Luis Rubio

“The errants are many,” said Sancho Panza. “Many,” replied Don Quixote, “but few they who deserve the name of knights.” Institutions are not born strong: they gain strength –or lose it- insomuch as they comply with their duty and win the respect of the citizenry. It’s not sufficient for institutions to just exist (the product of a political act, usually in the form of a legislative decision); institutions become part of the social fabric if the society embraces them and accepts them as their own. When this does not happen, institutions turn into vacant buildings without credibility. The majority of our “autonomous” and regulatory entities (but certainly not all) have failed to acquire recognition and legitimacy in the eyes of the populace because they have not understood the moment, their own function or the circumstances the country is undergoing. One example of this is the Federal Competition Commission, COFECO.

The Spanish monarchy from the death of Franco is a good example of how an institution is constituted and consolidated. Although the dictator angled his succession making use of Spain’s present-day monarch, King Juan Carlos, as a means of continuity, the monarchy was consolidated and accepted by the society only when Lieutenant Colonel Tejero attempted a coup five years later. It was at that moment that the king became the key factor for stability and the return to democratic normalcy, that the monarchy illustrated its transcendence and the importance of its function.

The viability, transcendence and credibility of an institution depend on the manner in which those in charge preside over it. The Federal Electoral Institute (IFE) secured its place in part due to the work of its board, but it is not possible to ignore that luck played a stellar role: if the politically correct candidate had not won in 2000, the IFE’s credibility would have been negligible. Not by chance did it suffer a brutal and visceral attack in 2006, so great that it rendered feasible the removal of its board, as if the latter were of no account. It never achieved consolidating its legitimacy.

When young, an institution must gain credibility in its sphere of action. In countries with strong and well developed institutions, the creation of a new entity does not constitute a major challenge and, although the new institution must win over its space and legitimacy, the environment tends to facilitate this. The situation is very distinct in a country like Mexico, where the concentration of power has been vast, the political life dominated by a single party and such a feeble separation of powers. Within a context of opacity, corruption, petty fiefdoms, “strong” and “moral” leaders, the incorporation is not painless of entities designed to professionalize the exercise of power, guarantee access to information, regulate economic activity and make possible the transparency of public and political activity. This is about a clash of concepts, principles, practices, traditions and, no less important, interests. It is, to say the least, an enormous contradiction.

In a context like this, a new entity must develop a strategy to accredit its viability, gain the acceptance of the population and forge its legitimacy. The COFECO came into being at the moment that economic liberalization began. The government was abandoning a direct form of control and supervision of the economy and started to construct a new scheme, within the context of an open economy, privatization processes of companies and a generalized deregulation of economic activity. The new commission was born with the crucial mandate of ensuring that markets in the Mexican economy were competitive, that is, that there were no monopolistic policies, that the regulations did not favor certain players over others, above all for the benefit of the consumer.

It was not an easy mandate, given the oligopolistic nature of the economy. It was also not easy because of the existence of massive enterprises, some recently privatized, controlling entire sectors and concentrating the attention of consumers, analysts and critics. The Commission had two options: take a stand against the big issues or against the less visible but similarly important ones. One must not lose sight of that the phenomenon of concentration is reproduced at all levels, in all regions and sectors. Going against the big issues and companies implied going against entities with lots of cash and lots of power; going against the smaller ones would have implied blows perhaps less sensationalistic but maybe more profitable for the consolidation of the entity. The correlation of power surely would have been distinct, less unfavorable.

The COFECO opted for the visible without recognizing the risk in which it was incurring. On taking a stand against the big ones, it also went against the powerful: with chock-full moneybags for contracting top-notch lawyers and procuring injunctions, political relations on all sides and an infinite capacity to corrupt. It is not by chance that, after years of failed attempts, it has very little to show as tangible results. It opened investigations and legal proceedings against the majority of the companies and sectors that, rightly or not, are associated with monopolistic practices or consumer abuse. However, the few battles that the Competition Commission won were in the end pyrrhic. Some are still at the let’s see stage. Two decades after its creation it has little or nothing to show in terms of consumer benefits that comprises, supposedly, its mandate. It’s not by chance that its credibility is so flimsy and why politicians cast about seeing how to modify it –and, conceivably, replace its board- one more time. The case of the IFE is suggestive.

Of course, there’s nothing wrong with zeroing in on the largest and most visible matters and companies, except that, when it’s about questions of power –a frail institution in the face of some perfectly established monsters- the probability of winning is minuscule. Perhaps the new injunction (amparo) law will open spaces and opportunities that have been impossible to date, but even under this circumstance it is not possible to ignore the obvious –and the irony for an entity that pretends to be autonomous- that this legislative change was possible solely thanks to presidential imposition.

Perhaps the result would have been another had the commission concentrated on more limited markets but with a greater possibility of success. Some industries that are obvious to me, but clearly not exclusive, are: that of industrial gases, dominated by two entities that, it appears, communicate with each other; auto-transport both of cargo and passengers, which have split the market amongst themselves; and that of the famous “tags” for the toll highways, which allow for individual monopolies. There is no lack of examples of consumer abuse and CONFECO’s ineffectiveness.

A few perceptible triumphs for the consumer would have helped consolidate an effectively anonymous commission, one not always dependent on governmental fiat. We will have to start anew, one more time.

www.cidac.org
@lrubiof

Luis Rubio

In one of his famous long-winded harangues, President Lincoln tossed out a rhetorical question that applies to our pseudo debate on energy matters. “How many legs does a dog have if you call the tail a leg? Four”, he said in answer to himself. “Calling a tail a leg doesn’t make it a leg”. The world of energy has changed radically but we’re still stuck in 1938. The problem is that if we don’t shatter the inertia we risk economic collapse.

Until some years ago the discussion on oil and, in general on energy, was a combination of wishes, real or potential benefits and history. Depending on the economic, political, or bureaucratic perspective, some see oil as kick-starter for today’s development, others as a stockpile of wealth for an indeterminate future. Although time is not the sole factor in this controversy, it does constitute a determining factor in the political dynamic in this respect because it entails the entire thicket of myths, ideologies, interests, history and objectives enmeshed in this matter. The theme is complex owing to the admixture of issues: those not wanting to change because this would affect their interests, those seeing change as an opportunity and those opposing change as an ideological stance. That is to say, it verges on a religious discussion where what to render to Caesar and what to render to God are pitted against each other and the combination thereof is never felicitous.

