Oscar Wilde famously wrote that “to lose one parent may be regarded as a misfortune, but to lose both looks like carelessness”. It would be worthwhile to ask what the famous Irish writer and poet would have said of the investment levels that characterize the Mexican economy. If there is something that unites all Mexicans beyond parties and beliefs, it is the urgency for achieving high and sustained economic growth rates. Similarly, most economists coincide that investment is key, if not its only source, for growth. For this problem not to have been duly attended to, something must be rotten in Denmark. Or, as Wilde would have said, for such carelessness.

But it has not been due to lack of effort. In reality, from the end of the sixties –when the economy began to decelerate after nearly four decades of sustained growth-, all incumbents presidents have attempted to raise the growth rate. Some did this by getting into debt and exacerbated public expenditure, others through liberalizing the economy, and yet others, by means of diverse political reforms oriented toward consolidating sources of trust and confidence for entrepreneurs and investors. Many of these attempts and efforts are exceedingly commendable and some have become solid and reliable sources of growth, as illustrated by the export sector, which two decades ago simply did not exist. But, despite these successes, it is evident that the growth problem has not been resolved.

It wouldn’t be something new to affirm that there persists a world of obstacles to investment, impediments that surely explain one part, perhaps an important part, of the low levels of private investment. Some of these appertain to history, property rights, arbitrary acts by the government, lack of leadership, and, primarily, an irrepressible tendency to change the rules every time something bugs a government official. Allthisrevealsan acute institutional weakness that lies at the heart of the six-year cycles of yore: when presidents (and now, governors) achieve winning over the confidence of the population, their period of governance yields better economic returns. This story is well documented, but there are limits to the explicative capacity of the theme of credibility, above all because with the North American Free Trade Agreement (NAFTA) its relevance waned.

NAFTA’s core objective was to consolidate the credibility of rules in investment matters. That is, the government that promoted it understood that private investment did not flow precisely due to the problem of trust, which generates an institutional weakness that allows all civil servants to re-invent the wheel when they get up on the wrong side of the bed. With the clear and permanent rules inherent in NAFTA, as well as its credible dispute-solving mechanisms, investment would flow without surcease and growth would be sustained. At least that’s what the theory was.

In practice it’s been twofold: on the one hand, investment has flowed with no end in sight, which explains, to a great degree, the strength of the export sector. On the other hand, export-oriented investment benefits the internal market very little; thus, its economic impact is much less that it could be. That is, NAFTA resolved the problem of the economy with respect to the exterior, but did modify its internal dynamic. There we find the persistence of ways of producing and distributing goods and services that have nothing to do with what is happening in the rest of the world. There the Mexican economy continues to be closed and protected, products and services tend to be highly priced and inferior in quality, and businesses continue not adapting themselves to world-class competition.

This is not the moment to enter into the causes of this dichotomy, but the tangible fact is that we have two very different economies. The main consequence of this is that there is no liaison between the export sector’s hypercompetitive economy and that of the internal market. In contrast with other countries, the multiplier effect of exports on internal economic growth is much less in Mexico than in the U.S. or in Brazil: while every exported dollar adds 1.3 dollars of growth in Mexico, the number is 2.3 dollars in Brazil and 3.3 dollars in the U.S. The question is why.

When one hears innumerable business leaders speak of productive chains, it is evident that they are talking, at least conceptually, about this circumstance: the need to link the internal with the export economy. However, almost three decades after the liberalization of imports, we inevitably have to conclude that these chains to which private sector personages refer no longer exist and are not those that are required today. Without doubt, liberalization broke with the then-existing productive chains because it allowed new suppliers to enter the system. These new suppliers made it possible for many companies to become competitive, and thus capable of competing with the imports and to export. Domestic suppliers who did not regroup lost out because they were incapable of competing due to lack of the ability or desire to attempt it.

From this perspective, it would appear evident that an erroneous focus has prevailed in economic policy throughout this entire time: the hope has been that the Mexican private sector will do what it has not been able to accomplish in decades. The theory that the industrialists would become the suppliers of the exports, as occurred in Korea, simply did not happen in Mexico, for whatever reason. We can continue to regret what does not happen, or we can recognize the nature of the problem.

But the concept continues to be valid: Mexico urgently needs an industry of suppliers. This “new” industry must develop and be promoted under the rules that exist at present: that is, without protection, but with the express objective of raising the national content in order to generate more growth and more jobs. The greater the amount of goods produced in Mexico, the greater our capacity for export diversification, because we then will find ourselves within the possibility of complying with the rules of origin inherent to the free trade agreements with Europe and Asia that, currently, we do not. The evident implication of this is that the industrialists of the future will not be, in general terms, those of the past: they will be those who invest in order to become hypercompetitive and to connect with the large exporters. Many of these will be domestic, many foreign. The point is to produce in Mexico to make Mexico rich.

Investment is indispensible to growth. The missing ingredient is the adequate emphasis of the economic policy in order to achieve it.

www.cidac.org

@lrubiof

Inherent in human nature is the desire for and expectation of improvement in life. However, less common is the recognition of what it would be necessary to do for this to be possible. Karl Popper, the great philosopher of science, once divided the world into two categories: clocks and clouds. Clocks are nearly, orderly systems that can be solved through reduction; clouds are an epistemic mess, “highly irregular, disorderly, and more or less unpredictable. The mistake of modern science is to pretend that everything is a clock, which is why we get seduced again and again by the false promises of brain scanners and gene sequencers. We want to believe that we will understand nature if we find the exact right tool to cut its joints. But that approach is doomed to failure. We live in a universe not of clocks but of clouds”.

