Luis Rubio

All the evaluations of the problems of the Mexican economy usually include: lack of credit, industrial plant competitiveness and the competition from (mostly Chinese) imports. Each of these symptoms possesses its own dynamic and structure of causality; what the three have in common is that, at heart, it’s the same problem.

First off, credit. A permanent perennial complaint of business, and not a few politicians, is that referring to the Mexican economy’s relatively low level of banking penetration and, above all, the participation of credit as a percentage of the GDP. Participation of the Mexican banking system in the economy is less than in other similar economies but there are reasons that explain the difference. In Brazil, the total credit amount given to persons and businesses represented approximately 60% of the GDP in 2012, compared with 27% in Mexico. Of this 60% in Brazil, the BNDES development bank represented 21% of the GDP, that is, one third of the total credit. Taken as a whole, everything would indicate that one explanation of Mexico’s growth problems derives from the absence of credit.

More careful analysis reveals transcendent factors. On the one hand, in contrast with private banks, BNDES has taken enormous credit risks and has assumed huge liabilities of private companies. Many analysts anticipate that much of its portfolio will end up on the list of bad debts. Time will tell. With this, the numbers that are indeed comparable are 49 vs. 27, that is, a difference of 22 percentage points, not few, and that perhaps is basically explained by the nineties’ banking crisis in Mexico, which generated a financial culture much less risk-tolerant than that which formerly existed. But there is another factor that is much more revealing: the issuance of credit to both large companies and consumers is similar to the Brazilian numbers. The great difference resides in the small and medium industrial sector, where credit is all but not extended in Mexico.

The productive plant’s low competitiveness is perhaps where the main problem of national industry resides. If one listens to the sector’s businessmen, the explanation alludes to a matter of credit, the absence of support and protection on the part of the government, the informal economy and smuggling, that is, the third factor. The credit issue is real but circular: there is no credit because companies are not competitive and they are not competitive because there is no credit. The banks affirm, rightly so from my perspective, that it is not possible to extend credit to enterprises lacking a viable and competitive investment project, one likely to make these companies successful in a globalized economy. The demand for protection in the form of subsidies and tariff and non-tariff barriers to trade (a demand ever more successful in this administration) confirms what the banks say: that these companies are trying to stay alive not through their ability to produce good products at fair prices that the market demands but rather by means of protection granted to them by the government with respect to their competitors. Increasing credit through Mexico’s development bank NAFINSA would not address this problem.

In its essence, the country’s industrial problem is a mismatch between theory and reality. Up to the eighties, the structure of the Mexican economy was not very distinct from that of the Brazilian one. The development model adopted after WWII was oriented toward promoting industrial growth by means of subsidies and protection from imports. The objective was to achieve the growth of a powerful local industry through import substitution. The model favored the producer over the consumer and ended up creating a negligibly competitive industry that typically produced high-priced, low-quality goods. In the eighties, the Mexican government opted for trade liberalization with the objective of heightening the competitiveness of the economy and, through that, improving the quality and price of the goods it produced, but above all facilitating a rapid growth in overall productivity that would translate into better and higher paying jobs.

Behind the decision to liberalize lies a well known principle among scholars of the economy: that of the comparative advantage. On one occasion, the mathematician Stanislaw Ulam asked the economists’ dean of his era, Paul Samuelson, whether there were an economic principle that was, concurrently, universal and not evidently true. Samuelson immediately responded with David Ricardo’s principle of the comparative advantage, developed in 1817. Under this principle, what’s important for an economy is not its absolute capacity and ability to produce goods, but its relative capacity and ability with respect to others.

Although a country produces many things, each economy is more efficient in the production of some goods than others. Under this premise, international commerce leads a country to specialize in some type of goods that it also will export, while it imports others in which it is less efficient, thus achieving a greater level of well-being. The principle is well established and there is no doubt of its functioning. The problem is how to apply it in an economy operating under the premise of the virtual inexistence of international trade, our case until the eighties.

According to the economic theory, on liberalizing the Mexican economy, the country would have specialized in a certain type of goods (such as electronics, automobiles, engines, aviation fruits and vegetables, meat, etc., that is, all of the sectors in which Mexico is brutally competitive as an exporter) and would have abandoned other sectors in which it does not possess comparative advantages and that only existed as the result of the protection and subsidy strategy of before. Some of this did occur, which explains the disappearance of many enterprises in sectors such as toys and textiles but, thanks to the persistence of direct and indirect protection mechanisms, many companies that normally would have had to transform themselves or perish are still functioning. A few benefit at the cost of a general lesser growth of the economy.

The country is facing a dilemma that has not been resolved since the moment trade was liberalized, nearly thirty years ago: entering full speed ahead toward the construction of a modern productive plant or persisting in the protection of one sector that, as such, has no future. It can persist, but the cost is growing and can be measured in the form of bad and poorly paid jobs, low levels of economic growth and, above all, minimally productive jobs that inevitably pay the poor salaries.

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

The Christian Science Monitor –
Opinion- April  17, 2013.

