s nothing like economic growth to ease political tensions.

*http://www.migrationpolicy.org/pubs/RMSG-FinalReport.pdf

**All available at http://www.migrationpolicy.org/

www.cidac.org

@lrubiof