A mature society, democratic and functional –the sine qua non for economic growth and peaceful coexistence- can only exist when effective checks and balances have been constructed. The problems that Mexico encounters these days, and that without doubt will confront the next government, derive from this fundamental void.

The president elect offered in his campaign something that Mexicans crave: an effective government. That offer corresponds directly to one of the greatest lacks of recent decades: there have been governments of distinct characteristics, but with very little capacity of execution, that is, they were hardly efficacious. The problem is that efficacy not only depends on executive talent in an administration: equally transcendent is the institutional context within which it operates.

Seen through the optics of the team that prepares itself for governing, the last thing it wanted was restrictions to its capacity to act. The best scenario for them would have been one of absolute control of the legislative branch for it to devote itself to “what is relevant”, to decide and to act. To leave to one side discussion and the blah blahblah (as PRIists previously referred to Congress) to do everything that was urgent for the country.Fortunately, both the electoral result and the recent evidence with the labor bill make it impossible to advance without negotiating a grand agreement based on the careful orchestration and summing up of disparate interests.

The government-to-be has thus the unique opportunity to change the current reality: to build the institutional structure that eluded the PRI through the 20^th century, a country of institutions. The irony is that what a PRIist government will be required to carry out is that this would have been more natural and logical for a historically opposition government.

Constructing checks and balances should not be observed as a concession to the society or to the opposing parties. In the campaign, the PRI candidate himself encountered the vicissitudes of diverse power groups that attempted to impose positions on him and to limit his perspective. That is what any society characterized by diversity and dispersion (political, geographical, economic) entails. Some of these powers flexed their muscles in the last months, but that was just a taste of what’s sure to come. Little by little each of these will begin to attempt to impose its preferences, forcing the new president to respond. At that moment he will come to grips with a fundamental fact: the existence of checks and balances is good for everyone.

In its essence, a society with checks and balances implies that no one can impose their will on the rest: the president cannot impose his, the television networks cannot impose theirs, the unions and their leaders cannot impose their, big business cannot impose theirs, the political parties and their perennial candidate cannot impose their. In sum, no one, from the government to the most modest of citizens -and including those (frequently brutal) de facto powers – can impose their will. The existence of checks and balances implies that the society is institutionalized, a circumstance that limits everyone across the board.

The great challenge of the Mexican society is institutionalization and this is nothing other than the development of checks and balances. When there is an effective system of checks and balances, each of the society’s actors and powers knows what to expect and, more importantly, finally recognizes that only joint action can achieve progress. The system wins when everyone wins, not when one can impose his terms on the others. It sounds like a fairy tale, but this is the essence of democracy: it only works when there are solid institutions that confer functionality on it.

When there is equilibrium the parties become the gears of a grand machine that makes society work. This equilibrium does not result from imposition from the central power, but rather is a product of a negotiation by means of which everyone ends up constructing the best arrangement possible. Unfortunately, despite that there were times (above all with Fox) when an arrangement of this nature could have been constructed, it never came about. Now this arrangement becomes not only crucial, but necessary. Necessary so that the next government can be both effective and successful.

The great challenge of institutionalizing the country consists of constructing checks and balances that, respecting the rights of all the powers, marks lines in the sand so that none can abuse the rest. That is, this requires a political negotiation that yields the best arrangement possible in which all fit but with delimited rights and power.

An arrangement of this nature does not imply the expropriation of rights nor imposition although, as in all political processes, it entails concessions and exchanges: precisely what the President elect has begun to do during this transition phase. What it does imply is an implacable and merciless devotion to the institutional, where the objective is a political arrangement that grants functionality on the system of government. This is about what we have not had since the eighties, a decade in which the old and by then exhausted Callista-PRI pact collapsed.

The efficacy of a government can be measured by the speed of its response, something that today’s president-elect Enrique Peña-Nieto demonstrated plenty of as governor. However, from the optics of the presidency, efficacy acquires a very distinct function to the extent that the strength of a country is not only gauged by the daily efficacy of its government but by the capacity to resolve long-term problems, as well as by the solidity of its institutions. Taking this to its most elemental example, while at the state level the approval of a governor can be sufficient guarantee for carrying out a determined investment that will begin and end during the governor’s mandate, at the federal level what counts is the reliability of the judicial processes, compliance with contracts and, very particularly, the impossibility that a company, union, a political group or a public power can abuse the others. Anyone who remembers the way that some of those “de facto powers” responded in the face of the mere possibility that the government might bestow a concession on a third television chain knows well that the Mexican political system will not be trustworthy as long as there are no checks and balances necessary to ensure that no one can abuse or impose their preferences on the rest.

The essence of what the country requires resides not in the approval or reforms of more laws (though that may be an outcome of the process) but in the construction of political agreements that lead to the transformation of the government (for it to be truly effective), to the legitimacy of the winner in the election and, as counterpart, to the legitimacy of the opposition and to the creation of an effective accounts-rendering regime. When Mexico has this, investment, employment and wealth will not stop thriving.

www.cidac.org

@lrubiof

The national “commentocracy” has a natural inclination toward Democratic candidates and more so on this occasion. President Obama irradiates enormous attractiveness, almost magnetism, and a personality that inspires as much due to his history as for being the first Black president of his country.Romney, on the other hand, has been presented in the media, there as well as here, as a radical Right extremist. Recent weeks have demonstrated that neither of the two biographies rings very true. Further afield than the preference that anyone in either country may entertain because ofthe candidate’s ideology or personality, my concern and perspective is more about the potential impact of each of the two options on the Mexican economy.

I have never understood the Mexican proclivity for preferring Democratic over Republican candidates, above all because, beyond the rhetoric, there is no evidence that one of these would be better for our interests than the other. With respect to political and legislative issues (such as migratory, drug and arms matters), the influence of an American president is relatively minor. Bush (George W.) as well as Obama promised a migratory reform, but neither achieved one being passed by Congress. In contrast, the impact of the U.S. economy on ours can be dramatic and this does not depend on any benevolence toward Mexico but rather on the conjunction of institutional and executive actions and strategies directly devoted to the welfare and development of the Americans themselves.