  Opinion

The Mexican government cannot afford the luxury of ignoring what is happening on immigration reform in the big and powerful North. And yet, it has taken a passive attitude. There are good historical reasons for this, but not a good one today.

By Luis Rubio / April 17, 2013  

Sens. John McCain (R) (left) and Chuck Schumer (D) walk away after speaking to reporters about their meeting with President Obama on a bipartisan immigration reform bill April 16. Oped contributor Luis Rubio writes: Mexico ‘should be willing to commit to a broad migratory arrangement whereby it would control the flows of future potential migrants moving from or through Mexico’s territory.’

Kevin Lamarque/Reuters

MEXICO CITY

The Mexican government cannot afford the luxury of ignoring what is happening on immigration reform in the big and powerful North. And yet, it has taken a passive attitude. There are good historical reasons for this, but not a good one today.

Within the Mexican government as well as in Mexican society at large there are two clearly differentiated positions vis-à-vis the immigration debate in the United States. Some people consider the migratory theme an internal matter of the US and some consider it a matter of national interest for Mexico. The former would prefer to put on blinders; the latter would embark upon a crusade. Each has relevant arguments to support their claim.

OPINION: 3 views on how US should combat illegal immigration

Those who would rather stay aloof believe that immigration is a domestic issue because it involves what is most essential to any nation: the composition of its society. A sovereign government has the authority to decide on the legal treatment of people that may have violated its laws at the very instant of entering the country or when overstaying the time permitted on an entry stamp. Those taking this position do not want to tell the US what to do because they don’t want the US to tell Mexico what it should do on this or other hot topics.

Then there are those who see the other side of the coin. More than 10 percent of the country’s population lives outside of Mexico, the vast majority of them (97 percent) in the US. This constituency is directly linked with a large part of the population (siblings, parents, children) back in Mexico. In some Mexican states, those connections represent more than half of the total number of its inhabitants. The government cannot ignore the obvious. Whatever decision the US ends up making on immigration, Mexico and Mexicans will be greatly affected. Hence, as much as the government might wish to lie low, this debate concerns vital matters that cannot be skirted.

As a result, Mexico’s government seems to be straddling both views. On the one hand, the government is preparing Mexican consulates (a network of 51 offices directly linked to Mexican communities in the US, including Puerto Rico) to inform those potentially affected of the possible legal changes – and of their rights. Second, it is actively stating its position and preferences and, most likely, proposals that would help control future flows of workers in exchange for a broad liberalization for those already in the US. Finally, it is preparing to work with communities that are most affected by migrants in order to allay fears and advance its own perspective on the matter.

A decade ago, Mexico’s government went out on a limb trying to advance legalization of those Mexicans working without papers in the US. Although there are disputes as to how advanced that process was, the fact is that September 11, 2001 ended all discussions and the then-Mexican president, Vicente Fox, was left with nothing to show for his efforts.

The current government wants neither to bet its success on decisions made in another country, nor to exert undue influence on the political process of a sovereign nation. In between these two positions, it is attempting to find a way to be a partner in the solution of a problem rather than the cause of one.

Mexico’s government needs to make the case that migrants move North because there is demand for their labor there. Since there is no welfare or unemployment support for this cohort, people go when there are opportunities. There have been no work opportunities in the last few years and, therefore, potential migrants have stayed home. If Mexico’s economy continues to improve, there will come a time when no Mexicans will move North. By the same token, as long as there is demand for low-skilled workers, they will continue flowing from Mexico or other nations. For the immigration reform to be successful, this reality needs to be incorporated into the new law.

OPINION: Immigration reform needs flexibility on work visas

As the Mexican economy attempts to create the foundations for a strong economic-growth era, the interest of the Mexican government is for Mexicans already in the US to secure a decent life. If that is secured as part of the US immigration-reform process, Mexico should be willing to commit to a broad migratory arrangement whereby it would control the flows of future potential migrants from or through Mexico’s territory, whether they be Mexicans or other nationalities.

Mexico’s government has never attempted to manage or hinder the flows of Mexican migrants to the US, considering that it is the constitutional right of any citizen to move about unimpeded. Committing to a change in this policy would entail a radical departure from Mexico’s history as well as establish a transcendent legal precedent. The government would also be committing to stem flows not only from countries that are of concern to the US – Middle Eastern and the like, which it has controlled at least since 2001 (several Mexican immigration jails are full of migrants from all continents) – but also from Central American nations that do not constitute a security threat for the United States.

If Mexico commits to stemming immigration flows to the US, it could become a major source of stability for the immigration policy that the US decides to adopt. In fact, it could help the US establish a more rational and realistic mechanism to regulate migratory flows, just as other nations, such as Canada and Australia, do.

Luis Rubio is chairman of CIDAC, Center of Research for Development, a think tank in Mexico Cityand a writer of more than 40 books on Mexican politics and economics. He writes a weekly column for Mexico’s Reforma newspaper.

http://www.csmonitor.com/Commentary/Opinion/2013/0417/Mexico-should-take-a-more-active-stance-on-US-immigration-reform?nav=87-frontpage-entryCommentary

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