Images never fail to impact. The relationship with the U.S. is perhaps, says Sidney Weintraub, the most atypical in the world, and the variety of components is preeminent and much richer, and more complex, than would appear.

In the district known as La Villita in Chicago’s lower west side, I came upon scenes that not only delight the eye, but give rise to mixed emotions. There, disparate cultures and extraordinary stories converge, as well as a bilateral relationship that official interchanges are frequently unable to visualize.

La Villita has everything: shops; images; passersby; restaurants; street hawkers; tamales; activists; children; panhandlers; popsicle vendors with carts imported from Puebla, and hundreds of faces of people absorbing a new (and often old) world. As in so many other corners of U.S. geography, what was previously a North American space became a Hispanic, predominantly Mexican, concentration. But what is impressive is the prosperity and enthusiasm observed in the faces of dozens of people who come to the place in swarms. It is impossible to know everyone’s story, but those of a small nucleus with whom I talked evoked a lifetime and the enormous possibilities, with all of the sacrifices these entailed, that the freedom of the world of the USA has offered them.

Lupita, the most communicative of the group with whom I talked, is originally from a town in the central Mexican state of Zacatecas, where she left her two children in the care of her parents. Like so many others, she was first employed as a hotel chambermaid. Eventually, she became the head of the hotel’s laundry, where she learned the ins and outs of the business. She obtained a loan to buy two washers and two dryers and set up her own laundromat. At the beginning, she only opened the laundromat nights after returning from work at the hotel, because someone had to be on duty all the time, and because though the washers and dryers never stopped, the income from the business was not sufficient for her to leave her day job or to pay an employee. Instead of capitulating to defeat, Lupita invented a novel enterprise: rather than only renting the washers and dryers to customers who operate the machines themselves, she introduced the services of washing and drying, folding, and ironing for those not desiring to do this, or who didn’t have time to go to the laundromat and wait for their clothes. Although the new service appropriated many of her sleep hours, in three months Lupita generated sufficient income to increase her credit line, purchase four additional washers and dryers, and leave her position at the hotel. Today, Lupita has three laundromats with eight employees in all. From farm worker to migrant to employee to entrepreneur, all in less than a decade. And more importantly: all without governmental support; struggling uphill; violating the law, and living in illegality.

Lupita is an uncommon woman, but hers is not an atypical case. Millions of Mexicans have achieved taking a step toward economic freedom, transforming their lives along the way. A man from Spain in Lupita’s group said that she has “more pride than Don Rodrigo de la horca”, an idiom in Spanish denoting the infrangible satisfaction of individuals who, even under the most adverse circumstances, get ahead on their own power. Observing this scenario, listening to Lupita’s remarkable story, I was left with the sensation that there are dynamics in the relationship between these two neighboring countries that are obvious in, though difficult to incorporate into, the formal interaction between governments and that result in profound lessons for us in Mexico and for the future of the bilateral relationship.

The lessons for Mexico would seem evident. Mainly, what is telling in the fact that a person with Lupita’s outstanding capacity and potential -and there are thousands of Lupitas in all of the country’s enclaves- who cannot develop themselves in Mexico, and for whom it has been Chicago where they found answers and opportunities. With all the adversities that confront a migrant, Lupita showed the world, but chiefly, herself, that the only thing required is a free space to develop one’s maximal potential. Lupita is surely no more than 35 years old, and it would not surprise me if when she’s 50, she’ll already have a chain of laundromats and will be selling franchises. The question is why she was unable to do this in Mexico.

Despite the restrictions inherent in the border and illegal access, the U.S. has become a blind control -a source of unimpeachable evidence- to our limitations, and most especially, to the stumbling blocks devised by our system of government to impede individual development. Lupita has no clout, no privileged entrée into the banking system, no friends in high places: her success is that of any American because the governmental system is designed to make it possible for the Lupitas of this world to be successful. The structure (snarl is a better term) of laws, regulations, ordinances, and authorities that provides norms for the life of the economy is so absurd that it has the effect of obstructing job creation, preventing the unleashing of what Keynes called “animal spirits”. In Mexico, everything is an obstacle, in that procedures are favored over results, and, more to the point, because everything is an interminable contention for power and access to corruption. Creating jobs and the well-being of the population are the least of it.