We all know what we don’t like about the current Mexican reality. Some are upset about the criminality, others, by the economic performance. Some suffer through the daily traffic snarls and others are troubled by the uncertainty permeating the atmosphere. Identifying the problems, at least as symptoms, is quite easy. But we very infrequently rethink the implications of resolving these problems or, more exactly, reflect upon what would be required to make these evils go away. In a word, if we really want to construct a country that works and one in which these evils cease to exist (or are seen not as a factor of reality but rather as an aberration that must be corrected), we would have to change everything. The whole enchilada.

Earl “Huey” Long, a peculiar American politician, once summed up the dilemma perfectly: “Someday Louisiana is gonna get good government. And they ain’tgonnalike it.”A good government implies rules to which everyone must subordinate themselves, entails effective authority  for making people comply with the law, and, above all, implies genuine equality before the law. In Mexico, the kingdom of privilege, we do not satisfy any of these premises, not even in the public discourse.

Some weeks ago, in this surrealist world that is the Mexican reality, we had an opportunity to see a perfect example of the complexity that is implied in carrying out the type of change that the citizenry demands but that it is not always disposed to take it to a successful conclusion. The Mexico City authorities decided to install parking meters in diverse zones of the metropolis with the dual purpose of demotivating the use of the automobile and rationalizing the use of the streets and parking places. That is, this is an effort to achieve order in one of the city’s many daily issues.

The response did not take long to appear. On the one hand, the so-called “red flannel car parkers”, who, wielding red cloths, have appropriated public spaces to rent parking places, demonstrated against the measure by blocking some of the city’s thoroughfares. On the other hand, innumerable users of these car-parking services complained of the disappearance of a functional mechanism for daily life in the absence of formal parking lots.

In this specific case, the disorder is multiple. First is the appropriation of public space: if one does not pay the virtual “owner” of the street, one is unable to park. Second, persons visiting the place, working in the area, or engaging in some momentary activity use the red-flannel service so that their car is taken care of for a few minutes or for the whole day. This is not a minor service. Third, in the absence of effective police vigilance the red flannel caretakers fulfill an important security function: it has been demonstrated that there are fewer thefts of car parts and the cars themselves when the red flannel brigade is in operation. Finally, –a fabulous example of Mexican mischievousness- on one of the streets of the Pink Zone that I frequent, there have been parking meters for many years; there is a person, a former cloth wielder, and who now devotes himself to washing the cars parked there and to put coins in the parking meters when they run out of time to ensure that none of their clients’ cars incur a parking fine. The innovation and creativity never fail to surprise: but one cannot underestimate the problems these characters help allay.

Disorder is a big problem because it is accompanied by the absence of mechanisms for conflict resolution, zero respect for the laws and authority, very poor economic performance and, in the broadest sense, derives from the security crisis that we are living through and from the enormous lack of opportunities that characterizes us, which translates into poverty and inequality. There’s no such thing as “somewhat disordered”.Disorder is a general characteristic in which what is orderly is exceptional. Contrariwise, within a context of order, what does not work is perceived as an exception.

At present, unfortunately, we continue to live within a context of disorder where some things work but they’re in the minority. In the economic ambit, for example, the North American Free Trade Agreement (NAFTA) comprises a great order-imposing factor, but the internal market continues to be as disorderly as ever. In public debate –among politicians as well as within the business community- there always exists the predicament of advancing toward order or retreating toward the general. For many businesspersons, what the country needs is to generalize the disorder because that would avoid the necessity of raising productivity, improving product quality or, in general, bettering people’s lives.

The dilemma for the country is precisely that: for us to become a modern country implies that we all become orderly and that entails the end of privileges, cushy jobs, and special benefits. In their microcosm, the red flannel car parkers illustrate it perfectly: they have enjoyed exceptional privilege (though they don’t view it as such) and they are not about to change for any reason. Extrapolating the example to the national level, putting the country in order would imply reforming all the ambits of national life. That is, within a context of order, the existence becomes unacceptable of public or private monopolies; use of the bribe or corruption in general becomes dysfunctional; the informal economy stops being a folkloric element, becoming instead a blot on society that must be attacked, and so on. Within a context of order no one goes on as before.

The dilemma is weightier that it seems. Bringing the desire –or the discourse- down to earth in order to improve, to make Mexico a more amiable and more successful country and making substantial headway in the levels of daily life goes inexorably hand in hand with discipline, order, and equality before the law. Coming down to earth would imply that this would be accepted by the de facto powers, the wealthy, the politicians, and the rest of the beneficiaries of privilege: from the car parkers to the president. Or let there be a real change imposed upon them.

Karl Popper, the great philosopher of science, once divided the world into two categories: clocks and clouds. Clocks are neat, orderly systems that can be solved through reduction; clouds are an epistemic mess, “highly irregular, disorderly, and more or less unpredictable.” The mistake of modern science is to pretend that everything is a clock, which is why we get seduced again and again by the false promises of brain scanners and gene sequencers. We want to believe we will understand nature if we find the exact right tool to cut its joints. But that approach is doomed to failure. We live in a universe not of clocks but of clouds.

www.cidac.org

@lrubiof

Certainty about the rules is key for the functioning of an economy, as I affirmed in a previous article.Quite rightly, Carlos Elizondo made me see that many entrepreneurs do not want greater reforms: many want no more than a few changes that would render governmental regulations more efficient and less onerous to make them happy. In effect, the glorious age of the economy –the hard PRI years- were characterized by a pro-business and not a pro-market economic strategy. The collapse of the PRIist world and of that economic strategy was due in great measure to this contradiction and perhaps that is where the cause lies of the meager economic performance during these decades. Instead of competitive markets we have government-protected monopolies and this does nothing other than inhibit new investments, protect the privileged, and preserve an economic structure without opportunities for high and sustained growth.