Independently of the specific perspective, no one doubts the fiscal importance of the oil resources. The Mexican Government has become addicted to the revenue generated by the oil monopoly and this converts it into as interested an actor in the debate as any other. Thus, what is in dispute is not something objective but rather the product of feuds and clashes among interested parties. This circumstance has brought one reform after another to a standstill throughout recent times.

The Mexican energy debate has entertained a further peculiarity: it is altogether inward facing. Mexico is conceived of as an exceptional entity, isolated from the rest of the world. There are good reasons for this: PEMEX is a fountainhead of resources and the more it exports the greater the income. The equation was so simple and obvious that everyone essentially focused on attempting to resolve problems related with production. When the petroleum platform began to drop off, discussion was oriented toward where and how to exploit new resources and the conditions needed to make this possible. For example, in the case of extracting the energy resources presumably localized at great depths in the Gulf of Mexico, third-party participation was regarded as necessary whether due to the lack of the required technology or to the inherent financial risk. With advances or without them, for many years the discussion has been limited to the exploitation of petroleum.

The reality has changed and that old discussion has become absolutely irrelevant. Although issues concerning PEMEX’s efficiency, its productive processes or its costs structure continue to be relevant as it pertains to PEMEX itself, we are at present witnessing a sweeping change in the energy industry, of which PEMEX is just one more actor. And that’s the problem: the energy issue is no longer about PEMEX but about Mexico’s development within the context of the energy revolution that the world is experiencing, but above all in our backyard: the energy panorama in the U.S. and Canada has changed drastically, to the degree that it puts the viability of Mexico’s economy at risk.

For twenty years, the country has survived thanks to NAFTA. This instrument has permitted the Mexican economy to rely on it as an enormous source of demand and investment, ensuring the success, insufficient as it may be, of the productive plant. The country has become a formidable exporter of industrial goods and that has generated jobs and growth. Without NAFTA Mexico would have continued on in crisis. On the other hand, NAFTA is no more than an instrument and cannot be equivalent to the “philosopher’s stone” quested for by medieval alchemists to resolve all problems. There are many things that would need to be done to raise the economy’s productivity, improve the population’s human capital and level the playing field for companies and investors alike with the purpose of introducing competition into the marketplace. All this would allow these to advance, but would not sort out the new energy panorama that, in fact, could place the economy in check.

A revolution has suddenly caught the world of energy, first in Canada and more recently in the U.S. This has to do largely with a technology-driven revolution originating essentially in changes in the way to extract energy resources, which has permitted the production of gas and oil to rise dramatically. It started as a process nearly sotto voce that, at its initiation haltingly and more recently in a determined way, has had the dual effect of flooding the energy market and slashing its prices, above all of gas. The U.S., the prime importer of petroleum worldwide, is a stone’s throw from being self-sufficient. An energy scenario that we have not had to contend with before: one that nobody thought could be possible.

In this fashion, the political dynamic that encases the discussion’s context of the potential energy sector reform has changed radically. What doesn’t seem to be clear is whether the conscience exists among those responsible for the discussion on the nature of the revolution that’s in the works or of its implications for Mexico.

Three factors distinguish this revolution: first, the fact that the U.S. could be self-sufficient in petroleum. Second, natural-gas prices in that country are now a fraction of those typifying their competitors in the rest of the world (less than 3 dollars per BTU vs. more than 20 in Europe or China). And, third, energy costs are leading to the renaissance of the manufacturing industry in the U.S. Unless Mexico finds a way to supply natural-gas (or an equivalent source of energy) to its own industry at similar, competitive prices, the whole industrial platform –and the country’s economy- could be at risk.

The challenges are obvious: the oil that the U.S. and Canada produce is much lighter than Mexican oil, rendering it much more attractive for refining; our advantage in terms of the cost of manpower pales in the face of the difference in natural-gas prices: i.e., there’s an urgent need for cheap gas in Mexico. In a word, perhaps exaggerating, but not by much, unless Mexico acts decisively on the energy front, it could end up with no market for its oil and without and industry. This scenario suggests that the urgency for a profound reform of the energy sector is infinitely greater than what our politicians comprehend. They’d best update themselves on the double.

www.cidac.org

@lrubiof

FORBES – Luis Rubio

One of the virtues that many scholars attribute to democracy is that nations adopting it tend to be less violent and much less inclined to enter into conflicts with others. According to this, democracy obliges governments and populations to resolve their problems through negotiation, which ordinarily debars open conflict. The theoretical logic is impeccable: a) political leaders in a democracy are required to respond to their electorate and, if they lose a war, they lose at the ballot box; b) democracies possess a natural proclivity to abstain from viewing other actors as hostile: all are potential allies; and c) democracies typically develop sturdier economic strategies, which in the main are not compatible with military conflicts. In a word, democratic leaders lack incentives to fight.

The Arab Spring was widely acclaimed, in part because of the end of authoritarian or military governments that it entailed, but also owing to the presumption that this would diminish regional conflict. I ask myself whether there are lessons that we can derive from this experience in Mexico, as much for the enthusiasm at the outset as for the disenchantment downriver.

In Mexico we have been privileged not to live in the vicinity of neighbors prone to war, at least not in the last one hundred fifty years, a circumstance that’s afforded us the luxury of feeling ourselves to be immune to these matters. When encountering conflicts, Mexicans tend to support those we identify as the victim but without an inherent awareness of what war denotes. According to some historians, the very notion of “Mexicanness” was born with the United States’ invasion of Mexico in 1847, but the sense of victimhood, said Octavio Paz, stems from pre-Colonial roots. History and neighborhood have dealt us a sui generis perspective of wars.

That from which we haven’t been exempt from is internal conflict. Beyond organized crime, the country currently withstands an untold number of conflicts that reveal a pre-democratic political state. Conflicts such as those of Oaxaca and their supposed educators, the seizure of buildings and universities in Mexico’s Federal District, work stoppages, and demonstrations designed to affect the citizenry or to close highways, are nothing but tangible examples of a pre-democratic political system. The conflicts are not resolved in the political instances (such as the Congress) or in the judicial ones. Instead of negotiation, militants employ instruments of force and pressure oriented toward imposing solutions. Certain politicians and parties are more apt to utilize this type of means, but overall, the differences are not dramatic. When a party is not in power they use anti-institutional instruments of pressure that they would never tolerate were they in power.