The Mexico-U.S. bilateral relationship is atypical because we find at the border distinct cultures, histories charged with symbolism, and very dissimilar levels of development. Mexicans have clamored for help for decades from the Americans due to the fact that there are two very distinguishable levels of development to be dealt with. The claim that asymmetry be part of the equation is ubiquitous and unremitting. However, the success of millions of migrants in the U.S. marketplace reveals that the asymmetry is not the product of a relationship of domination and dependence, but rather, of Mexico’s inability to create favorable conditions for development. It is clear that the differences cannot be obliterated overnight, but it is equally clear that a successful strategy of development in Mexico would allow us to breach the gap over the course of time.

Many countries worldwide covet the border that we regard with contempt. It is not that the U.S. is a paradise: the difference with us is that they have organized themselves in such a way that people’s development becomes possible and have created an atmosphere of freedom for the development of all in the nation’s economy. It is evident that we are the ones who must resolve our own economic and bureaucratic structure for the bilateral relationship to cease to be atypical but, above all, for this to serve the development of the country and its population.

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At the Guilin Tiger Zoo in China, one walks a few meters from the most fearsome animals in the world. Different from traditional zoos, in which the animals tend to be passive, at Guilin everything is designed for the animals to preserve, to the extent possible, their natural habitat. They are not fed, but rather, are kept in a space in which they single out, kill, and eat the animal they crave. One proceeds along the side of a moat that, at times, feels terribly narrow, to the extent that it appears that the tigers could jump over to the other side at any instant. The sensation of impotence and fear is impressive. This, exactly this, is what many Mexican feel when they observe the way the government, above all the immune bureaucracy that lives in a world of impunity, harasses and lies in wait for them in permanent fashion. The country has everything to be a rotund success, were it not for the bureaucracy strangling it

In the Eighties, when the country experienced one of its worst moments economically, disputes within the Cabinet and within the government were about how to confront the crisis. Some wanted more government, some less; some wanted to change the logic of the productive sector, others, to return to the way it had been twenty or thirty years prior. The country was adrift, but discussions were essentially conceptual in nature, philosophical. Within the context of this marasmus, many companies sought ways out of their own problems. Although many were highly indebted, there were many businesses devoted to finding ways out of the gridlock. The internal market was excessively depressed, but numerous entrepreneurs perceived extraordinary opportunities through exportation. However, the more they attempted this, something held them back from acting.

In reality, one of the central problems of the Mexican economy is precisely that, from the Sixties, the internal market ceased being sufficiently large for enterprises to manufacture competitive products. Exportation was a natural outlet. However, the entire regulatory structure was designed to control, and not to foster, the growth of production, and much less, that of productivity. Instead of expediting the course, there were permit requirements for everything; to import and to export. Even to invest.

Despite the crisis and the severe recession that the country was undergoing, the restrictions persisted. There was a company that manufactured stoves at a competitive price and quality. Nevertheless, the products had a defect that rendered them unviable for export: the enamel used for finishing the stoves was not heat-resistant. The enamel represented barely 10% of the value of the stove, but without this finishing, it remained outside of the export market. However much the company resorted to the bureaucracy for permission to import the suitable paint with the very foreign currency that the company itself would generate with its exports, the response was always no. In fact, negative responses were so great in number that, little by little, they ended up provoking advancement of the reformers in the Presidential Cabinet. Opposition to any change was so overwhelming (and absurd) that the opening that resulted was much greater than that which its own promoters had imagined as feasible at that moment.

The obstacles were enormous, but little by little the way was paved. Some themes were concerned with the then-operating Secretary of Commerce and Industrial Development (SECOFI), the lair of prohibitionist regulators. But the problems were not limited to permits. To obtain the Value-added tax (IVA) rebate to enable exporters to be competitive required an enormous effort by the Finance Secretary, ever suspicious of any possibility of success. However, in the end, the difficulties involved in the export of manufactured goods were resolved. Although the opening was not as wide-ranging as its critics suppose (because monopolies persist in services and sectors not obliged to compete because they are regulated), the reality is that Mexico became a manufacturing power and today we are a hyper-competitive country in various extraordinarily successful sectors.