Certainty in terms and permanence of the rules is central for an entrepreneur or investor to know what to expect and not to be surprised by every time the wind, or a new government changes. An economy grows when the rules are permanent, change little, and when they do, this is carried out in duly publicized fashion and consequently with the objective of preserving trust, growth and the general well-being. In the golden age of the“stabilizing development”–a closed economy- certainty was key and only the government could confer it.  Recognizing the essence of this equation, successive administrations were extremely careful to preserve a reliable political and regulatory framework for the functioning of the economy.

However, because it was a closed economy, in which competition was consciously inhibited (for example, through substitution of imports and the existence of government monopolies), the economy operated  with a limited mass of businesspersons and unions and did not pretend to have good products, low prices, or consumer benefits. The entire scheme depended on rapport between businesspersons and the bureaucracy, a relationship that determined companies’ profits in a much more relevant manner than the quality or price of the products. The objective of the economic policy was to benefit the producer as a means of maintaining high economic growth levels.

Deidre McCloskey* describes the scheme perfectly: “When American [input] producers get tariffs or when [manufacturers] get import quotas it is not because of their market power but because of their political power, their access to an all-powerful state”. Many Mexican entrepreneurs dream of returning to that scheme because on not having to be bothered with little things like the consumer, or the price or quality of their products, their life was simpler. Clearly, some of their criticism of the economic policy of trade liberalization that was adopted from the end of the eighties is correct; whenever the opening has been partial, a discriminatory protection strategy persists and governmental monopolies act, well, like monopolies. However, behind these complaints lies the desire to return to a world distinct from that of today, the one that collapsed at the end of the sixties simply because it wore out.

Discussion on trade liberalization and the adoption of a better development strategy tends to be obstructed on two planes. On the one hand, there are those who ignore or pretend that it is possible to ignore the changes that the world has undergone in the last decades. A growth strategy based on closed and protected markets was possible because production of the overwhelming majority of goods worldwide was concentrated on factories that on the one hand received raw material and that delivered finished goods (cars, radios, chemical products) on the other. In an environment of this nature, it was possible to force producers, domestic as well as foreign, to manufacture finished goods within the country. Thus arose, for example, the automobile assembly industry. This same ambit lent itself to rapport among businesspersons, union leaders, and politicians, in which it was in the interest of all to preserve and share privileges.

The problem for those imbued with nostalgia is that the world changed when the Japanese, with the need of raising their productivity levels in order to compensate for the high price of oil at the beginning of the seventies,   transformed the way of producing. Instead of manufacturing automobiles at a sole plant, they specialized their factories in motors, gear boxes, etc., with the purpose of raising their productivity dramatically, and with this, the quality of their products. Thus was born a novel productive structure based on suppliers of parts and components whose geographic localization would be determined not by the owner’s nationality but by the proximity of raw materials or final markets. Impossible for factories that existed in the sixties in Mexico to compete with this. The only way to survive in this world is to compete with similar productivity levels. The Mexican entrepreneurs who pretend to survive thanks to governmental favors do not understand that the government can protect them but only at the cost of the survival of the economy in its entirety.

The other place where discussions on liberalization and the role of the government in development are held up is in that of the privileges that persist and which more than one presidential candidate swears by. Once again the scholarMcCloskey**: “In the long run creative destruction relieved poverty. It has been in fact the only effective relief. Wage regulations and other protective legislation, contrary to their sweet (and self-gratifying) motives, have only preserved poverty”. A government supposedly dedicated to the general development of the country and concerned with poverty levels cannot (at least, should not) devote itself to protecting private companies or to subsidizing them, and it should also not preserve private or state monopolies. The contradiction is flagrant, but their persistence leads to the delegitimization of an economic policy centered on consumer, and not producer, benefit.

The prosperity of a country can only be achieved when the welcome mat is rolled out for entrepreneurs and investors with rules of the game that are the same for all, where nobody is discriminated against,and where privileges do not linger. That is, a pro-market, not a pro-business, strategy. It’s not the same nor is it equal.

* Bourgeois Virtues, p. 35, **Bourgeois Dignity, p. 425.

www.cidac.org

@lrubiof

Someone mindful of Giovanni Giolotti’s tumultuous political career once asked him if it was difficult to govern Italy. “Not at all”, replied the old statesman, “but it’s useless”. His response would appear to have been emitted by the old PRI. In Mexico, the old system, which can scarcely be differentiated from that of the present, went through decades administering and managing conflict to a greater extent that solving the problems and attacking their causes. The result is a rich country with poor inhabitants, enormous potential but a miserable reality. The question is whether the electoral process as it stands can yield a distinct result.

The Mexican political world is full of nostalgic figures who pine for the era during which the government had the capacity to “make decisions”, that is, to impose the will of the president. Hearing and observing these lamentations, –which come both from all parties and from many scholars- one would think that Mexico was a model nation in which everything worked well, in which progress was tangible, and in which happiness reigned throughout. Yes, Nirvana.

Unfortunately, the reality is less benign. If one observes the PRIist era from 1929 on, it took more than a decade to arrive at stabilizing the country in order to begin to focus on economic growth. Then came 25 good growth years that, however, ran out at the end of the sixties. The decade of the seventies was a disaster of crisis, inflation, and disorder from which we have yet to emerge. That is the past. Today, one party proposes to us that we return to the policies of the sixties (the one that ran its course), and another proposes a return to the seventies (the one that led the country to explode). The third proposes that we go ahead with what currently exists.

Seen retrospectively, what appears obvious is that, with some exceptional moments, in the old era everything was devoted to administering problems more than constructing a solid platform of development. The government was undoubtedly strong and overbearing and had the capacity to define priorities, to make decisions, and to act upon them. It is interesting that it did not act to construct a modern country but rather to maintain its political viability. Without doubt, there were many good years of growth; however, when the need to reform the economy was bantered about in the seventies (decades before the famous, overdue reforms began), the criterion of “better leave it be” prevailed. The result was the catastrophic tragic dozen (1970-1982): another attempt to administer problems, in this case by means of exacerbated debt and inflation.