As in so many other things, perhaps no one explains the way that American politics work better thanAlexis de Toqueville, the French scholar who visited the U.S in the XIX Century and penned observations of prodigious farsightedness: “Long before the appointed moment arrives, the election becomes the greatest and so to speak the sole business preoccupying minds…. The entire nation falls into a feverish state; the election is then the daily text of the public papers, the subject of particular conversations, the goal of all reasoning, the object of all thoughts…. As soon as fortune has pronounced [the victor], this ardor is dissipated, everything becomes calm, and the river, one moment overflowed, returns peacefully to its bed.” The U.S. presidential elections will be over on November 6 and what happens after that will be what’s relevant: how it went for usin terms of the economic policy of the next administration.

The electoral dynamic changed radically over recent weeks for two reasons. First, and most important, because Obama lost the aura that protected him. For four years –in fact, throughout his (relatively) short political career-, Obama profited from his capacity to emanate that charisma that characterizes him and that allowed him to avoid having to defend or fight for specific actions or decisions. Perhaps nothing illustrated this better that his manner of handling the stimulus package at the beginning of his government: instead of advancing his priorities or those that his team considered those most likely to generate the greatest and speediest impact (the objective of any stimulus), he let his Party members in Congress determine the agenda, a circumstance that translated into an enormous dispersion of programs, many of these short of significant impact. But none of this appeared to affect Obama the candidate until he was unable to defend himself in the first debate. Although he recovered partially in the following two, the aura of invincibility had vanished.

The second reason that the presidential dynamic has changed is, simply and utterly, that Romney cast aside the radical farce that he devised to win his party’s primary-election showdown and has presented himself as the pragmatic, flexible and adaptable businessman that he is. I don’t know how good would it be for a businessman to occupya politically charged post of such decision-making transcendence, but what does appear evident to me is that his experience is, at least at the conceptual level, absolutely relevant for the present moment. Assuming that Romney would not to repeat the excessive expenditures of his Republican predecessors, Romney’s pragmatism would allow him to engage in the bipartisan agreements that are urgent in his country.

What the U.S. economy requires is the type of restructuration that the Mexican economy carried out, above all in matters of public expenditure, in the eighties and nineties. The rising trend of indebtedness due to Medicare and Social Security is of such magnitude that, on not resolving this soon, the U.S. will enter into a permanent, Japan-type, depression, dragging us along with it. Romney doesn’t seem to be a genius, but his professional experiences bringing off business workouts, and transforming bankrupt entities into profitable and successful projects are exactly what the U.S. requires today. In contrast with Obama –who little by little has been undermining what made his country’s economy so successful-, Romney offers at least the possibility of focusing on what is transcendent and likely to drive the growth of our economy.

Obama’s experience in the presidency as well as prior to that is totally shallow and alien to these matters. If one reads his books, his agenda is social and political more than economic. But the best evidence that he represents the least attractive option for us is the economic performance of recent years.It is evident that Obama stepped into a chaotic situation, but his strategy and actions have not improved it. He has achieved stabilizing the economy, but has not accomplished convincing his own society, starting with the American business community, of his policies. Unemployment remains at stratospheric levels, the deficit continues to rise and there is no program designed to confront either this paramount issue or that of the debt, even within a period of decades.

The defense that Obama brandishes of his performance is that things would have been worse had he not acted as he did. Although not a bad campaign argument, it is one that is impossible to prove in logical terms. What is indeed evident from the Mexican experience of financial crises is that imbalances sooner or later (sooner in ourcase) wind up deranging the economy. That hasn’t happened to the U.S. because of its size and importance and, no less importantly, because there are not many alternatives: the Europeans and Japan are worse off. However, if unattended, when the imbalances catch up with them, the cost will be dramatic.

Because of the latter it is so important when and how the Americans begin to face their structural problems. If Obama has proved anything, it’s that he doesn’t have a viable proposal. Romney hasn’t been convincing in this respect, but he undoubtedly understands perfectly well that the current reality is unsustainable and this, under these circumstances, is much better for us than staying the course headlong toward the precipice. What there’s no turning back from is that our future depends on how and when they act, the election thus being as transcendent for them as it is for us.

www.cidac.org

@lrubiof

The ongoing discussion on Mexico’s labor law offers us an exceptional window onto the world of unreality in which the whole of Mexico’s political class lives. Although there are doubtlessly many interests and values involved, not an iota of the debate has been concentrated on the only three things that are important in economic matters: creation of sources of employment, growth of productivity and connecting the manufacturing sector to that of exports. These are the three axes that matter and on which the attention of the Congress and of the next government should center.

Unfortunately, the discussion appears to be more of a combination of Alice in Wonderlandand aKafkian vestige of bureaucratic unreality.As in Alice, it arises from assumptions that have nothing to do with the reality.As with Kafka, it assumes that the status quo works and generates high economic growth rates and keeps the whole society satisfied.

We tend to prefer grandiose and complex solutions when much of what differentiates Mexico from economies that grow with dispatch refers more to regulations and quotidian stumbling blocks than to great constitutional reforms. In economists’ terms, the country’s growth problems have much more to do with affairs of the microeconomy(the overwhelming majority of which are under the control of the Executive branch and state and municipal governments) than with the Legislature.

If we accept that the paramount objective is raising the economic growth rate as a means of creating job sources and increasing satisfiers for the population, then all of the government’s action (in the broadest and most comprehensive sense of the term) should be addressed to creating conditions for this to occur. Certainly, there are many elements of action that can be undertaken to achieve this. Among these are public expenditures and infrastructure projects, as well as the assortment of reforms that is commonly bandied about (such as energy and taxation). While indispensable, these reforms and tools do not always lead to a more substantial growth rate.

Much more relevant for growth is the array of obstacles that confront business enterprises and potential investors for developing new projects and making successful existing ones. The economy is the sum of millions of decisions that consumers and the producers of goods and services make every day. Everything that impedes or affects these decisionsimpacts the level of general activity of the economy.

The bill approved by Congress in labor matters is a good example of what works and what doesn’t: on the one hand, the bill that materialized from the Chamber of Deputies opens spaces for novel ways of contractingpersonnel that, in time, would foster greater dynamism in labor relations. Things such as contracting on a trial basis, dealing with unpaid salaries during a strike and flexibility in the training of personnel allow greater competitiveness for companies, thus these should be welcomed. However, it seems to me that the pertinent question is whether these changes would make the formalization of companies that opted for this other world of the economy –underground- more attractive. There is vast evidence that the majority of jobs worldwide are created in small and medium enterprises, the overwhelming majority of which belong to the informal economy in Mexico. To what extent does this legislation contribute to attracting these enterprises to formality? This should be the gauge for success and for the relevance of a new law in this matter.