The scenario of services at present is much like that which occurred with the manufacturers in the Eighties: everything conspires against exportation, everything is an obstacle. The opening of the Eighties was limited to goods and did not include services, an area in which some countries, particularly India, has achieved spectacular growth rates. In contrast with manufactured goods, services offer opportunities that are much vaster for an enormous number of Mexicans. While manufacturing is concentrated on ever more sophisticated enterprises, typically large (and their suppliers), services depend, in many cases, on no more than organized persons. That is, in the services ambiance, it would be possible to imagine new opportunities by small and medium businesses in which no monumental up-front investment monies are required. In services, there is a great opportunity for thousand or millions of potential new entrepreneurs.

The case of India is illustrative. In a few years, India has achieved the export of the most varied services, employing millions of Indians. Some include the call centers that all banks, credit card companies, and reservations systems utilize, but there are others that are more specialized: accountants; x-ray readers; administrative services, support for the installation and operating of appliances, computers, and other items. In India, a few lines of business employ millions of persons.

Mexico has two challenges to tackle. One is relatively simple, although this is not to say that the customs, fiscal, and employment, etc., bureaucracy will make it easy: to pave the way for the possibility of expanding the world of services for exportation, which will require changes in regulations and laws in order to generate in the end the necessary conditions of flexibility, above all fiscal and labor, which are anathema for the bureaucracy and those who benefit from the status quo. The remaining challenge consists of liberalizing and submitting to competition the services that already exist in the country and that comprise the themes that are avoided daily: telephone; energy; electricity, and, perhaps someday, the bureaucracy itself. If we want competitive services, it is necessary to generate an environment that allows them to be.

Manufacturing has demonstrated its potential. Now is the time to do the same with services.

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Not long ago, a magazine published that the authorities of a German town were about to agree on performing DNA tests on all registered dogs to determine which of these canines’ owners were disregarding the regulation to pick up their pets’ feces that were deposited in the public way. The Germans have the certainty, and the instruments, to determine where the problem lies because they start out from a principle of trust. When it comes to the problems of poverty, employment, and growth in Mexico, theories abound but the solutions are always inadequate. Worse yet, it is not recognized that without trust, it is impossible to solve the rest.

From the end of World War II and under the support of the Economic Commission for Latin America (ECLA), the United Nations entity devoted to Latin American development, the Mexican government applied itself to promoting the growth of the economy. The theory was that private would follow public investment, so that if the government electrified a region or built a highway, companies would begin to construct factories and provide services that would translate into the generation of wealth, jobs, growth, and less poverty. The experiment was very successful and permitted the Mexican economy to grow to high levels for several years. What is infrequently appreciated is that investment was not the only thing that the government contributed. Accompanying the investment, there was a concept of public functioning that later disappeared: the government understood that it must create not only physical conditions (infrastructure), but also a political milieu for private investment to prosper. These political conditions, which businessmen call trust, are what are most important for the functioning of an economy.

In that era of economic growth, the government incorporated persons with entrepreneurial experience or, at least, with the sensitivity necessary to give the businessman confidence. The government had achieved the construction of institutional scaffolding that guaranteed political stability and maintained clarity and permanence in the rules of the game that made the economy function. It was, as we are able today to evaluate with full precision, an authoritarian system that achieved stability not through the strength of its institutions, but rather by means of the structure of controls that characterized it. However, from the perspective of an entrepreneur, the system guaranteed permanence of the rules (at least for one six-year presidential term) and this generated the confidence necessary for investing. The result was economic growth and the generation of employment.

Things changed in the seventies for two reasons. One, the main one, was a generational changing of the guard in the government. The other was a change in the structure of the economy. The rhythm of economic growth began to diminish because raw material and grain exports became insufficient to finance the import of industrial materials, which called for an important structural change. The problem was that those who decided on the nature of the structural change did not understand business, or the investor, or the employer: thus, they undermined the trust base that had worked so successfully for decades and established the bases for the great ills that continue to accompany us to this day.

Now, eleven years after the first alternation of parties in government since the Revolution, blaming the PANists for their incompetence in distinct ambits is in vogue. The de facto initiation of the electoral season constitutes an exceptional opportunity to attack these governments and to throw stones without rhyme or reason. Nevertheless, the problem does not lie in recent governments, however incompetent they may have been, but in the corporativist legacy that former governments bequeathed and that these recent governments knew not how to dismount. Beyond the assignment of guilt, the country’s problem resides in a politico-economic structure that generates two ills: it promotes informality and discourages formal investment. The sum of the two translates into an economy that grows little, generates a very low level of formal and permanent jobs, and casts the population into a troubled state that feeds back on everything else.