Had that enormous concentration of power that is so yearned after today been used for good, the country at present would haveincome levels similar to those of Spain or Korea. After the success of that era, one would have expected that the average Mexican today would be enjoying three-fold higher lifestyle levels, that the economy would be growing with celerity, and that our political system would be a model of civility. The fact, however, is that the concentrated power served to benefit those who retained it and not the population in general. That is why there were (and are) so many politicians waiting in the wings for the Revolution to “do them justice”.

The system that managed conflicts and held these back from exploding had a great advantage over the current situation: the population perceived the government with respect, if not with fear, something clearly undesirable from a democratic perspective, but that indubitably allowed for a peaceful coexistence. The police were corrupt but crime, which was also administered, was modest; judges were subordinate to the executive branch and no one limited their capacity to act. The narcotraffickers moved drugs from South to North and the system was sufficiently powerful to demarcate limits and impose conditions. It wasn’t perfect but it conferred stability.

The gradual collapse of the old system, a process that began politically from 1968 and economically from the beginning of the seventies, in the end bequeathed a political structure that was inadequate for dealing with today’s problems (qualitatively very distinct from those of that time) and a poorly organized economy and one not conducive to the promotion of high growth rates. Additionally, at present no one fears the government or its policies; thus, it is not even possible to pretend to administer the conflict. In other words, we continue to do the dead man’s float, but now without the benefits of the past.

In this context, the attraction that many see in a potential PRI return to the presidency does not lie in that it would solve the problems (there is not a shred of evidence suggesting that this would be the goal motivating its candidate), but instead the perception that it would at least keep the engine running. That is, achieving the reestablishment of the mediocrity of yesteryear.

The truth is that what the country requires is not another PRIist, PRDist, or PANist government, but a new system of government. What is urgent is constructing the capacity necessary for it to be possible to confront and solve the problems that have been accumulating for decades and that have turned us into a society that privileges the short cut rather than the cure, “let it go” above excellence, control over participation, “it’s better than nothing” over high economic growth, stability over success, copilots over leaders.

The country requires, nothing more and nothing less, than a new State. It would be worthless to procure the reconstruction of what stopped working a long time ago, as demonstrated by forty years of failed attempts. Nor would an effective government or an amorous one work. We need one that solves the problems.

As the electoral contest evolves, we citizens should exact responses and competence, experience and innovation, ability, and, above all, vision. The very notion that everything worked well before and that it would be sufficient to return to that idyllic world sounded very good in the couplets of Jorge Manrique but does not constitute a reasonable foundation for dealing with the enormous challenges confronting the nation.

The challenge consists of constructing a different future, a process that will take years, but that has to begin now. Key to its success will be, first, clarity of project: what is required; what are its components, and how it is to be constructed. Second, a clear and competent leader, capable of visualizing it, giving it form, and bringing all Mexicans together, commencing with the politicians and their parties, in a grand national effort whose characteristic would be plurality and convergence in a common objective. And third, the capacity to articulate its diverse components: vision; human and other resources; and the capacity for political negotiation.

The country has ways out, but only if it confronts and solves its problems.

www.cidac.org

@lrubiof

“It would be blindsight to hide the obvious,” says John Womack: “that contemporary Mexico demands profound and responsible reorganization, a reorganization that conducts a cleansing of all the ends of the knot, and not only one”. If the country wants to emerge from the breach in which we find ourselves, we Mexicans will have to stop contemplating our umbilicus and begin to estrange ourselves from the wrongs that impede us from progressing. The first issue is what to change, and the second would be how.

The rhetoric and discourse on a “Reform of the State”, as well as  countless reforms directed specifically toward economic activity, are ubiquitous, but the content is always diffuse and the concrete objectives, of doubtful relevance. Some want something so great and onerous that its size alone makes consideration of it impossible. Others have such definite and particular objectives in mind that they end up trivializing the pressing need to reform the government and to make it capable of responding to the new realities confronting the country. The Mexican government over the last several years has been incapable of creating appropriate conditions to generate growth or to extinguish public insecurity, to attack poverty, or to provide Mexicans with an education consistent with the challenges defying the population in the labor market. No one is able to entertain the most miniscule of doubts that it is necessary to reform the government and the economy. But we have to begin at the beginning, at the objective. What is imperative is to create a strong State, one capable of governing.

At present, the Mexican government is everything but effective: it is large and unproductive; it impedes individual initiative and bureaucratizes productive activity; it generates instability and insecurity; it is not representative of, nor does it favor, the development of a responsible citizenry. In sum, the present-day Mexican State does not function for what is essential: to create the conditions necessary for Mexicans in general and the economy in particular to prosper. This and nothing else should be the purpose of the so-called reform of the State.

With such a clear objective, the question is why has the public debate not been oriented in this direction? Why has it concentrated on shifting themes that, despite the best efforts, are never resolved, perhaps evidencing the fleetingness, thus the irrelevancy, of these? Over the past decade, diverse and disperse themes have been discussed within this context, such as voting for Mexicans living abroad and the writing of a new Constitution, Federalism and the strength of the Legislative branch, ratification of the Cabinet, and reelection of legislators. The contrast with other latitudes could not be greater: on observing the prodigious moments of institutional transformation experienced by nations such as Chile, Spain, China, or Korea over the past decades, what leaps out at one is the disposition to think big and, at the same time, to get the entire population on board. Support of the population is crucial because without it, any reform will end up being pro forma, incapable of modifying the reality; participation of the population also would imply a greater degree of permanence. Thus, it is duly significant that, in each of those nations there was an ambitious attempt to advance a national transformation project leading to establishment of the bases for long-term development, as well as to reconciling their populations with themselves and with the past. In Mexico, there has been neither vision nor the capacity of conception. We should not be surprised at the result.