From this perspective, although we are unacquainted with war as a political instrument, national politics continues to evidence nondemocratic facets and methods of conflict resolution typical of corporativist, or authoritarian, political systems. Manifestations of this nature are only possible when their utilization produce results. That is, while the authority continues to favor conflict resolution in the streets above institutional instances, the conflict will go on. All are rational actors.

This should not be understood as a call for the use of firm-handedness. A government decided on favoring the institutionalization of political processes would have to progressively force –without violence but with authority- political actors to incorporate themselves into these circuits. As exemplified by union leaders who allied themselves with the government after the detention of the teachers’ union kingpin or by the owners of the telecommunications entities commending an action that severely affected the value of their companies, all the actors are rational: they all know how to read the political maneuvers and they adjust to the new reality.

A government determined to establish new rules of the game would have to begin by constructing a novel institutional structure susceptible to contributing to the achievement of these objectives. To endure, a process of political change cannot depend on how a person or a government acts, but rather on the existence of permanent rules that only institutions can underwrite.

Democracy, noted Joseph Schumpeter, is nothing more than a method for making decisions that leaves political actors no option but to submit to the normative framework and not tolerate conduct foreign to this. In Holland, the head of the Liberal Party once affirmed that he would never offend any other member of parliament because “one never knows with whom one will be required to forge a coalition in the future”. Such is the spirit of an institutionalized society.

www.cidac.org

@lrubiof

Luis Rubio

Holy Week is a good time to reflect on my recent readings. Here are some of those that made me think and change my points of view.

Conrad Black is a worldwide press magnate who ended up in jail in the U.S. In A Matter of Principle he offers an intelligent –and coarse- analysis of the accusations and sentence that he underwent with special emphasis on the U.S. penal system where, in the interest of accelerating processes, a person considered innocent very frequently has to accept being guilty of a lesser charge to avoid the punitive costs of a trial. The extraordinary value of the book lies in the way that it strips down the criminal system of that country, which is considered an example for the world. It’s one of those books that moreover leave one troubled.

Carlos Elizondo devotes With or Without Money to the dilemmas of government spending. He explains with an extraordinary clear mind the dynamics of spending,  with particular emphasis on two criteria; what is government spending good for, and why it is not just a matter of raising more taxes. He dwells on the consequences of taxation, their impact on economic growth and the problem of a weak State that cannot even enforce the law. If you read only one book about Mexico or budgets and taxes this year, this should be it.

Luigi Zingales is a particular case. Professor of Finance at the University of Chicago, he has written a seminal book. In A Capitalism for the People, Zingales argues that capitalism was designed to benefit the citizen and the consumer, but that the growth of lobbyists and lawyers of special interests has ended up distorting everything: from taxes to spending, passing through businesses and the government’s favorite causes. Although the book refers to the U.S., the message could not be timelier: when opportunities for individual development, which are the essence of capitalism, stop being available because the playing field is not flat, capitalism stops being functional.

Anne Applebaum describes the way that the Soviet regime little by little placed the population of Eastern Europe in submission. At the beginning, the Russian Communists, believers in their system, supposed that Europeans who had been left under their yoke at the end of the war would join forces with Communism without a whimper. Although the process in each country was distinct, the State soon controlled all aspects of the economy, the police, the press and the State apparatus. For this author of Iron Curtain, the Soviet error resides in wanting to control everything: the schools, the social organizations, the unions, the churches. Thus, any conflict or difficulty translated into a source of illegitimacy for the system in its entirety. Repression became inevitable and, accompanying this, any pretension of democracy or popularity disappeared. The book is particularly interesting when one contrasts it with the PRIist system. Although hard-nosed, the PRI never came to dominate the whole society nor did it attempt to do so. That perhaps is one part of the explanation for their capacity of adaptation and survival.

The Dictator’s Handbook is a fascinating book devoted to explaining how a leader (in any activity or sector) will do whatever’s necessary to stay in power. Bruce Bueno de Mesquita and Alastair Smith pose critical questions such as why do leaders who wreck their countries keep their jobs for so long, or why do “natural disasters” disproportionately strike poorer nations? Their analysis concludes that a leader is leader because he is always dedicated to satisfying the coalition that maintains him or her in power.

The human being is, according to Aristotle, a “political animal”. Many would remark that in these recent years of crisis worldwide the former part has had dominion over the latter. In a great history about politics, On Politics: A History of Political Philosophy from Herodotus to the Present, Alan Ryan affirms that politics is fundamentally a philosophical matter and then goes on to elucidate towering questions such as the source of State authority over the citizens, individual rights and the order of the collective, and the limits of individuals as well as of the State. A good book written to think over matters of the here and now.

The most fascinating book that I read in this period is about a new industrial revolution. In Makers, Chris Anderson says that the next stage of industrial development will come in the conjunction of open design models that permit, via the Internet, the improvement of products, all from a desk. His argument is that the new revolution will be as important as that of personal computers and will change the entire concept of production because it will allow for flexibility and a capacity for adaptation to client and market needs that are inconceivable under the current manufacturing model. Employing three-dimensional printers and access to financing, the new revolution will espouse the rise of a new entrepreneurship based on micromanufacturing that will terminate the mass manufacturing monopoly, in the same way that the Internet did away with that of the traditional mass media.

Two contrasting books present the panorama of options facing Western countries. In When Markets Collide, Mohamed El-Erian addresses the collapse of the Western economies after the 2007 debt crises, the beginning of an era of “new normal” that, unless governments massively reduce their debts and deficits, will be distinct from what existed formerly, more like Japan’s last two decades, with paltry economic growth levels. For his part, in Capitalism 4.0, Anatole Kaletsky takes the opposite line: for this author the future is promising and a good combination of economic stimulus and governmental leadership could create a new era of generation of wealth. Both arguments are persuasive and whoever is right will determine what happens in the world economy for years to come.