The system propitiates informality in two ways. On the one hand, it renders formalization very burdensome; on the other, it favors the permanence of informality. Allow me to explain: a person or family who starts a business –juices or tortas, repairs or stalls of clothing, whatever- has neither the time nor the resources to register it fiscally, to comply with social security regulations, to have everything in order in the eyes of the labor authorities, and to satisfy the unending reports and filings that each of these bureaucracies demand; thus, they opt for doing what they know how to do or what they can do and nothing more. Thus is born an informal enterprise. Instead of making it easy to formalize the business, the authorities harass the person, making growth and development impossible. At the end of the day, informality resolves (badly) an employment problem, but not that of growth. Once engaged in informality, it is nearly impossible to become formalized, and mechanisms such as popular health care insurance, necessary and commendable, but conceived essentially to serve those living in informality, lead to these persons remaining as they are.

To grow, the country has need of businesspeople who generate wealth and jobs, both requisites for putting an end to poverty. The big question is how to achieve, it. At present and from the seventies although with some sunny moments, the country is experiencing an environment of uncertainty and bureaucratism that does not foster an ambience for private investment to grow. For the latter to prosper, a climate of confidence and certainty is required that makes it attractive to assume the risk inherent in initiating an entrepreneurial adventure. Ironically, investment prospers to a greater extent in a climate of competition and little, but effective, regulation, than in one that is bureaucratized and politicized. I say ironically because many pretentious entrepreneurs prefer the favors, protection, and subsidies that the bureaucracy bestows, but the only thing that this kind of climate affords is querulous and indolent entrepreneurs who create neither jobs nor wealth. Mexico needs a new entrepreneurial class: one that is disposed to take on risks and to compete with the rest of the world. Rather than blaming each other, our politicians should devote themselves to constructing a climate that favors private investment, one that attracts entrepreneurs who are prone to creating wealth and generating the jobs that the country urgently needs. This is much more difficult to achieve than assume those espousing Manichean rhetoric, which accomplishes nothing more than complicate the construction of the atmosphere of confidence that we so miss.

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The scene says it all: a group of Chinese and Indians engaged in a discussion about the potential of their respective countries to procure and maintain high growth rates for long periods in order to transform their societies.Two nations that have for decades grown rapidly, comparing notes and defending their ways of being. The conference heats up at moments and sometimes appears to be a confrontation not only of two modi operandi, but also of two ways of being. The two economies have grown at more than 7% annually for years (and the Chinese much more than that) and, however, what is noteworthy is the discussion on the potential of continuity. Observing the forum, I felt a little like Cantinflas in the film in which, without being aware of it, he ends up sitting at a table of people he does not know and can only ask himself, “And what am I doing here?”

The discussion among these scholarly and academic Asians is most interesting, in addition to revealing. But above all it provides many teachings for us. Evidently, the history and circumstances of each nation are different from ours, but not for this reason do they lack offering a relevant contrast for our own process. China has followed a reform drive to the death, motivated in good measure by their political elite’s fear of losing power. The economic growth has satisfied their population, thus allowing it to avoid significant political changes, a situation that has lead it to confront any challenge in heartless fashion. No obstacle is too large to tackle because the alternative to reform, the Chinese seem to think, would entail the fall of the government. The case of India is quite different: there, a democratic country, approval of any and every change, however small, has necessitated legislative discussions and votes that on occasion appeared to last an eternity. However, once approved, they enjoy full legitimacy.

Our case is peculiar for one very different reason: even when enjoying full control, the PRIist system never had the disposition to reform (which is telling about the claim of its current leaders about what they would do if elected). Also, now that we live in a democratic context we do not possess the capacity or inclination to do so. That is, we were not successful when we had a system similar to that of the Chinese nor have we been able to with a system akin to that of India. Where, I ask myself, is the core difference?