As I mentioned at the outset, the crucial issues for growth of the economy are productivity, jobs, and the linkage of the “traditional” manufacturing sector with that of exports. This concerns three issues of very distinct characteristics and dynamics, but in their entirety resides the key to growth.

Productivity is the result of all of the efforts made by the producers and of the obstacles imposed against these by the environment.On employing their tools  -such as the technology, production methodology and labor relations- the entrepreneur produces goods and services. Any change or obstacle in these elements increases or decreases the businessman’s costs, thus his/her capacity for producing better goods, at a lower cost and of better quality. The milieu in which companies operate determines their capacity to compete in the market. The smoother the environment the lower the costs and the more potential for raising productivity, the crucial factor in the creation of sources of employment and in the compensation received by workers and employees.

When one compares the environment in which a Mexican business concern operates with that of its competitors, the panorama begins to cloud over. There is no need to dig too deeply in order to identify the sources of the problem: import-tariff dispersion, discriminatory subsidies, selective protection (against imports), criminality, red tape, contraband, the cost of services, traffic, bureaucracy, etc. If one observes these factors in countries such as China, Korea, Chile and others with whom Mexican companies compete, the problem immediately becomes evident. And the solution to all of these depends not on great macroeconomic reforms but rather on small regulatory changes, transformation of the modus operandi of local and state governments and much greater competition in internal markets. Nothing legislative in all this.

Perhaps there is no issue of greater relevance for short-term growth than that of the ties of the manufacturing with the export sector. The Mexican economy is characterized by the existence of two distinct manufacturing sectors, which are nearly divorced from each other. Instead of domestic industry becoming the supplier of the export industry, the former has stagnated and ended up dependent, in good measure, on formal and informal protection mechanisms. A good microeconomic strategy would lead to the liberalization and deregulation of the manufacturing sector and to the creation of mechanisms that drive the shaping of a formidable industry of suppliers, by both domestic and foreign enterprises. Perhaps there is no better opportunity for growth of employment as well as of production in the short term.

Employment depends on the existence of favorable hiring conditions for companies. The best jobs are formal ones that, in addition, are those exerting the strongest influence on the economy’s long-term development.From there the importance of simplifying the fiscal and regulatory environment, as well as that of labor, to drive the expeditious creation of formal enterprises.Nothing like terminatingAlice’s dreams and Kafka’s realities.

www.cidac.org

@lrubiof

After the storm comes the calm. The country has for years experienced an escalation of violence that is intolerable for the population. The outgoing government responded with responsibility and with conviction but not with a strategy apt to steer the country into a good port. The population supported the government because it felt threatened, vexed, and abused, but not because it perceived an improvement now or in a reasonable future. Worse yet, inasmuch as the criminal bands break up and multiply, the losers are the citizens because narcos displaced in the wars among themselves end up moving into criminal markets, those that directly contravene the most vulnerable citizenry: extortion, abduction, and the protection racket.

From this perspective, it makes no sense for the incoming government to heed calls from the Calderon administration to continue pursuing a strategy that does not deliver the desired results. The notion that endless battering will recreate an idyllic past seems no different from an attitude reminiscent of when Don Quixote recalled times past, the splendor of knights in shining armor at the apex of their dominion, solacing the spirit with memories of the age-old feats and deeds of medieval gentlemen-soldiers. What’s salient and valuable of the current strategy dwells on the fact of confronting a problem that undermined the life of the citizenship and the viability of the State. Based on the lessons of the past few years, the future will require a different approach.

Although the objectives set forth by the government to combat crime have varied, the strategy has remained constant. The scheme followed to date has been clear: take control of the regions that have ended up in the hands of the narcos and decimate the criminal cartels. Although both components have advanced, the results are not praiseworthy: first, there have been unanticipated consequences and, second, the few victories that have been achieved have not been sustainable. Among the unanticipated consequences the most evident concerns fragmentation of the criminal bands: every time the head of a mob is liquidated an internal power struggle ensues that, in many cases, translates into a multiplication of bands. The strategy would make sense in a country with strong state or municipal authorities who, when the cartels were broken up could combat them successfully. In Mexico, where there has not been functional local government since Colonial days, cartel fragmentation has heightened the violence and eschewed the historical rules of not perturbing the population. In this regard, the initial success of some of the campaigns has morphed into an inferno for the people.

Along the way three myths about narcos, organized crime, and potential tactics for combating these have gained a foothold. First is the myth of prevention. It is obvious that, to prosper, a society requires mechanisms that prevent crime and criminality in general, as well as strategies oriented toward driving economic and social development. However, prevention makes sense and is viable prior to the existence of the phenomenon: what is already taking place cannot be prevented. It is urgent to construct the capacity of the State to optimize the safety of the citizens and, once that is achieved, to prevent future criminality.

The second myth is that of negotiation. The idea is that, instead of combating too powerful an enemy or one that is affecting the population systematically (both drug trafficking as well as extortion), the government would negotiate an armistice with the criminals and would pacify the specific region. Outlining this in the abstract sounds reasonable, above all for politicians whose function it is, or should be, to forge agreements, pacts, and arrangements among dissimilar parties. However, negotiation with criminals entertains evident problems: With whom would one negotiate? What would be offered in exchange? How would the pact be made to work and enforced? How would failure to comply be sanctioned?

The third myth is that of legalization. The idea of legalizing drugs is an elegant one and exceedingly attractive because it appears to indicate that the problem of violence can be dematerialized with the flourish of the signature on a presidential decision. It is not by chance that so many nostalgic former presidents propose this very action. Much the same as the idea of negotiating, practical problems render the framing of legalization absurd: How would the drugs be distributed? Who would be responsible? How would compliance with the rules be enforced? The key lies in the latter point at issue.