In closing, Plutocrats, by Chrystia Freeland, is an interesting book because it explains a little understood phenomenon in recent years. Instead of focusing on the famous 1% of the richest people in the world, her focus is on the 1% of the 1%. For this author, the true phenomenon of our era resides in the concentration of new wealth above all deriving from the development of technology and in the financial sector. The book foresees difficult time of adaptation due to the imbalances that the new wealth generates as well as to the impact of these new wealth sources on the job markets.

www.cidac.org
@lrubiof

Luis Rubio

All presidents believe that they are destined to change the world. Very few, in fact nearly none, achieve this. However, this proven fact has never served to convince presidential hopefuls and less so those who have already reached the topmost office and feel themselves to be omnipotent once there. But the problem does not reside in the desire to change the world, legitimate in itself, but in the fact that the majority of presidents believe that the mere fact of sitting in the chair carries with it a change in the reality. History demonstrates that this is not so: power is not to be preserved or accumulated but employed because there is nothing more futile, nothing more ephemeral, than presidential power.

My impression of four decades of observing eight Mexican presidents is that when a president assumes office and, above all when he consolidates his power, he feels that the world owes him a living and that he’s “got it made”. Nothing can thwart his triumph and the only thing missing is for the reality to begin to evidence a radical change. History illustrates that dreams of grandeur are just that: dreams. All the rest is hard work. Unfortunately, very few presidents perceive that power is to be employed, thus few accomplish their task.

Years ago I visited one of the Tutankhamun and The Golden Age of the Pharaohs exhibitions. No group of sovereigns ever enjoyed the illusion of such great power. Ramses II reigned for 66 years: judging from the images of power, the pyramids and the colossal monuments at Luxor and Abu Simbel, the power was enormous; but nothing at all remains of all that. All that power vanished and all that is left, centuries afterward, is a poor country with few opportunities for development. On leaving the exhibition I remember having pondered the futility of power, the impotence that, in the last analysis, it represents.

It didn’t go much better for Napoleon Bonaparte. In the summer of 1812 he led an army of over one million that marched toward the gates of Moscow.  Three years later he was found wasting away his life on the Isle of Elba. In 1940 Hitler commandeered the most powerful army in the world; in 1945 he complained that only Eva Braun and his dog remained faithful to him. At the end of his life, according to the story told by his personal physician, Li Zhisui, Mao Tse-tung was a pathetic figure who no longer inspired even the least authority. History is saturated with powerful and frustrated men.

It is instructive, and sobering, to observe that, in the last decades, the only Mexican president who is prominent for having survived the opprobrium of history and the population’s generalized reproach is the least ambitious of them all. The sole president who has won the respect of the population is the one who devoted himself body and soul to a set of limited but realistic objectives: he saw to the problems of the moment, leaving dreams of grandeur and historical transcendence in the closet. Ernesto Zedillo could perhaps have taken aim at something grander but, with the perspective permitted by time, he is the only one who achieved what he proposed and is widely recognized for that. It’s no small thing and less when compared with the rest.

The grandeur of power is not found in symbols, appearances or gratuitous acolytes, but in the results of its exercise. As the saying goes, the most difficult year of the Mexican presidency is the seventh because that’s when reality sets in. It is at that moment when the recent ex-president starts to look out at the world as it is and not how he imagined it. Presidents who stand out are those who can look back and see at least one respectable legacy. Of the eight that I have watched closely, only one passes the test. History would suggest that it is imperative to learn from the past the need to assess power with humility, as something temporary and in the last instance, ephemeral. Power is not what is possessed but rather what is done with it.

The point is not to deny the value or transcendence of power, but to observe its limitations as well as its possibilities. A powerful president can do immense good, but also immense harm. Those who are successful accept the reality as it is and employ their power to cull every possible benefit from it. In this era of the world and of Mexico, reality is measured by two very simple things: the degree of the institutionalization of power and of the society and the growth of productivity. It might appear sophomoric to reduce the entire gamut of presidential power into these two elements, but this concerns something that is by no means trivial: these are the factors that could transform Mexico. A president who exerts a favorable influence on these would transform the country and, with this, would acquire the legacy that was impossible to come by for seven of the eight last presidents.

Institutionalization of the country is a promise that goes back to Plutarco Elías Calles, the first president who understood the need to procure it but, like a little child who knows what shouldn’t be done but does it anyway, he preferred to reap the benefits of power, whether or not ephemeral, to that of institutionalization. Institutionalizing implies limiting the president’s powers, which is why nearly none of them has promoted it. The paradox is that only a powerful president can drive an agenda of institutionalization forward.

It is sufficient to observe the painful spectacle offered by entities such as the IFE, the IFAI and various economic regulatory organisms to recognize that the country has not achieved institutionalization of its main executive functions. We presume that we have but we all know the flimsiness with which these have been constructed. The obvious temptation would be to abolish the concept and ordain trustworthy sacristans. What should be done is to name civil servants who are dedicated and committed to the State, not to the government. Irreproachable persons not single-mindedly devoted to fretting about their name and covering their back, but solely committed to the success of their institution and function. Persons who don’t back down in the face of pressure from the higher authority.

In the economic ambit one doesn’t have to be a rocket scientist to know that the success factor is denominated productivity. Everything that contributes to its growth should be welcome, everything that hinders it should be eradicated. The keys to productivity are competition, elimination of obstacles, less bureaucracy, simplification, zero preferences (and discrimination, whether positive or negative). All the rest impedes the growth of productivity, the factor that enables raising the population’s incomes.

Institutions and productivity. That’s what power is for, if the president really wants to transcend. It might seem like a small thing, but it’s everything, much more than a president ever could imagine in his freshman year.

www.cidac.org
@lrubiof

Luis Rubio

Everyone wants the economy to grow. The government promises growth. The worldwide economic situation becomes complicated. Three realities that must be dealt with.  In concept, there might be many ways to achieve this so greatly coveted growth. But the only one that would permit conciliating the three circumstances is raising the productivity of the economy in its entirety and making it more flexible and adaptable.  Whichever one’s preferences are, Right or the Left, liberal or conservative, the only way to achieve growth is through productivity. However, the government is doing the contrary:  it is strengthening the mechanisms of protection through tariff and non-tariff barriers, developing industrial policy strategies and, carefully but certainly, incorporating control mechanisms over the states, the private sector, the unions and other components of the society. We’re not going to get there that way.