China and India are changing at an accelerated pace, following radically distinct pathways. True to its history of centralized control, the Communist Party being no more than its most recent reincarnation, China has achieved constructing a development strategy from the pinnacle of power. Contrariwise, India is a complex nation, characterized by hundreds of ethnicities, religions, traditions, and political parties, which impose very diverse social and political dynamics that have in turn generated an inexorably decentralized political system. Control in China lies at the center, in India in the legitimacy of the system in its entirety. In our case control dematerialized.

The statement within the discussion that appeared to me to be the most powerful was that the common denominator in both societies resides in the process of decolonization of the mind that the two nations have experienced. While for decades or centuries both populations perceived themselves as victims of exploitation by imperial powers, their true transformation lies in the freedom that their populations have won. The Indians, affirmed Gurcharan Das, author of India Unbound, “have thrown off the colonial mentality and now only dream of being rich but, more importantly, are sure that the latter is possible”. Another voice described Radú, a young man undesirous of learning any language other than “Windows” and solely interested in knowing the 400 key words to pass the TOEFL examination in English for aspirants to study in the U.S. And of prime importance: “the present generation no longer sees the past as an era of greatness, but rather looks to the future as a source of infinite opportunities”. On hearing this, I thought that the day that we achieve this “we’ve got it made”.

What’s interesting in comparing China and India is that they place before us two absolutely distinct routes. China “possesses order but not legality because the laws perennially emanate from the king”, while India “has too many laws but not much order, but the laws are always above the emperor”. With these words, one Chinese scholar differentiated between these two nations: China has a weak society but a strong government, while the opposite characterizes India. The Chinese government freed up forces and resources to achieve high growth rates, while the average Indian functions with one hand tied behind their back due to the power of the bureaucracy and the diverse interest groups. A few reforms initiated in the nineties opened opportunities never before in existence that made yearly average growth rates of nearly 7% possible. One asks oneself what will happen when the Indians are freed from these hindrances, because at the pace they’re going they’ll leave everyone else in the dust…

It is evident that Mexico is unlike these two nations, but both furnish lessons that are worth understanding because they not only explain many of our limitations, but also could aid us in beginning to confront them. The Chinese come-hell-or-high-water action mode was possible in the PRIist era because there was the capacity of action and the concentration of power and resources that made them theoretically feasible. However, none of this actually took place, at least not after the sixties. Instead of reforming, our way was to go backwards, privilege special interests, and limit the potential of development: precisely opposite the Chinese approach. The Indian model, if that is what this nation’s social and political structure may be termed, has not impeded the adoption of reforms nor their implementation. What both nations have indeed had is a clear sense of direction at the head of their respective governments.

If there is a valuable lesson in the Indian case it is that the core factor of change lies in the leadership: the capacity of bonding wills behind a transforming project. In India the change has been modest but its consequences, radical. None of the latter has been greater than that of achieving changing the population’s attitudes. A population desirous of winning entertains a much greater probability of procuring this. Thus, our worst enemy does not reside in political or legislative paralysis (or, even in the reforms themselves) but rather in the pessimism that has overtaken the population. This is where the Chinese and the Indians have much to teach us.

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In The Fifth Mountain, Paulo Coelho affirms that “all of life’s battles serve to teach us something, even those that we lose”. If there is a country from which the entire world could learn, it is Japan. After decades of growing in systematic fashion, developing extraordinary technologies, and demonstrating to the world new ways to produce, twenty years ago Japan confronted a crisis similar to that which recently pummeled the remainder of the orb, and the nation does not appear to be able to climb out of the ditch. During this time, the Japanese government has tried every type of stratagem without success: the Japanese live very well, but their economy continues to be depressed. Are there useful lessons here for us?

According to Robert Samuelson, the low-grade performance of the Japanese economy has two causes. One is the aging of its population, a situation that entertains social as well as economic grounds, none of which is applicable in our circumstances. The second reason cited by the scholar is the existence of a “dual economy”: a highly efficient export sector (such as Toyota and Toshiba), and a poorly competitive internal market. Until the 1980s, the Japanese economy grew thanks to the export drive of highly competitive industrial products, above all automobiles and electric and electronic devises: “20% of the economy sustained the remaining 80%”.