The Mexican government has been ineffective for many years, but this ineffectiveness has been exacerbated from 2000. Previously, until the mid-sixties, the government was very effective in terms of its own objectives, but extraordinarily ineffective in attending to the citizenry in any of its activities. What was important for the government was for the country to function reasonably well so that the members of the political class could reap the benefits. From this perspective, the system’s effectiveness was very high: there was stability, the economy more or less prospered, and the majority of the population accepted the circumstances with greater or lesser jubilation. This fairy-tale world came tumbling down in the seventies in part because the then-government suddenly decided to change the rules of the game, generating extraordinary levels of inflation, which began to eat away at everything: economic growth and social stability, education and family structure. The point is not to eulogize an era that, despite its achievements, was saturated with problems and conflicts, but rather, to watermark the era of decomposition and, later, the attempts at reform that followed.

Today’s brouhaha is not about specific and relatively minor reforms –of any type- but for an integral reform of the sources and distribution of power. No matter how profound and intelligent many of the proposals marauding around the public debate are, there is the risk of attention being paid a nonexistent problem, or, more exactly, that the underlying problem will not be addressed. The risk of a suite of reforms that does not resolve the problem should be of concern to all of us. If the problem is one of power, it will not be resolved with laws or reforms, but rather, with an in-depth political agreement that is subsequently codified into law. In this instance, the order of the factors does indeed alter the outcome.

The current political reality clashes with the institutional structure that characterizes the political system. If prior to that, up to the nineties, things worked badly, they have now taken a turn for the worse and, in addition, are dysfunctional. This is not the “fault” if anyone in particular, but rather, the burnout of an institutional structure designed for another age that is not in keeping with present-day circumstances and that does not respond to the realities of the power of today. It is urgent to redesign the institutions in order for these to be functional and to operate vis-à-vis the citizen. The vectors of change, of State reform, cannot be other than efficacy and rendering of accounts. But this cannot be imposed by decree: for them to work, they require a basic renegotiation of power, that is, the equivalent of the constitution of a foundational political pact: a strong State

We must not lose sight of the fact that a subsidiary objective to that of a strong State is that of conferring certainty and clarity of course on the population, and this can only be achieved insofar as there is a wide-ranging political agreement, accompanied by the mechanisms of checks and balances that make it effective. Nothing more, but nothing less.

www.cidac.org

The world is racked with convulsions that shatter paradigms and certainties similar only to those that occur at transformational moments such as those produced by the World Wars: all of the traditional referents have been set on their heads. It is virtually as if the world were reversed, as if Goytisolo’s famous poem were truth and not mere satire: “Once upon a time there was a good little wolf that was abused by all the lambs. And there was also a bad prince and a beautiful witch and an honest pirate. All these things existed once when I dreamed of an upside-down world”.

The rich countries are in crisis and the poor ones spawn like mushrooms; the yen is strengthened and the dollar weakened; the Chinese travel to Europe and indignant Spanish youth protest in the streets; engineers in Bangalore keep the French financial system functioning while Japan’s debt doubles its GDP; China has been experiencing growth rates of over 9% for three decades while Japan practically doesn’t grow at all; Arabs rebel and Russians vote.

Something very big must be going on, but probably less so than what appears: the great change is the velocity of the communications that globalization produces, which generates immoderate expectations in all corners of the world. However, as numerous observers have argued in the past months, the sole difference with the Revolutions of 1848 was the speed of the contagion, not the fact itself.

As the saying says, “When it rains, it pours”. Each of these processes and happenings has a logical explanation but that doesn’t mean that the entirety is less impacting. If one reads the daily international newspapers, speculation on the consequences of these convulsions is more than galloping: whether China will be the new superpower or whether the government in Washington is going to collapse; whether democracy will overcome the Middle East or whether India will dominate the world of the future; whether Brazil will be Latin America’s nouveau riche, leaving us no more than the crumbs; whether Europe will become Muslim-majority territory. Anything goes and there’s no lack of reasons for imagining a distinct world. But imagination is no substitute for analysis.

The problems of Europe and the U.S. are very distinct but they converge at a fundamental point, the one that that afflicts Japan the most: their societies are aging and pension and health programs conceived under the paradigm of many young people sustaining relatively few old people is wreaking havoc. Insomuch as the aging population grows (and lives longer) and the proportion  of economically active population decreases, the result can be none other than the collapse of the state of well-being that for many is the epitome of civilization and perhaps the most attractive characteristic of many European nations.

In Europe there is well nigh no questioning on the “model” that they desire to preserve, but that does not diminish the financial challenge that their societies confront. Although the Americans age at a much slower rate, their challenge is similar in concept but the political dynamic is very distinct: there the “Blues” want to be more like the Europeans while the “Reds” prefer a model more akin to one of pioneers and adventurers who depend more on themselves than on governmentalTLC (tender loving care). The latter guarantees more fireworks but also probably, in the end analysis, the pragmatic solutions that typify them. In contrast, the Japanese have been stuck for more than a decade in good measure due to the paralysis of their political system that has impeded them from recognizing the nature of their financial problems and, no less important, because of a population that, content or not, lives so well that it prefers not to carry out changes in the status quo.

Rebellion in Arab streets responds to a combination of factors that reminds me a great deal ofPorfirioDíaz in 1910 and of 1968 student movement. Egypt is paradigmatic from the first simile:an unresolved succession, anageing dictator, incapable of understanding the way his society evolves and how novel forms of communications undermine the sources of political control. It may be that Saudi Arabia illustrates the second simile: success in creating a vigorous middle class brings about the seed of the demand for political participation and access to the decisions that will define their fate. It is no coincidence that it is the young people who are demonstrating.