The business community is delighted with the industrial policy, the subsidies and the protection. Bureaucrats and politicians revel in the controls and the spending. All of these come out ahead at the cost of growth. In this manner, although there is agreement on the need for growth, little by little we are seeing that the mechanisms the government is adopting constitute a poor take on the nature of the problem and/or an attempt to imitate the practices of other countries, above all Southern, which look good from a distance but are unlikely to yield the desired result.

Mexico requires a strategy for growth. In concept there are only two things that can achieve this in a relatively brief time period.  One is employing stimulus measures that foster economic activity, as the construction of infrastructure has typically been. It is not the only kind of stimulus possible, but in a country that continues to entertain an acute deficit in infrastructure (quantitatively as well as qualitatively), this route continues to be valid, above all if it is the product of a joint view that coordinates federal, state, municipal and private efforts.

But the key to growth in the long term does not reside in the infrastructure, as important as it is (but whose impact is limited in time), but rather in the existence of a political and public policy framework that drives it. There is no other way. This is not an ideological mantra but merely practical: when general measures are adopted the whole population can benefit; when individual measures are employed (often favors), such as those inherent to industrial policy, some win and others lose due to political or bureaucratic decisions.

There are innumerable instances of the former. When high tariffs are imposed on the importation of soles for shoes one would  think that this would favor development of the footwear industry; however, what we have observed in recent decades is that Mexican shoe manufacturers have been dying out because they cannot compete with the imports given that the soles are too expensive. Protection for the one implies the destruction of the others. The same occurs with NOM (Official Mexican Norm), the norms emitted by the government and that frequently serve to protect an industry, or a company, in particular. According to the respective NOM, electrical cables in Mexico must be twisted in a distinct direction from those of the U.S. and Canada. Thus, consumers of these cables have to pay for the privilege of consuming more costly goods than their competitors. Impossible to find a more flagrant example of impervious favoritism.

The important point here is that this type of measure, greatly relished by businesses, unions and bureaucrats, does nothing other than limit the potential for the general economic growth because it hampers productivity from burgeoning and discriminates against those who could be excellent entrepreneurs but who lack the capacity to curb these particular favors.

A growth strategy has as its objective the systematic rise of productivity and for this to happen it will gravitate toward creating general conditions for growth, eliminating preferences and discriminatory mechanisms, revoking formidable regulations (frequently useless and always a source of corruption) and, above all, adopting measures that diminish the costs of creating and opening businesses. Some actions deriving from this general framework are long-term, other of immediate impact, but all must be implemented.

Lowering costs would imply actions such as the following: improve the training of those emerging from the educative system (reduce retraining costs); improve the infrastructure (reduce transport costs); improve security; facilitate compliance with fiscal responsibilities, of the IMSS,  etc.; greater work flexibility (we demand this from the Americans for the migrants, why not for Mexicans?); lowering of tariffs practically to zero; review all regulations with the cost criterion for functioning of the economy; eliminate or drastically reduce the use of subsidies in production; ensure the supply of energy sources at competitive prices; ensure efficiency and competitive prices in providing services. The point is to create the conditions for productivity to grow briskly. There is no other way of achieving this: reform that does not heighten productivity is irrelevant.

These matters take us back to the function of the government in the society in general and in the economy in particular. What I have observed in the months during which the current government has been in power is that it wants to establish itself as the authority in order to impose the rules of the game. This seems to me a necessary and even commendable trajectory. The country has for some time has lacked a sense of direction and the capacity of conducting public affairs. Decisions and actions on diverse fronts are vital, implying a government with the faculties and the capacity to execute its mandate. The question is how the government is going to use this enhanced authority: to control or to make development possible. As the ad says, it’s not the same and it’s not alike.

The country requires a government that as such works not to control the population and its diverse subgroups, but to generate prosperity. For this general policies are needed, that is, institutions, not actions directed toward endorsing the favored groups at the cost of all of rest. Nor does it require a bureaucratic resource allocation system. What are urgent are institutions to exert effective checks and balances without paralyzing the government or the functioning of the economy. Much is at stake with respect to the criterion chosen, but where it’s been going recently will not cut it.

www.cidac.org

@lrubiof

Luis Rubio

The times change, but not that much. I remember a comic strip of Abel Quezada in which he made fun of political reactions regarding the surgical procedure that the Mexican president had undergone. Comparing the precise details published on the surgery that President Reagan had had some time prior and the absence of details in the case of the Mexican president, Quezada cited the responses and reactions that there had been in Mexico: “Healthy operation honors Mexico” one headline entreated. Others read: “Congressmen applaud the operation”, “The economy will be strengthened with the operation: CANACO”, “Fidel states that the operation is positive for the country”, “CANACINTRA and CONCAMIN support the operation”, “The operation: one more triumph for Mexico, asserted Bartlett”. Judging by the reactions to the detention of Elba Esther Gordillo, the country hasn’t changed that much. But what has changed is indeed significant.

In contrast to what Quezada related in the eighties, reactions to the detention of “The Teacher” were revealing of the perspectives, interests and standpoints of today. While the majority of reactions were more like than unalike those of Quezada, one notable aspect was the willingness of many to permit their most intimate feelings to be observed. In the past, everyone held himself in restraint before “Mr. President, Sir”. Today the Head of State is appreciated, admired or criticized but what one (almost) never sees is that manifestation of uncritical discipline that was the prototype of the old system. In a word, the country has matured politically and that in no way detracts merit from the President of the Republic for consolidating his power.

Observing the reactions not only allows one to understand personal or group motivations, but also to evaluate the degree of advance or retreat that Mexican politics has experienced. As would be expected, there was a little of everything. Some reactions were noteworthy because of the perception of power they employed: above all, the inability of the onetime union leader and her acolytes to read the political times. Beyond her personality or the motive that enlivened her exercise of power, what is clear is that “The Teacher” did not understand that times had changed. In my life as an observer of national politics I have come across only three presidents who are men of power and Enrique Peña-Nieto is certainly one of these (the others were Echeverría and Salinas). Not understanding that the former era of Mexican politics was returning ended up being tragic for the teacher. More than a sin, said Oscar Wilde, it was stupidity.