Revaluation of the yen in the 1980s made exports expensive and was conducive to the moving of many of its factories to other venues, among these the U.S. and Mexico. In the absence of the leverage that exports had exerted, the internal economy became paralyzed. “The domestic sector remains arthritic; Japan harbors one of the lowest rates of enterprise creation of all of the industrialized countries. In reality, the only good years that the sector experienced took place when a weaker yen stimulated exports”. The Japanese government increased public spending, invested in infrastructure, maintained very low interest rates, and developed the most impressive economy-stimulating projects with no result. The conclusion arrived at by Samuelson is that for an economy to grow and generate jobs, a vigorous private sector is required, and this has not happened in Japan.

The similarity with our own reality is obvious. In our economy, two contrasting worlds survive: that of the hyper successful and competitive sectors that export, compete with imports, and whose development ranks among the best in the world, and a creaky old economy that barely clings to life. The former generate wealth, the latter live on the leftover morsels. To a great degree, the existence of these two worlds explains our economic reality: when exports grow, as they have this year, the remainder of the economy begins to function; when exports decline, as happened in 2009, internal demand collapses. As in Japan, 20% provides buoyancy for the remaining 80%. But that 20% produces much more, at a lower price, and of better quality than all of the rest.

The similarities with Japan do not stop there. The reason for two worlds in counterpoint has to do with the protection, explicit or implicit, de facto or de jure, that characterizes the internal market. Some of the protection mechanisms are obvious: customs duties and levies, norms, or subsidies that do not permit determined products to being imported or that render the cost of their importation prohibitive. The beneficiaries of these mechanisms are delighted, but what is interesting is that there is no recognition, not even among the entrepreneurs themselves, that protection for some implies lack of protection for others: if a footwear producer enjoys protection in the manufacturing of soles for shoes, his products will be more expensive than the alternative, thus shutting the rest of the shoemakers out of the market. The protection that so many business people covet has the effect of reducing the competitiveness of the entire economy. Businesses and sectors that are successful have no protection: that is why they’re successful.

There are other protection mechanisms that are perhaps more cultural. When I was a child, I had a responsibility in my house: due to the heat generated by their use, some light bulbs would become stuck to their aluminum recipients that were embedded in the ceiling, because the spot was poorly designed. After a certain number of months, it was my task to break the burned-out spot, remove its screwed-in base with pliers, and insert a new spot. Forty years later, I moved to a house that had the same spots and I continue to carry out the same task: the absence of competition continues to make the product deficient. When I asked the electrician why he had installed these spots, his response was that these were the ones that he had always installed. The manufacturer of these spots has seen his sales diminish little by little but, thanks to electricians like mine, has not yet encountered a death-dealing competition. The problem is that the manufacturer’s sales diminish day to day: in a few years he won’t sell anything. Instead of investing in novel productive processes, he was left behind. That is how a good part of the national productive plant is.

Of course, the great difference between Japan and Mexico is that the Japanese have an extraordinary quality of life; its population does not grow, and it has all of the satisfiers that it can wish for. In contrast, we have a young population, a high unemployment rate, and an economy that frequently produces goods that are inferior to the imports available. What is amazing about the Mexican economy is that there is no lack of individuals with outstanding entrepreneurial spirit: the informal economy is overwhelming proof that the Mexican is exceedingly “Johnny-on-the-spot”, available, creative, and “a mover and a shaker”. The sad part is that the informal economy cannot resolve the country’s development problems despite the fact that it employs two thirds of the economically active population.

In a recent study*, Gordon Hanson concludes that despite that the country has advanced on many reform fronts, some factors continue to impede the economy from growing. For Hanson, the key to Mexico’s being stuck in the mire resides in the following: the persistence of informality and of the incentives that strengthen it; the dysfunctionality of the credit market; the distortion in the supply of non-tradable goods (such as electricity or communications); the lack of effectiveness in education, and the vulnerability of the external sector (i.e., currency exchange crises). The relevant fact is that we have two economies, and the successful one produces 80% but only employs 20%. There is no way that there will be progress if the internal economy is not resolutely worked out.