Although with diametrically opposed implications, proposals such as those of negotiation or legalization are unviable in the Mexico of today. In order for them to function, both strategies would require the presence of a strong government, one capable of establishing rules, enforcing them and having them obeyed. If we accept that the current problem is the weakness of the State, then there is no way to exact compliance from those with whom agreements were reached or to regulate market functioning were there legalization of drugs. From this perspective, drugs in Mexico are already legal (in the sense that they circulate with no difficulty) because no authority controls or regulates them.  A strong State like the Netherlands can entertain such a proposition; Mexico’s today cannot.

The same would be true in the hypothetical case of the U.S. legalizing drugs: the only thing that would change would be the financial capacity of the criminals (not a lesser issue) but the criminality besieging the population such as abduction and extortion would not be affected in the least. These are problems that reflect the absence of authority, the inexistence of the State as such, as well as mediocre and incompetent police forces, and a feather-weight and corrupt judiciary. The paradox is that to be able to contemplate strategies such as legalization or negotiation, the Mexican State would have to be transformed and, if this were achieved, those strategies would become irrelevant due to their being unnecessary. The essence of the issue is the government’s capacity and authority of the government. That is why it is critical to build (or rebuild) key institutions much faster and in deliberate fashion.

The future strategy should envisage as its objective the strengthening of the State for it to be able to impose the rules of the game, that is, to draw a line in the sand. The drug business, as distinguished from that of local criminality, would not disappear, but it would find itself head to head with a government capable of imposing the law forthwith. In this, the difference with the present government would be enormous because the objective would not be to eradicate narcos but rather to force them to live in an environment controlled entirely by the State. Just like the Americans do.

The true challenge of the upcoming six-year presidential term resides in strengthening the State without attempting to return to centralized control, but within the context of a decentralized society and an incipient democracy. It is, in fact, the opportunity of building a modern and civilized nation.

www.cidac.org

@lrubiof

The darkest character in Catch-22, Joseph Heller’s novel, is Milo Minderbinder, a low-echelon official who constructs an immense empire selling supposed military surplus and accumulating all kinds of titles of noble birth, such as Caliph of Bagdad. Everything appears to thrive until Milo gets into worthless business dealings buying cotton in Egypt without being able to consign it anywhere. The problem becomes so complex that the U.S. Government itself takes control of the enterprise. I ask myself whether the outcome of this story would have been different within a context of transparency and checks and balances.

Transparency has become a buzzword in political debate. Diverse civil organizations lay claim to it and pledge to advancing it. Given the origin of Mexico’s political system and its propensity for opacity and control, transparency is a central and indisputable value.

Behind the struggle for appearances lies a entire culture of distrust and fear on the part of the authorities vis-à-vis the citizenry. Instead of eradicating corruption, the demand for transparency has come to justify personal and political score settling and, worse yet, its employment as an argument for incompliance with the norms. Many public servants live in an environment of fear with respect to the ministry of the Public Function (whose resolutions can lead to time in prison), which in turn leads them to make poor decisions, hide resources or waste them, that is, exactly the opposite of what transparency legislation is supposed to accomplish. In addition, the law only applies to some spaces of public life but not others (for example, it has yet to “touch” state governments), which brings about opacity and protects the wrongdoers. It is no coincidence that the overwhelming majority of campaign financing materializes from the states.

But transparency also can be a myth. Greater transparency is no guarantee of better government. In fact, much greater transparency would be achieved if the surfeit of requirements and controls on economic activity and transactions in general were eliminated because the current regime tends to inhibit honest and competent functionaries above all when they must make complex and transcendental decisions that are not easily comprehended by the common citizen, simultaneously opening spaces of opacity for those who are dishonest.

In the wake of our impetuous style, legislation in matters of transparency has gone much further than it does in other climes. While in Mexico a citizen can request a certain piece of information and obtain it in a matter of days, in the U.S. this same request may take six months. In addition, in Mexico the service is free while there it’s only complementary when requested by the journalistic media: everyone else has to pay a fee that’s not a nominal one.

I return to the beginning: transparency is vital for a democracy and much more so for one embarking on constructing itself and stemming from an obscure world. But there is the risk that transparency as we have constructed it may end up being the enemy of good government. Two anecdotes, absolutely distinct in nature, rouse my concern.

The first refers to the decision that a highest-level functionary had to make some years ago. It had to do with an enormous governmental investment: the project required some turbines of a determined size, but the analysts determined that that the project would be much more successful in terms of profitability and efficiency if certain larger turbines were to be acquired. Although more expensive, their greater efficiency would allow for greater profit during the project’s lifetime. The economic decision appeared obvious, but the attorneys convinced the functionary that his legal vulnerability would be massive were he to do what was best for the project and the country. And that’s what he did.

The other anecdote is more mundane but no less relevant. An acquaintance of mine has become a virtual employee of the Mexican Federal Institute for Access to Information (IFAI) because it seems that she has nothing  else to do but respond to the requests for information that come her way constantly. Rather than doing the work entrusted to her and for which she is paid, she devotes hours on end to combing files to obtain information and sending it to the IFAI. One would think this a small cost in terms of democratic construction; however, what’s truly interesting is not the bureaucrat’s time, but rather the nature of the requests thatshe is required to attend to: the overwhelming majority of these requests is widely available information and that is only of use to students doing schoolwork. That is, transparency has evolved into a mechanism for engaging the bureaucracy in doing homework for lazy students.

Neither of the two anecdotes is conclusive in itself. I am a firm believer in democracy as a method for a society to decide its future and in transparency as a tool by which the society informs itself. I am clear on that after decades of excesses and abuse, it is better to sin of the side of too much than too little. What worries me is that transparency can turn into an excuse for a yet worse quality of government.

The issue of transparency is ubiquitous in the world. There is discussion everywhere on the “optimal” level of transparency that permits keeping the citizenry duly informed as well as complying with the responsibilities and the functioning of a government. This balance is not easy; thus, in many ambits the questionposed is, how much transparency is enough?  Many functionaries prefer none, civil organizations want all.

Further than preferences, the issue is important. Faced with dilemmas of this nature, in England the possibility was discussed that members of Parliament would review delicate matters (for example military ones) that require supervision, but it was concluded that the members of Parliament could find themselves in situations of conflict-of-interest due to their dual function as supervisors of the public interest as well as responsible before their constituents. Therefore, they opted for a peculiar figure: a “wise” man who is not dependent on the government, who is paid by the hour and who is responsible for supervising these delicate functions and reporting back to the Parliamentary Committee.  With this I do not wish to suggest the adoption of such a scheme, but only want to call attention to that transparency is not always the only or best solution in a democratic society.