Perhaps the most impressive reactions came from the Panists who, without even a wink, assumed the detention as if it were something personal. Ignoring Mark Twain’s maxim that read “never argue with a fool, onlookers may not be able to tell the difference”, some Panists hailed their wisdom. The legal process will take its course, but it is evident that the charges faced by the now detained teacher will overwhelmingly stem from information gathered throughout the previous administration, and much of it from the very ministry the loudest voice is hollering. Better to keep their mouths shut than to place the poor exercise of the previous administration or unconfessed complicities in evidence. It is revealing of their reality that a good number of Panists were incapable of recognizing that their alliance with the teacher ended up being an example, itself powerful, of all that was distressing and pathetic about their passage through power.

More interesting was the absence of public reaction on the part of the frightened, those that know (or assume) themselves to be “guilty” for their abuse of power or, at least, susceptible to similar actions. Some have not even taken note of this, but for all of the observers –the disinterested ones- of national politics it is clear that the environment has changed and that the rules heretofore will be others. Welcome the discipline and the existence of authority, if they are not arbitrary. A keen analyst warned that there may not have been many differences between the form and charges facing the teacher and those of the Frenchwoman Cassez. For a government for which complying with form is a distinctive and characteristic display of the care with which this process was conducted, whatever follows needs to be equally clean and impeccable. In terms of what is in store for interests or groups – the de facto or veto powers- who have not read into the implications of the detention vis-à-vis themselves, it would be worth it to them to “get cracking”.

The big losers did not hide their feelings. The perennial excandidate may not have liked the current government but understood to perfection that “the times they are a’changin’”. The same appears true of the majority of the teacher’s disciples, minions and sidekicks. All nice and quiet or sending out signs of peace (and submission?) to the president. They reminded me of a big and prominent businessman who, immediately on hearing of the detention of the oil workers’ leader La Quina, caught the first plane out of the country and spent many timorous weeks on foreign soil. He returned when, in an attempt to elucidate his own situation, he called the president’s secretary with some spurious excuse and the secretary picked up on the first try.

This lesson seems crucial to me: the exercise of authority has two possible derivatives. On the one hand, it leads a good number of persons and groups aware that they are vulnerable to quake in their boots. Nothing bad about that, except that fear is a poor prescription for the development of productive activity (as well as political or otherwise). On the other hand, the exercise of authority, if it leads to the institutionalization of power and, with this, to the transformation of the country, constitutes what Weber termed legitimacy. President Peña now finds the choice on his hands of setting himself up in power as all of his predecessors did but without the possibility of transcending, or of constructing a modern country. Power for power’s sake or power for transformation.

In his theatrical work on the relationship among hierarchy, scientific inquiry, politics and truth, Bertolt Brecht explored how distinct actors are reflected in the reality. In the version of David Hare, the most dramatic moment og “Galileo” is when the inquisitor refuses to look through Galileo’s telescope: the Church had decreed that what Galileo said he’d observed could not be there. The inability to see things as they are, even if the consequences are distasteful, is apt to be disheartening and, in politics, tragic.

The teacher’s detention uncorks the opportunity of redefining the direction of the country and constructing the foundations of a modern one, but it doesn’t guarantee it. It would be tragic if it were to end up a mere settling of accounts and not the dawn of an institutional transformation. Of the former there is a surfeit of experiences. Of the latter not a one.

www.cidac.org

@lrubiof

 Luis Rubio

Don Quixote was a simple nobleman, belonging to the decadent lowborn nobility, who sprang from a lineage of ancient wandering knights in the Middle Ages. But the time-worn prestige and power that these men possessed had disappeared with the fall of feudal society, bequeathing no quarter to these antiquated knights. The nobility of old in which they had a rightful place had undergone important changes and, with the birth of the professional army, the only honorable way out for these idolatrized cavaliers was that of enlisting.

Enrique Peña-Nieto’s government represents a project of power, but it’s not evident whether it contemplates one of development. With the detention of the teachers’ union leader (on charges of embezzlement) the government has ventured onto a new stage that frees up a galaxy of possibilities. It is now that we will see what it wants that power for and whether, as in the world recreated by Cervantes, it will adapt to the exigencies of the modern world.

Mexico has experienced a brutal transformation over the last 50 years. From a chiefly rural country, with a population of less than one third of its current numbers, it went on to being a complex, modern, demanding nation full of conflicts and unfinished reforms. Whosoever looks back cannot be other than impressed by that has changed. More than suffice to say that the system of government that had characterized the country fifty years back is thoroughly incompatible and inadequate –and could even be counterproductive- for the present-day reality. But I fear that it’s what the new administration could be attempting.

In this half century the country has experienced a metamorphosis in its economic and political structures, in its social reality, in the governmental-societal relationship, in the growing autonomy of a primitive and ineffective judicial system. We went from a closed and protected economy to one that is a fundamentally open and subject, at least in terms of goods, to market rationale. In politics it proceeded from an authoritarian political system to an incipient –albeit conflictive- democracy. The country has decentralized and the society has multiplied the number and ways it relates with the rest of the world. What practically hasn’t changed is the nature of the system of government.

While the people adjust and adapt to the changing reality because they have no alternative, the government, as generic entity, continues to be guided by ancestral criteria. The government does not dedicate itself to “serving the people” nor is it designed to resolve or address the people’s problems or to promote development. Governmental logic is always one of control, subordination and imposition. A great number of public servants and politicians continue seeing it as a means of political ascent, or as a wellspring of access to corruption. None of this is unusual or novel, but it is certainly incompatible with the needs of an ever more competitive economy or with the criteria of effectiveness proposed in his campaign by the now president. In this scenario, what does the detention of Elba Esther Gordillo mean?

Perhaps the main reason that Enrique Peña-Nieto won the presidential election lies less in his programmatic offering than in the sense of authority betokened by his presence, his history and his campaign strategy. However great the very significant advances over the past several years, the sensation of disorder was growing relentlessly, shielding everything else from view for an extensive number of voters.

The disorder started from at least the dawn of 1994 –at the zenith of the PRI era- with the Zapatista uprising; however, the proliferation of violence, insecurity and the apparent incapacity to achieve the much heralded economic transformation ended up opening the door to whomever offered the promise of reinstating peace, effectiveness y in governmental function and, above all, a sense of order. The visual message was in the end much more powerful than the specific offer.

It was thus to be expected that the president would act forcefully. A president with a vocation for power could not tolerate the perennial and systematic challenge to his authority that “the teacher” had been practicing. Her detention is a clear indicator of the government’s intent to recover its authority in order to govern, something nearly unheard-of since the beginning of 1994.