The outcome of all this remains to be seen: the weaknesses of the “emerging” countries (like China, India, and Brazil) are very large and the strengths of the developed nations much larger. It is not obvious that one can extrapolate from the past few years, just as it isn’t evident that Mexico will remain permanently thwarted. But the implications for Mexicans are evident: we are neither growing like the emerging countries nor are we basking in a political structure capable of advancing reforms that are likely to be achieved. In a certain manner, we behave ourselves like the Japanese (paralyzed but not wanting to change) but without enjoying their quality of life. Thanks to the crises of the past decades, and to some recent reforms, our fiscal situation and pension financing structure are infinitely healthier than those in developed countries. In addition, although it’s hard for many to accept this, the political system, which was never as repressive as in other latitudes, has been opening breathing spaces for decades, and in contrast with the Middle East, the population is very conscious of the dilemmas that the country faces. We Mexicans might not be satisfied with the status quo but there certainly is no broad social base, one disposed to opt for violent or revolutionary solutions.

What is intolerable in Mexico, and what without doubt makes it resemble many other nations with which it isimplicitly compared, is the inaction. The security situation entails costs and indubitably dissuades many potential entrepreneurs and investors but is not sufficient explanation for the pessimism and paralysis that has overcome politicians and the population in general.

Each of us has their hypothesis of why Mexico findsitself in this state of mind but what is clear is that the country is in wait for someone else to resolve its problems. The demand for leadership is evident but also fraught with danger because, however much I am convinced that effective leadership is required, a society cannot be permanently put on hold. Mexico’s circumstances do not justify a street rebellion à la Tunis or Cairo, but it’s pretty much time for, beyond political, party, or ideological fancies, society as a whole to call forthe political class to get itself together and respond.

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When the growth engine is stuck in the mire, one should question oneself as to whether the premises sustaining how to start it up again are valid. Bertrand Russell, the great British philosopher, once affirmed that “I think that what needs to be preached in modern industrial countries is significantly different from what always has been preached”. In matters of development, what has always been fostered in Mexico is demand, that is, greater expenditure. It is possible that, in some circumstances, spending could be useful; however, what truly should concern us is why investment is so sluggish.

The governmental perspective, by nature, is from above: the whole is what is viewed and it is very difficult to understand the parts or to act with surgical precision. That is the reason for the failure of the majority of sector-promotion or growth programs in general. Except under very particular circumstances, what favors or inhibits investment is very distinct from what, from above, can be understood by a bureaucrat who, necessarily, must make decisions featuring the whole.

A paper in a Chinese fortune cookie stated it with full clarity and in the vernacular, “Crowded elevators smell different to midgets.” This person, that is, the run-of-the-mill citizen, experiences problems that begin at the door of their establishment but that do not end there. The citizen must deal with garbage on the sidewalk and fluctuations in voltage, scarcity of water, potholes in the street, and the interminable traffic involved in getting anywhere, and what of the violence and insecurity? Before even beginning to think about establishing a business –whether it’s an automobile engine plant or a stand for repairing household steam irons- the potential entrepreneur already sees the world as an uphill climb.

This potential entrepreneur or investor doesn’t even imagine what’s coming: zoning laws; ground use permits; environmental impact evaluations; import red tape; registering before the Ministry of Finance; the municipal government, or the Federal District delegation. If they sit down to plan the integral process, those aspiring to entrepreneurship will be required to contemplate a veritable troupe of lawyers and accountants months prior to production of the first screw. Judging by the tangible reality, the majority of these succumb in the planning stage: ergo, our large informal economy.

Supposing that these are sizeable or multinational businesses, with the capital and capacity to deal with all the red tape and costs inherent in the process, their considerations become yet more practical: how does Mexico compare with countries like Korea, China, Brazil, Hungary, or Taiwan. If the potential market is the U.S., the intrepid investor will begin to research what Mexico offers for their project. The advantages will be evident: proximity and access governed by a bilateral commercial treaty. With this we have a leg up. However, as soon as other things are proffered for comparison, their costs and potential benefits require recalculation.

From the other side of the table, as aspirants to this investment (although it doesn’t always appear to be thus), we would be required to ask ourselves how we compare with nations such as the aforementioned  and at how great a momentum do these two enormous advantages begin to be eroded by the onus of our problems and limitations. In contrast with China or Korea, our infrastructure is pathetic: decrepit; below par in quality; streets chock-full of potholes; permanently chaotic transit (more in some cities than in others), with a bureaucracy whose incentives always privilege the short-term (personal benefits as well as slush funds for public officials) instead of aligning itself with growth of the economy.

What Mexico needs is a change of focus. Ideally, this could emerge at the global level, when a great national leader convinces the collectivity to focus on the future, accompanied by growth and development criteria. Although attractive, judging from what we have witnessed in recent times, a cynosure of this nature seems scarcely realistic. The function and responsibility of the government is to eliminate obstacles, both internal as well as external, to private investment. However, the amount of the obstacles that exist is the equivalent, says Luis de la Calle, of the speed bumps that we car drivers encounter everyday: this comprises the best evidence of underdevelopment because speed bumps are substitutes for what does not exist, that is, respect for the law, traffic lights, and other means that, in theory, should serve to norm development and make it possible.

One way of attempting to right these wrongs would involve a bureaucratic and regulatory revolution that, although conceivable, does not appear possible. However, there are other ways of considering these themes. Perhaps the best achievement of the two PANist administrations of recent years is having made possible the mortgage market that has allowed several millions of families to acquire a home. Instead of seeking to resolve all of the problems that impede the growth of low income housing, Fox summoned together bankers, builders, regulators, and bureaucrats to explain impediments and define options. The solution arising from that did not transform the world, but did indeed resolve the heart of the problem. It seems to me that this should be the model to follow in the future: small but competent solutions to the specific problem.