The key does not lie in more transparency per se, but rather in an integral regimen of transparency that would concomitantly safeguard affairs that should be supervised but not necessarily made public. Democracy is too important to be risked on ideological or political agendas.

www.cidac.org

@lrubiof

MacarioSchettinosays that Mexicans are poor because they are unproductive. No Mexican in his right mind would dispute this statement. The relevant question is why not convert productivity into the guiding principle of the incoming government’s strategy?

Now that the reforms proposed by the outgoing government are being discussed and there is speculation on what the next one would propose, it is necessary to reflect on why it is imperative to carry out a set of reforms, in diverse ambits. It is also important to elucidate in what, and why, in a developing country the reform process is distinct from that characterizing those that have been transformed throughout centuries.

The greater part of the legal and regulatory, as well as the political, apparatus that characterizes the country stems from the “old regime”, a sociopolitical structure whose characteristics and modi operandi stopped working the moment two radical changes took place: first, chronologically, the opening of the economy and, second, the 2000 political sea change. In retrospect, these two factors redid all of the vectors that made the country work: with these the central control exercised by the presidency and the bureaucracy vanished; the workings of the economy were liberalized; the ability of the president to impose his criteria over each and every issue went away; and above economic and political decisions were decentralized, in the broadest sense of the word.

Expressed in other terms, the reality of power changed radically: from concentration we went to decentralization; from control to atomization and fragmentation; from imposition to the dependence of everything on the capacity and integrity of each of the parts. Wherever one’s eyes alight –on the economy, the state governments, the civil society, on politics in general- the country has undergone a radical transformation in its nature and its power structure.

What didn’t change were the regulatory, legal, and institutional underpinnings. With exceptions –some enormous- we trudge on under the yoke of an institutional and legal structure that has nothing to do with the current reality. Such is the case of the Judiciary and Mexico’s Attorney General, of labor legislation and the energy regime, of the police and the Army. The economy exists within a global environment, but is governed with instruments imbedded in a protected economy; politics possesses huge effervescence and competition but operates under criteria that former president PlutarcoElías-Calles could claim as his own; the society is ever more diverse and engages in experiences that are ever more cosmopolitan, but the regulatory structure under which it lives is antediluvian. The play off between reality and formality is impacting.

The reforms of the eighties and nineties attempted to conciliate, at least partially, the new reality with the existing judicial framework. In some cases this advanced, in others it remained paralyzed. But the main problem of that era resided in the permanent inconsistency among the diverse reforms and privatizations. Instead of following an integral strategy, decisions were made on a case by case basis, many of these inherently contradictory, generating the conditions that led to the crisis of ’94.

Viewed as a whole, the country requires an integral strategy of development. That is, a clear and well defined project that explains where it wants to go and that benefits from coordination among projects. Going back to the eighties, we can observe how the telephone company was privatized (with fiscal income, not competition, as the guiding criteria) nearly simultaneously with approval of the law on matters of competition. The same occurred in the way in which the banks were privatized, the law on foreign investment matters was adopted or the economy was liberalized. In a word, there was never a guiding rod that ensured that the parties were compatible among themselves.

To be successful and avoid these absurdities, the next government should adopt an integral vision and affix to this all of the individual decisions on which it decides to embark. That is, it should not neglect the objective that is proposed and the elements that should be onboard for this to be achieved. The process should ensure compatibility with the global economic reality, above all in themes such as taxes, energy, regulation, competition and the like.

It is clearly very difficult to articulate a great development strategy that integrates all of the elements and factors that characterize the management of a government. In virtue of this, allow me to propose that rather than attempting a grand exercise of Soviet-style central planning, the government presently girding up to initiate functions should adopt a central criterion that guides its actions and, above all, that serves as a compass for guaranteeing that the parties tally with the ultimate objective.

According to the economic scholars, there is an absolute correlation between the rise of productivity and the growth of the economy. Thus, the simplest thing would be to embrace productivity as the guiding principle. Paul Krugman, one of the most critical economists at the moment, affirms that productivity “is not everything, but in the long run is almost everything” because it determines the number and type of jobs that there will be, thus the population’s income. On adopting productivity as the criterion, the president would be able to assess with enormous clarity what contributes and what hinders, therefore what costs are acceptable and which are not. More to the point, it would permit him to put into perspective the relative importance of reforms on certain themes with respect to others because some sectors are infinitely more transcendental in matters of impact on productivity than others.

From the viewpoint of productivity, there is nothing more important than the formation of humancapital, the functioning of dispute-solving mechanisms, public safety, the infrastructure, the availability of fuels and the existence of a favorable environment for the growth of innovation and creativity. The great virtue of having a unifying criterion is that it allows for discernment of the costs and benefits of shouldering a conflict with interests committed with the status quo, while at same time would permit identifying opposite numbers and backing.

The “old regime” lived from property rights abuse, from ignoring (and rendering impossible) the rule of law and of imposing presidential preferences. That regime collapsed because it was incapable of adapting to the times and satisfying a growing population. A growing productivity would allow the construction of a new regime, one good for all.

www.cidac.org

@lrubiof

The myth that some reforms would give us direct access to Nirvana returns. Three decades of diverse reforms are witness to the indispensability of reforms, but they’re not everything: without clarity of course and effective leadership, they will always come up short. The true challenge consists of knowing what to reform and why and to add to this vision the backing of the entire population. Without this Mexicans will continue discussing “reforms” for the next three decades.

The problem about myths is that, as Carlos Monsiváis affirmed, “the reality of the myth is the irreality of the country”. Enormous edifices are built on the promise of a miraculous solution, which is then expected to change the reality in a New York minute. The problem with this conception is that a reform, in order for it to be effective, must satisfy at least three conditions: first, it should arise from an accurate diagnosis of the nature of the problem that it intends to solve; second, it should be coherent and consistent with other governmental actions undertaken in parallel fashion; and three, it should affect the interests that benefit from the status quo that the reform proposes to modify. If these three requisites are not satisfied, the reform will not accomplish its purpose.