Whether it recognizes it or not, the government’s leading challenge resides in its converting power into a tool for development. The new team has demonstrated an extraordinary ability to get things done; however, the crux of the challenge is that a system of government does not exist that is liable to create conditions for the permanent development of the society, of the economy and of the country in general. Even in the good PRI years, the country was never governed with an eye to development; it was always organized for the control of the population and administration of power. I ask myself whether a government holding as its model the old PRI era’s most successful president –Adolfo López-Mateos- will construct a system of government that is appropriate for the present era, radically distinct from that of those bygone years. The detention of the leader of the teachers in Mexico opens up the possibility, but is not a guarantee, of its converting this into an opportunity.

As the number of deaths and economic difficulties that increase daily illustrate, the enormous success of the debut of the present administration in its first months cannot make the reality of the country nor the problems besetting it disappear. The fact of being in the process of building the legal scaffolding  (such as the law of appeals) and the image of power (such as acting against “the teacher”) permits the government to deal with the problems, groups and interests that keep the country paralyzed and confirms the project of power. But establishing and imposing the authority for which many Mexicans are eager is indispensable, but not a substitute for a modern system of government, befitting the circumstances of today.

From my perspective, the great deficit of the most recent governments was due to the inexistence of a strategy of development, but above all to the total absence of the political capacity for carrying out the changes that the country requires, that is, what the politicians do to reach deals and get things done. The Peña-Nieto government has exhibited a surplus capacity for this. The sum of legal and political instruments that the government is amassing with the evident capacity to make use of them to advance its aims implies that there is one half of what’s needed: the half that was found lacking in the prior administrations. Without that, this government would be akin to the former administrations and would not entertain a better prognosis for success.

The president has begun to take charge. Now we will start to see what he wants and how he will employ the new found power. If he achieves the fusion of a vision of development with his new powers,  he could end up replicating the success of the administration that he has employed as a model, but with a version that is applicable to and viable in the XXI Century.

www.cidac.org

@lrubiof

FORBES- Luis Rubio

How times change! Years ago, the quip that financial market operators chuckled over was that “Latin American countries are geometric because they have angular problems that are discussed at roundtables by large numbers of square people.” In recent months the same can be said of the U.S.

The financial situation of that country is pathetic and highly dangerous and, nonetheless, its population as well as its politicians act as if there were no problem at all:  The reason there is no sense of urgency is that its debt is denominated in its own currency (the dollar), thus they are not confronting an imminent devaluation. In Mexico’s case, between the seventies and the nineties, the fiscal disequilibria in which we incurred translated into acute devaluations that exerted the effect of raising the value of the debt suddenly and disproportionately.

Under infinitely less serious conditions, Mexico had no alternative: the crisis obliged us to carry out an adjustment that would restore stability. With a high debt denominated in dollars, the devaluations led to economic collapse. Achieving the stabilization of expectations from the end of the nineties was no small feat, even though it would not be sufficient for a strong recovery. The Americans have not lived through a crisis of that nature, which has allowed them the (dubious) privilege of thinking that they can steer clear of a deep fiscal correction.

Financial disequilibria are unsustainable because they absorb the society’s resources that, were there none, would be devoted to consumption and investment. More importantly, sooner or later the creditors of the debt will refuse to continue financing the deficit, which will trigger a severe rise in interest rates and defaults or other responses, which could include exchange controls. While it perhaps would last longer than what happened in Mexico, the disequilibria will eventually force an adjustment and will cause a downturn in economic activity. Under distinct circumstances, that is what is happening in Europe. Eventually it will happen in the U.S.

Despite this obviousness, the discussion in the U.S., where in recent weeks they’ve been playing hide-and-seek about the matter, is concentrated on what Walter Russell Mead calls “ideal models” that suffer from the lack of any realism whatsoever. For this observer, the Republicans live in the era of the end of the XIX Century –low taxes, high growth, limited governmental participation in the economy- while the Democrats inhabit the world of the fifties of the past century: growing social programs with a demographic pyramid capable of financing them. For Mead both are out of sync with today’s world in which the expenditure is excessive and the retired population grows rapidly, all artificially financed by the Federal Reserve.

Perhaps the most important question would be why, under similar circumstance (at least conceptually), Mexico had to carry out monumental adjustments, while the Americans haven’t? Just for illustration, in the eighties, Mexico’s entire governmental expenditure diminished by nearly 12 percentage points with respect to the GDP: a brutal adjustment in public finances. It’s not that Mexican politicians or the expenditure’s beneficiaries were happy about it: the reason for its happening was that there was no alternative. It was adjustment or chaos.

But that’s not how it’s perceived in the developed nations that today exhibit disequilibria even greater than those characterizing Latin American nations in the eighties. The privilege of not confronting an immediate crisis has led the politicians of those nations (and their populations) to think that the party can last forever and that there is no cost or consequences for incurring enormous deficits or reaching debt levels higher than their total GDP. That notion that there are alternatives and that the public expenditure can continue to rise is so generalized that it should scare us all. As Any Rand noted at some point, “You can avoid reality, but you cannot avoid the consequences of avoiding reality.”

And just what could these consequences be? The first and most obvious is that the longer society’s resources are re-routed to finance the deficit (identical whether via taxes or greater debt) the less (or negative) the economic growth and the greater the unemployment. In societies with growing populations of retirees this may not be perceived, at least at the short term, as very alarming, but in younger societies, such as those of Spain and Greece, the impact is dramatic and can be appreciated in unemployment rates of over 50% among the young.

Perhaps the worst implication of phenomena such as the “fiscal cliff” or the “sequester” is not an immediate economic matter, but rather the fact that governments have ended up crippled by the enormous amount and power of the myriad interest groups that prey on the budget, that pay no direct taxes, and that expect attention exclusively to their interests. That is, the grand theme is that of governability: how to solve basic problems in the face of such powerful interests.

Evidently there are solutions to fiscal problems that are currently exhibited by developed nations. In technical terms it is not difficult to envision the areas on which the adjustments could be concentrated, nor would it be difficult to identify the costs of budgetary cuts or changes in taxes with respect to others. But, as depicted by the case of the VAT in Mexico, the matter is not economic but rather political. The sole reason that Mexico’s public expenditure was able to be cut so drastically in the eighties was that the circumstances –the reigning economic chaos- made it inevitable.