The true challenge concerning the growth of the economy and employment in the country does not lie in the absence of ideas, projects, and opportunities but rather, in mistaking the focus that supplies the norms for governmental function. Wealth is created by entrepreneurs and it is these who generate employment. The former premise should be understood in the entirety of its dimension: everything that hinders or impedes the development of investors and entrepreneurs reduces growth and job creation. Clear as a bell.

In classic economics, growth was made possible by the “invisible hand” of the market. The problem is that, according to Rafael Fernández-Macgregor, in Mexico this hand is tied behind our back. It is tied there by red tape and the bureaucracy, state-owned energy companies, private political projects, and impunity that, de facto, give free rein to corruption and stagnation. Our problem is not the absence of opportunities or potential entrepreneurs, but the excessive presence of obstacles and impediments that in the last analysis quash even the most persistent of these. The success of countries such as China with the revolution initiated by Deng Xiaoping is not the product of their perfection but rather, of the fact that they accord privilege to those who create wealth. Simple as that.

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Asked how 30,000 Englishmen “subdued” 200 million Indians, Tolstoy responded: “Do not the figures make it clear that it is not the English who have enslaved the Indians, but the Indians who have enslaved themselves?” Something similar appears to be occurring with economic growth in our country.

One of the few issues on which there is near unanimity in Mexico is that of economic growth. We all see the growth of productive activity as a crucial means for creating wealth, generating employment, reducing poverty and inequality, as well as raising the level of the population’s quality of life.Consensus in this sphere is practically universal. However, differences on how to achieve it are as vast as ever.

In the discussion on economic development, there are two great wellsprings: the practical or technical, and the ideological or political.From the technical flank, there is broadconsensus on the type of factors or reforms that could contribute to growth of the economy and the debate focuses on the specific content of the legal initiatives that this would require:the fiscal strategy; the investment regimen; the labor law, etc. Some scholarsin this field, such as Gordon Hanson, affirm that Mexico has carried out many reforms but that it has not achieved raising the growth rateand that probably what is lacking are small adjustments in several circuits more than grand reforms.If something is clear after thirty years of reforms, it is that the problem does not reside in the reforms themselves.

The ideological and political discussion is very different.On the one hand, we find those who protect and defend specific interests and, on the other, those would construct or reconstruct a determined development model, whether that of the past or of other latitudes.Both contingencies have developed a very ambitious and wide-ranging narrative that seeks to justify and legitimatize the interests or values that lie in the background. Something else that is evident after fifty years of crisis and poor economic performance is that the problem is neither one of nationalism nor one of ideology.

Once in a while, a goodread changes the way in which one has been thinking about a determined theme. That happened to me with the book entitled “Bourgeois Dignity”*. Deirdre McCloskey’s argument is that growth is possible not when certain economic and structural conditions come about, but when the creation of wealth acquires legitimacy.

The author reviews the history of numerous countries –such as China, India, Iran, and the Arab nations- that, from theXVIII century, displayed conditions not very distinct from those of England and Holland but that, however, it was in these latter countries that the innovation began that led to capitalist development.The book takes it upon itself to ask why the difference exists and what it is that made the difference possible. The conclusion at which the author arrives is that structural conditions are necessary, but that what makes the difference is legitimacy.Not by chance is the book’s subtitle “Why Economics Can’t Explain the Modern World”. The great change of the last decades,says McCloskey, is that the creation of wealth acquired legitimacy in places such as China and India and this unleashed incommensurable forces and resources that have transformed not only their own nations, but also the world in general.Itis in this sense that the author affirms that the true revolution has taken place in the world of ideas and not in that of specific economic reforms. The latter are useful when the former have been resolved.

If we apply the argument to Mexico it would seem evident that although the reforms of the last decades, good or bad, were necessary, the crucial factor wasnever attended to. In Mexico the concept of wealth does not enjoy legitimacy and those who are responsible for generating it –the entrepreneurs- are perceived more as a blight or as a source of abuse than as the taproot upon which the country’s innovation and development depend.The absence of legitimacy in terms of the entrepreneurial function has many origins but perhaps the most significant is that neither the “technocrats” nor the “ideologues” have been able to revert this order of things.In fact, the narrative of those who advocate more reforms as well as of those who adopt an ideological vision tends to exclude the entrepreneur from the picture.This is what permits and leads to the existing entrepreneur being protected instead of to the creation of an atmosphere of competitiveness that allows the blossoming forth of millions of potential entrepreneurs, including many from the informal economy and “gofers” who, in a different business environment, would have everything to transform the country.

For McCloskey, the idea of a free and worth (in addition to dignified) bourgeoisie is directly correlated with the steam engine, mass marketing, and democracy. It was liberal ideas that created the transformations in the real world because they made possible the existence of a climate of innovation that made the European bourgeoisie flourish,what we now call entrepreneurship. The two central ideas that made the difference according to the author were: that the liberty to hope is a good idea in itself and that a complete economic life should give dignity and even honor to ordinary people.

Markets and innovation have been around from olden times, they are nothing new or novel. What is new in many places is the fact that those who operate in these worlds have acquired legitimacy and the freedom to act. In this regard, the great contribution of this book is that it explains with great perspicuity the manner in which the legitimacy of a social function has the capacity of transforming a nation, much as dogmatism and rigidity (social or political) inhibit it. One of the most interesting and relentless observations of the author is that the liberation that legitimacy entails permits breaking with the social, regulatory, and racial structures that permanently maintain many nations and sectors within their societies poor.Once entrepreneurial creativity acquires legitimacy, everyone can be an entrepreneur and those who take on the challenge end up transforming their lives and their countries.