Unfortunately, very few of these reforms (including privatizations) undertaken in the country from the eighties on have met these requirements. Worse yet, the notion has been espoused that all of Mexico’s problems are thoroughly diagnosed and that the only thing lacking is for Congress to act on to get out from the hole where we currently find ourselves. As illustrated by the polemic surrounding the labor reform that President Calderón recently sent to the Legislature, there is no consensus on the causes of the problems afflicting us. There are even less obvious solutions that enjoy the support of specialists or politicians. In other words, there aren’t any magical solutions.

In addition to the latter, given that each bill that is introduced provokes its own political dynamic (the product of forces with conflicting interests), there is a risk that, at the end of the process, each reform ends up being contradictory to others. That is, of course, something normal in a democratic setting where distinct forces intervene in every process that in the final analysis make up a unique product every time. The art of the possible, as the classicists would say.

However, we should aspire to more. The key to development, and to achieving high economic growth rates, lies in the coherence of the set of strategies that the government organizes and that take shape in the form of laws, rules, regulations, and budgets. Put another way, the success of a strategy resides wholly in the capacity of a government to articulate a vision and to convince the population and the legislators of its benefits. In this sense, it is an inherently political process whose results are discerned, for better or worse, in the economic performance.

That said, it is evident that the country requires reforms at least in energy, fiscal, and labor matters. But these reforms cannot be independent of whole to which they lay claim: they need to be conciliated and coordinated.

For it to be successful, a labor reform should facilitate the contracting of personnel and promote the growth of productivity without eroding the political and labor rights of the worker. These principles are basic, but it is noteworthy that this reform is much more important for small than for big businesses, whose size and scale allow them much greater latitude in matters of salaries and fringe benefits.  Additionally, labor costs as a percentage of the total costs of a business enterprise tend to be much less than in companies with high investment in machinery and technology than in those strictly dependent on manpower. That is, small businesses, which are those generating the most jobs but pay the lowest, are those that urgently require greater work flexibility. Proof of the latter is that it is in these companies that the informal economy predominates and where in there is no work protection or fringe benefits.

For it to be successful, an energy reform should make it possible for users to have access to fuels and raw materials at competitive prices and under conditions similar to or better than those characterizing their competition. At present, this premise is not only not complied with, but the availability of combustibles is uncertain and the monster monopolies entrusted with the sector engage the priority of satisfying their union interests and internal bureaucrats, as well as that of their political bosses. Themarket, economic growth or competitiveness are irrelevant in the existing equation. For it to work, an energy reform must resolve these blind alleys and, simultaneously, make possible the exploitation of resources with access to technologies that today are only feasible with private associations.

For its part, a successful fiscal reform would imply releasing the government from its dependence on oil income without this implying the squeezing of taxpayers so that the incentive to produce efficiently would be disturbed. Of course, in matters of taxes we all want somebody else to pay more, but the key lies in that the taxpayer were able to see in public services full justification for payment of his/her taxes. However, if one observes from public safety to the state of the pavement it is evident that the divorce between taxes and services is so great that it is impossible to attempt to conciliate these without a deep and serious governmental commitment.

Reforms are necessary, but there are so many obstacles, protected strongholds, favors, trade barriers, subsidies and bureaucratic red tape within the purview of Executive Power that serious acting on this front would have the effect of freeing up forces and resources, in addition to driving competition in key sectors of the economy. The same is true in sectors subject to concession (particularly media and telecommunications), always given to blackmail and monopolistic practices. In many ambits, the problems is less legislative than executive, but no less polemic or political due to this.

In making up his Cabinet, the president should balance the presence of world-class technocrats with that of effective politicians willing to address the special interests -in all ambits- that are keeping the economy at a standstill. If he appoints low-class political operatives he will reap low growth rates; appointing technocrats only will garner conflicts in all quarters. As they say in Washington, “you are who you appoint”. The president’s decision in this matter will provide clear evidence of his vision and of his real inclination to achieve what voted him into office: an effective government.

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@lrubiof

Two visions –a specter perchance?- float through public discussion in anticipation of the beginning of the new administration. One emphasizes and evokes conflict, the differences and the supposed riding roughshod over the democratic process. The other privileges the opportunity to break with the politico-legislative paralysis that has characterized the country in recent decades and to deposit it on the threshold of a new era of growth. Are we at the brink of an insurmountable abyss, or merely facing a difference in perceptions: if the glass is half full or half empty?

The July 1 elections produced three circumstances: a) the need for coalitions for the advancement of a legislative agenda; b) a new source of political conflict, and c) a great opportunity.

The need for coalitions is not something new. The reforms of the eighties and nineties inaugurated a new era of cooperation among parties at the legislative level and this has been the tenor of what has advanced and what has remained fixed in place. The pretention of unanimity and consensus impeded the transcendent initiatives from prospering, but the fact of negotiating alliances now forms an inherent part of the national legislative process. In fact, an enormous number of constitutional decrees has been approved (64 of these since 1997), all the product of multi-party votes, but the overwhelming majority of these initiatives refers to political and social rights. That is, despite the fact that the process functions, the parties have been stubborn about affecting real interests in the political or economic arenas, which is, by definition, the nature of structural reforms in fields such as fiscal, labor, or energy.

The new source of conflict is not so new. Although, at least in concept, some of the claims of the coalition merit serious discussion (and I say in concept because the use of the monies was not confined to a sole party), the law suit presented before the Electoral Tribunal clearly did not concern the rules or the resources. The judicial poverty of the law suit speaks for itself. Despite this, it showed that there are no limits to the damage that these groups are disposed to wreak on the reputations of persons and institutions so as to achieve advancing the cause of the conflict. It is clear that the claim was strictly one of power: it is our turn, period. Rules don’t matter, legislation is the least of it and the conflict will not cease until the result is another. All of this suggests that the incoming Peña government should not waste its time or resources on new political or electoral reforms that could never attend to the nature of the issue. It would do well to concentrate on changing the economic reality of the country in order to accelerate the pace of economic growth but also for this to drive a radical modernization of the Mexican Left.

The opportunity that presents itself derives in part from the election result of this year but is to a much greater a degree the combination of the changing international context and of the changes that the country has undergone, nearly sotto voce, over the past two decades. In terms of internal changes, there have been extraordinary investments in infrastructure, exports have transformed the productive structures, the population is more and more middle class, NAFTA has become consolidated as an anchor of trust for investment and growth, and financial stability has favored consumer growth and secured the credibility of key institutions that are crucial for development. In turn, the gradual decelerating of the Chinese economy has affected its suppliers of raw materials (above all Brazil and Australia), opening a space for Mexico to become a great pivot of growth in the coming years. If the new government deploys the capacities of negotiation and the articulation of alliances –of political operation- that has characterized its party,the transformation potential for the country would be immense.