And even so Mexican politicians did not learn: it took an additional decade –and another mega-crisis, this one in 1994,  for the need for macroeconomic stability to be accepted as a requisite condition for economic functioning. Evidently, the stability of fiscal checks and balances cannot be an end in itself, but our experience demonstrates it to be a conditio sine qua non.

I’d never thought that governability –in this case depicted in the fiscal ambit- derives from factors that make it inevitable to act. Mexico has demonstrated an enormous capacity for response when it has no options. The problem of the developed countries is that they think that they do have them.

www.cidac.org

@lrubiof

Luis Rubio

What would make a government successful: the consensus or the results? The government of President Peña won an election legitimately, which would allow it to govern with full endorsement. However, Peña has been working to bring the opposition forces into a political pact with his own PRI: that is, he prefers a consensus to a legislative majority. Without doubt, a government that achieves transforming a country with the support of the whole of the relevant opposition parties would break with decades of deadlock and pessimism and would afford new impetus to development. And it is precisely for this reason that this is quite unlikely to occur. But not for this should the effort be abandoned: yet the president should ensure that the search for consensus does not paralyze end up paralyzing his government.

There are two ways of conceiving of a consensus. One, as statesman Abba Eban once declared, “a consensus means that everyone agrees to say collectively what no one believes individually”. On the other hand, the philosopher Maimonides affirmed that “the truth does not become truer if the whole world were to accept it; nor does it become less true if the whole world were to reject it”. The Pact that achieved articulating the government broke with years –or decades- of recriminations, established a common agenda in which all Mexicans can participate and dealt a sense of direction to the government itself. The leaders of the parties who accepted to join forces behaved as statesmen, but it is also necessary to recognize that they assumed the enormous risk that the wager agreed upon regarding the transition would fail. Taken together, it is impossible to minimize the political and symbolic value of the masterstroke.

Nicos Poulantzas, a political philosopher, said that alliances suffice as long as they satisfy the objectives and interests of those participating in them and that the winner is always the one who breaks them first. On pursuing this logic, the PAN as well as the PRD would be running the tremendous risk of being used by the government mercilessly because, save for a catastrophic error, there’s no way that, in a presidential system, the opposition could amass sufficient power to be equal to or overtake the president. On the other hand, the existence of a basic agreement on the direction of development is ideal for the president –and the country. It’s a win-win situation. Would there be a way to reduce the risk for everyone while simultaneously constructing on the platform of the pact?

Let’s begin at the beginning: Why procure a consensus? Given the polarization that has characterized the political debate in general and on development in particular –crisply reflected on the electoral plane-, the answer would appear obvious. However, in reality this concerns a political artifice of dubious validity. Of course, the existence of a shared course constitutes an asset of immense worth for the country because it confers certainty on the citizenry and the business community, thus creating development opportunities that are inconceivable under other circumstances. At the same time, no one is served by a straightjacket that leads the government to postpone the reforms it considers priorities -as has been happening- or that entail civil war within each of the opposition parties.

The search for consensus derives from the origin of the PRI. As the coalition of an array of dissimilar forces, the old PNR (PRI’s predecessor founded in 1929) constructed mechanisms –starting with the “unwritten rules”- for processing decisions and maintaining a semblance of unity. But the true strength of the consensus was the regime of loyalties that maintained all PRIists focused on the promise of eventual assumption of power or access to the wealth (i.e. corruption). As long as the system complied in a sufficient number of cases in keeping the promise believable, the consensus was unbreakable.

Things changed with the fiscal crises and the economic hecatomb of the seventies and eighties. The definition of consensus changed: as the PRIist governments lost their legitimacy the need for support from outside the party lead to alliances outside PRI. In that era, it became possible to advance only with the cooperation or the opposition -mostly with the PAN. The product of this stage, certain key reforms, especially electoral reforms, eventually led to equitable electoral competition. That era concluded with the defeat of the PRI in 2000. Today the Peña-Nieto government enjoys full legitimacy, originating directly from the ballot box and does not require consensus to be able to function: a legislative majority should suffice. In fact, in a democratic system, the quest for consensus reflects one of two circumstances: that the government does not feel legitimate or that it seeks the support of the opposition parties through the pact to reduce its own costs or to dilute the reforms that it is presumably negotiating.

Whatever the case, in its current form, the pact will probably not withstand the inherent tensions. If the government intends to “blame” the PAN or the PRD of what corresponds to it, these parties will end up going their own way; one possible indication of this are the alleged electoral alliances (at state level) for this year. On the other hand, if the objective is to water down the reforms for the benefit of the de facto powers close to the PRI, the result will be catastrophic for the government itself, which will fail in its purpose to accelerate the growth of the economy. In other words, the collapse of the pact would be advantageous for no one –starting with the government. The question is how to avoid it.

The solution might be found in something that Maurice Duverger, a political theorist, explained decades ago: to conceive of the pact not as a straightjacket but rather as an arrangement between the government and the “loyal” opposition, a term he employed to identify parties that recognize the legitimacy of the government but that compete openly for the power. That is, there is a need to increase the flexibility of the notion of the implications of subscribing to the pact so that all those participating in it share the general objective and the agenda but do not need to be part of every single legislative vote to implement it. Circumstantial legislative alliances would make it possible to advance the agenda without risking the pact. With such an arrangement all run the same risk and all share the potential benefits. The pact becomes more equitable, thus functional.

The idea of the pact is brilliant. It permits creating an environment of trust and consensus. It breaks, in one accord, with a decade and a half of botched encounters and polarization. At the same time, it establishes a passageway that all parties and political forces can make their own. But no pact can be a substitute for the government or for the responsibilities –and costs- of governing. The pact constitutes an investment on the part of all of the co-signers, but above all on the part of the opposition parties, who know that they can be left hanging from a thread at any moment.

It is possible that the government harbors the hope that the pact will serve to avoid carrying out reforms or to make them less costly for its constituencies: the unions and other so called veto or de facto powers. Were it thus, sooner or later the government would end up banging its head against the wall. There’s no progress without investment and there’s no investment without risk. There are ways out, but only if the government recognizes that the way it’s going won’t get it there

www.cidac.org

@lrubiof