China began to transform itself when it legitimized capitalism and the entrepreneurial function, even though it did this in oblique fashion. This is the transcendence of the famous saying ofDeng Xiaoping in the sense that what is important is not whether the cat is black or white but whether it hunts down mice or, in this case, produces wealth.The Chinese broke with their self-imposed enslavement. When will we?

*Bourgeois Dignity: Why Economics Can’t Explain the Modern World, Chicago University Press, 2010.

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Beyond the result, what was impacting about the election in Spain two weeks ago was the civility of its contenders. Everything was impeccable: the final results were announced a mere four hours after the voting booths were closed; the losing candidate presented himself to the media to recognize his defeat, to congratulate the winner, and to offer to defend, as a member of the opposition, the constituencies and values of his party; and the winner invited all Spaniards to join together in a great national effort, to recognize their opponents, and to announce what the focus of his government would be from that moment on. There were no disputes, quarrels, or disagreements. The voters had spoken and the contenders had complied. All had subordinated themselves to the rules of the game in form and in substance. Civility.

Although none of this should have surprised us, Mexico’s situation is clearly different. The question that appears central to me is how the Spaniards arrived at the point where there are rules of the game that all actors accept and adhere to. In technical terms, what the Spaniards have achieved is the legitimacy of their system of government, which consists of the belief in the validity and acceptance of the rules of the game. That’s how we differ from them.

The nodular point of the Spanish process took place when, at a meeting on matters of prices and salaries months after the death of Franco, all of the political actors –those who had lived under the dictatorship (or had been part of it) as well as those who had been exiled after the Civil War- accepted the Franquist legality, that is, the existing rules of the game, as a platform for launching the democratic transformation. The fact of accepting this set of rules (off-putting and abusive as they were for the majority of participants at the meeting) implied submitting themselves to a political process that, they trusted, would furnish a new legal framework, a new constitution, and democratic game rules. The so-called “Moncloa Pact” was transcending because it implied consensus with respect to the process, not the result.

In Mexico we’ve been engaged in a circular process for decades because the political actors have not agreed upon (nor much less accepted) a set of rules of procedure, independent of the result. Rather, political actors have made a display of accepting the rules only if the result is favorable to them. The spectacle of López-Obrador in 2006 is a patent example of this, but unfortunately not the only one, as we can observe with the PAN in recent gubernatorial elections in Michoacán.

Acceptance of the rules of procedure is something fundamental to the development of civility. Given its absence in the country, the discussion is centered on the electoral, but the matter is broader. Some years ago I was impressed –actually, mesmerized- on observing how a child, surely no older than 3 or 4 years of age, flew out of a side street on his bicycle into a main thoroughfare in Tokyo without looking: the green light was all he needed to know and certainly was all that his parents had taught him. Behind the green light there was absolute recognition of the fact that all motorists stopped on the most important artery would wait until the lights changed before proceeding. The relevant point is that a society that respects traffic rules and regulations also respects electoral rules and vice versa: they are inseparable.

In essence, at least on the electoral plane, the matter of rules is a matter of power. It implies agreement on procedures but also especially on their legitimacy. It implies, like the Moncloa Pact, subordination without discussion to the rules, independently of the result. In Mexico we have not achieved resolving the dispute for power and this translates into the propensity for automatically discrediting the rules every time someone loses an election.

In the era of the PRI, the issue of power was resolved through the imposition of two rules that were “unwritten” but evident: on the one hand, the president is everyone’s undisputed and indisputable lord and master; on the other hand, it is valid to compete for succession as long as the first rule is not violated. It was a simple and effective mechanism that, however, did not emerge out of the blue. Its success was the product of the establishment of the rule and the capacity to make it stick. The latter was not automatic: it was only accomplished when Cárdenas exiledPlutarcoElías-Calles and submitted General Cedillo. Once the capacity to exact compliance with the rules was demonstrated, the system went into effect and functioned until the PRI ceased being representative of Mexican society and the unrepresented began to dispute the system’s legitimacy.

The democratic rules that have been adopted over the past decades have not enjoyed legitimacy because there has not been wider agreement among the political forces with respect to the question of power: procedures; the distribution of benefits, and recognizing the opposition as a real factor of representation. At present, whoever is in power disqualifies the opposition and those in the opposition tend to discredit the one in power, beginning with failing to recognize its legitimacy of origin.

I have no doubt that the great challenge of the upcoming years will be that of power. In past decades we have gone from a system founded on unwritten rules to one without rules. Today the challenge is to construct explicit rules to which everyone subordinates himself and this implies a pact on power. Mexico’s problem is not that there are no legislative majorities but one of legitimacy.

On achieving a power pact, everything else that does not function or that eats away at society begins to change. On there being clear rules, the actors can devote themselves to the discussion of the themes that affect us with a distinct focus: instead of life trickling away bit by bit in each discussion, we could enter into serious debates where the only thing up for grabs would be the immediate issue.

Currently, key themes for the development of the country such as public security, energy, and worker rights protection cannot be discussed because one of the actors maintains the force to impose his interests, without recognizing the formal power structure. That is, the so-called de facto powers (including the political parties) can veto or cancel any relevant debate because they are more powerful than the formally established powers. An agreement on formal power (the government) would allow strengthening the State in its entirety, beginning with it the subjugation process of the de facto powers: just like Cárdenas did in the thirties.

As happened in the Maximato (1928-1934), today the government is here, but the one who rules is out there. There is an urgent need for a pact that legitimizes the power of the government and the role of the political parties and that throws open the door, for real, to the stage of the institutional development of the country.

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