The key to the next months resides in the priorities that Enrique Peña-Nieto decides to emphasize. It is obvious that action is required on many fronts, but the capacity of any government is always limited. Thus, he must define his priorities and the strategy capable of achieving these. To date, the team of the future government has delineated two groups of themes: those linked with corruption, transparency and the accountability and those relative to the economic reforms. The two are important and both require attention and, even, could be the means for constructing coalitions with distinct legislative contingents. The big question is definition: is the objective one of imitatingLapedusa (whereby everything changes so that everything continues the same) or to carry out reforms that, although these affect interests at the short term, would be susceptible to transforming the population’s and the country’s reality in the course of the next six-year presidential term. No definition is more transcending.

Part of the dilemma that the new government confronts encounters in its world view. There is the risk that it will attempt to advance transparency and accountability, as well as to reduce corruption, by bureaucratic means: more commissions, more regulations, more bureaucracy. The historical experience is transparent; the only thing that heightens efficiency, reduces corruption and compels transparency is the elimination of regulations and impediments. The example of the Mexican Ministry of Commerce and Industrial Promotion (SECOFI) in the eighties is illustrative: with the elimination of the requirement of prior permission to import, export, and invest, bureaucracy ended and corruption virtually disappeared. In regulatory as well as in structural themes, the how is as important as the what. In fact, as the (relatively poor) results of many reforms and privatizations of the eighties and nineties show, the how is on occasion much more transcendent because it is what determines the levels of transparency, competition, productivity, thus the economic dynamism and rate of growth.

The great opportunity for the new government derives precisely from its not being commandeered by an absolute majority in the legislative branch. The main stumbling blocks to the reforms are all PRIist or in close conjunction with the PRI. The need to construct coalitions allows the new president to separate himself from the latter in order to carry out changes of great import that give back to him and to the country.

In contrast to past governments, Enrique Peña is an innate political operator. This is the factor that can set the country loose to begin the transformation that has escaped it for years. Thus the definition that he adopts and the priorities of his political and legislative endeavors would prove crucial.

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@lrubiof

President (and now presidential candidate) Obama frets about the poor, dislikes big business and believes that the government can solve all problems. And to top this off, he rejects the importance of entrepreneurial creativity, demonizes the creation of wealth and considers social confrontation a useful instrument for advancing his political, social and economic agenda. Every day he reminds me more and more of Echeverría, a president full of good intentions who ended up destroying everything that worked well in Mexico.

On initiating his mandate, Echeverría found himself in an unusual situation for the economy: for the first time in decades, its performance was below 4%. Although this growth rate would be seen as extraordinary in these days, growth in the year 1970 was discernibly inferior to the 6.5% that had been the average during the four previous decades. Like all presidents since then, Echeverría attempted to recover high growth rates. The problem was how he did this and the consequences of his actions.

The Mexican economy had been showing signs of weakness from the mid-sixties. The year 1965 was the last that the country exported corn, one of the many grains and mineral products whose export financed importation of inputs for industry. This fact indicated that the economy required structural changes to maintain its rate of growth and to satisfy the needs of a rapidly growing population. From that point on sharp debate broke out within the government on how to respond and two views materialized very quickly: one, which proposed a process of gradual liberalization that would not place the survival of industry at risk but that would provide it with long-term viability; and the other, which proposed a strong stimulus to the economy through public spending. Echeverría took the lead on the latter view of the world and exploited the 1968 Student Movement to modify the government’s strategy, to subordinate the society and to create a climate of hostility towards the private sector.

Growth of public expenditures didn’t take long to build and by the fourth year of Echeverría’s term was nearly four times that of 1970. With the spending explosion, ministries, public enterprises and government trust funds mushroomed. In addition, regulations were modified and laws were passed, all of which had as their objective that of consolidating the bureaucracy in economic decision-making, limiting the ambit of private-sector activity and reducing the presence of foreign investment to the minimum.

In a few years, Echeverría not only modified the profile of the economy but also that of the society. The growth of spending and of the government was accompanied by two ills that took decades to resolve: the foreign debt and inflation. On the other hand, Echeverría inaugurated a style of rhetoric that had not constituted part of Mexican politics in over a half century: class struggle. As part of this, he modified school texts to incorporate his political philosophy, a factor that sowed the seeds of the confrontation that we have been actively experiencing, literally, to the present day. His permanent confrontational strategy with the business community destroyed the legitimacy of employers and the sole creators of wealth and began perhaps the worst of the evils of his legacy: distrust. The result of his administration was inflation, crisis and a deeply polarized society.

By any yardstick, Obama is having the same effect on his society. Because it is a fully institutionalized nation, the impact of a U.S. president on his country is much less than that of those who were (nearly) omnipotent presidents in Mexico; however, Obama has devoted himself to fomenting the same brand of antagonism and hostility as that of Echeverría in Mexico.

What happens in the U.S. has consequences for Mexico. Our exports to the U.S. are the main engine of our economy. Were the U.S. to weaken its pro-entrepreneurial tradition, Mexicans too would suffer the consequences. Social approval and full legitimacy of the business is critical for wealth creation: without it, nobody would be willing to assume risks in a hostile environment. Mexicans know this full well and have paid dearly for it. It would be a tragedy for the U.S. to fall into the same, self inflicted, path.

Although there is no doubt that Obama stepped into an economic crisis of enormous dimensions, his performance during these four years has been disastrous: instead of attending to the causes of the crisis, he has devoted himself to wasting the resources slated for stimulating growth and feuding with his political opponents, but above all attacking the sole potential creators of wealth: the entrepreneurs.

Part of the U.S. president’s actions reflects his lack of experience as a politician. For example, rather than controlling the use of monies designated for the economic stimulus, he permitted the then congressional leader to get away with doling out a little more than one trillion dollars in funds (the equivalent of 100% of the Mexican GDP) to unions, interest groups and the pet projects of herlegislative contingent. This is neither good nor bad, except that the projects that politicians and special-interest groups typically embrace are neither the most productive nor are they those that, in the words of the economists, exert the greatest multiplier effect. Those defending Obama’s actions say that his not undertaking that amount of spending would have caused an economic collapse.

Since it’s impossible to prove what didn’t happen, U.S. society spends its time disputing a) whether there should be a new stimulus package; b) whether the brutal growth of the public debt should be tackled; or c) whether the entire structure of the economy should be revised. The debate in the U.S. is not very distinct, in concept, from that which has characterized Mexico since the end of the sixties.

As Milton Friedman once said, public programs should be evaluated by their results and not by their intentions. The result of Echeverría’s term was disastrous: decades of antagonism, near hyperinflation, inefficient government and the legitimization of conflict as a strategy of permanent struggle. The result of Obama’s term remains to be seen but I have not the least doubt that he has incorporated a novel element into U.S. politics: class struggle.

For privileged observers such as Lipset and de Toqueville, what has distinguished Americans in their more than two centuries of existence is their exceptional capacity to adapt and assimilate persons and ideas, as well as the belief in equal opportunity that legitimizes their entrepreneurial vitality. Obama is threatening what Echeverría consigned to the graveyard: the credibility of those who can make possible the transformation of their country.

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@lrubiof

The great deficit of recent decades has been that of leadership. There has not been clarity of course nor ambition for transformation: there has been administration, but not the consolidation of a platform likely to lead Mexico toward a better future. This absence has not only impeded us from seizing opportunities or changing circumstances into opportunities, but has also caused a retraction in the society as a whole: each standing guard over their own and no one developing forward-looking projects. The notion of development virtually disappeared from the map.

We Mexicans have a love-hate relationship with strong leadership in the presidency because the experience has not been benign on that front: a long history of imposition has created enormous resistance to any change, the performance of incompetent leaders has ended in enormous financial crises and excesses of power entailing erroneous decisions with grave economic consequences in the long run. However, in all of these cases, the problem was not one of leadership but the total lack of checks and balances.

Though imperfect, today there is series of checks and balances that while not mainly institutional, indeed has had the effect of checking on the exercise of power. This is not bad in terms of the exercise of the governmental function, but achieving a proper balance would require effective and transparent institutional checks and balances for all. However, none of this changes the fact that the country is avid, and has the need for a leader who is at once strong and effective, but who at the same time is delimited, capable of understanding the context in which he is to operate. That is, one with good judgment. Isaiah Berlin defined good political judgment as “a capacity for integrating a vast amalgam of constantly changing, multicolored, evanescent overlapping data”.

The country that Enrique Peña-Nieto will find is stuck, each of its parts engrossed in its own labyrinth. In the absence of a clear course, the panorama is dominated by forces refractory to any change if not reactionary in the literal, not the ideological, sense of the word. Poised on the brink of an inexistent or marginally clear future, it is natural to take refuge in the known: in the past.

While the phenomenon is particularly visible in some, very specific ambits, the reality is that the space of national life that has achieved disassociating itself from this trend is rare. The Left that has dominated these last years is intent upon reconstructing the seventies; the private sector is pigeonholed in a protectionist model of industrial development; the old bureaucracy conceives of no solution that does not imply greater spending; the foreign office is split, some of its members attempting “not to move anything”, others to returning to the comfort zone of blaming the Americans for our wrongs. The PRI is yet to show its colors, but it is quite obvious that many yearn for the past. The PAN, the governing party in recent years, is discussing a return to its roots. The past offers a refuge, even if only one of perdition.

It’s evident that each of these groups and sectors possesses contingents and leaderships that are not only clear-minded with respect to what is imperative to achieve, but also even concerning what they have been accomplishing in their own ambits of competition: currents, business enterprises, groups and spaces in general. However, all of these leaderships, or potential leaderships, find themselves harassed by the general tenor of the harshness of the context. No one, not those who effectively wield power or the capacity of example, dares to stick their head out. What is excessively visible in the hidden struggle for the future inside the Left is equally true within the private sector, in the PAN and in all corners of the country.

Everyone knows that the old arrangements that continue to exist, as well as the old economy or the old ways of conducting foreign policy, to continue with the same examples, do not offer us opportunities to get ahead, but no one wants to risk their own skin within a context in which success continues to be penalized and the cost of erring, or of a failure, is incommensurate.

Another way of saying all of this is that the country has enormous capacities ready to transform itself, that the leadership reserves are vast and that, different from Europe or the U.S., our structural situation (economically speaking) is much stronger and promising, however urgent the diverse reforms and adjustments are. The country is ready to step out for a walk but no one dares to take the big step. That’s the deficit of leadership.

The status quo ends up being convenient for all but good only for the most encumbered interests. This paradox can only be resolved with the presence of two simultaneous circumstances: on the one hand, effective leadership; on the other, enlightened leadership, which understands the dynamic characterizing the world and that is capable of developing competent strategies for achieving success. The country urgently needs clear leadership that draws strategic lines and, above all, that facilitates the rise of all this potential that has been accumulating throughout two or three decades but that has not yet seen the light of day.

The Mexico of some decades ago would allow for and favor the nearly unipersonal exercise of power. Today domestic as well as the international circumstances make this scenario much more difficult, if not impossible. One core characteristic of the Mexico of today –and of the global economy- is decentralization of power and productive activity. The central controls are no longer functional and, in myriad cases, possible. What the country requires is clarity of course for development, which implies, paradoxically, rendering possible the multiplication of sectorial and functional leaderships.

With clarity regarding the nature of the challenge, the incoming president will have the exceptional opportunity of achieving two things that have been impossible in the last two decades: breaking through the paralyzing inertia and constructing lasting institutions. This can only be attained through a broad agreement that is susceptible of attracting the citizenship.  The mixture of the two is key: unstick what is stuck employing the leverage of all this accumulated potential and, at the same time, constructing the institutions that grant a space to all of the groups and political and productive forces. The former is indispensable but, given the conflict level, it would perhaps be impossible without the latter.

Benjamin Disraeli, one of England’s great prime ministers of the end of the XIX Century, said that “Circumstances are beyond the control of man; but his conduct is in his own power”. The opportunity is immense and the complexity of the moment makes it that much greater.

www.cidac.org

@lrubiof