*Why Isn’t Mexico Rich? NBER Working paper 16470

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In some philosophical circles, there is an old debate on the efficacy of a long-standing mode of Chinese execution denominated ling chi, death by thousands of little cuts. Whatever the effect of ling chi on Mexican politics might be, our democratic system suffers from innumerable problems. We went from a centralized and semi-authoritarian regime to a process of democratic forms but ones without the contents of a democracy. There are thousands of opinions on the Mexican transition and its future: from those who affirm that the transition has already ended to those who consider it not to have even begun. Some are interested parties, motivated by mere political calculation, but others, on both sides of the spectrum, reflect contrasting visions that are equally respectable.

More than democracy, the demonstrations in the Arab nations in recent months have permitted an interesting discussion to blossom forth: the questions that arise from people expressing their opinions, arguing, and make proposals concern the manner in which to launch a citizen movement in a consolidated democracy, how to afford functionality to a political system in which the historical mechanisms of power centralization and population control no longer operate, how to construct the institutional framework that allows for the participation of the population and that renders the demands preceding the change of regime effective. In a word, the discussion –in Arab as well as in Western media- has concentrated precisely on the type of questions that we Mexicans have been discussing for decades.

Churchill observed that “democracy is the worst form of government except for all those other forms that have been tried from time to time”. What Churchill did not explain was the mystery of how to arrive at the point at which democracy functions effectively as a system of government as well as a mechanism of representation. For example, elections have achieved representation of the diverse political forces in the legislative organs, but that does not necessarily mean that the population feels that it is represented or that we possess a functional system of government. The tension between these two factors –representation and effectiveness- lies at the very heart of democracy.

Of the many texts that I read on the changes in the Arab World, one caught my eye because it offered a distinct viewpoint on democratic complexity. The quote, anonymous, is from an Egyptian diplomat residing in a Western capital city who relates what he has learned after years of living outside of his country. “Democracy, the quote reads, is in fact a strict dictatorship, since each citizen is his own dictator. The citizen imposes upon himself a strict etiquette: not to push; not to steal; not to harass women and girls; not to harm or insult others; to stop at a red light even if it’s three o’clock in the morning; not to cheat in business; to hold the door open for the person behind you; to stand in line; not to behave in a socially unacceptable manner; and other such dos and don’ts which the citizen in a democratic society is obligated to abide by at every moment. He upholds these rules not out of fear of the regime (which is in no way intimidating), but out of self-discipline and conviction that only thus can a society run smoothly”*.

From this perspective, a democratic society is based not on coercion but, instead, on each citizen’s self-control that, on being practiced by the society as a whole, permits a life of freedom and comfort. It is, states the diplomat, an unwritten contract among all citizens to accept the rules of behavior in all aspects of life: in the street; when driving; in the economy, and in the family. The diplomat affirms that in his country, “there is no such social contract: no rules, no laws, no restraints and no self-dictatorship. Each person does as he chooses at any given moment with no self-restraint or consideration for others, unguided by even the most basic rules of conduct. A red traffic light is a mere recommendation; bribery is the norm; anyone can build what he wants where he wants; any manager can appoint his sons, daughters and brothers-in-law to any position under him, irrespective of their qualifications; and resorting to violence against the weak is widely prevalent. The individual feels free to act on his impulses and is not required to answer for his actions and misdemeanors”.  Sound familiar?

The difference between a democratic and participative and a centralized and authoritarian, system is evident. But the crucial difference, what attracted me to the argument of this diplomat, lies in the contrasting manner in which the citizen behaves. In a democratic ambience, the citizen assumes his responsibility as a central factor of the functioning of the social complex, while in an authoritarian, or simply a non-democratic, system, the citizen assumes no responsibility at all. Citizens respond to the rules of the game. When the rules reward the rule of law and penalize any conduct that violates this, the citizen adapts and adopts these rules as his own. From the moment that this happens, we find the consolidation of what the Egyptian diplomat terms “a strict dictatorship in which each citizen is his or her own dictator.” As long as there are no clear rules with which to comply and that require compliance, we are more like Egypt than like a modern and democratic nation.

For those who affirm that the Mexican transition is already over, the small issue of the entire citizenry remains pending. To some extent, this is analogous to which came first, the chicken and the egg, but perhaps the essence is simpler: while the citizenry does not perceive a basic change in the nature of the government and the system in its entirety, the sole difference, which is not a minor one, between the old and the current system, is that there are much broader degrees of individual freedom. What is needed is a regime of legality.

Mexico is afflicted with open and latent conflicts. The absence of democratic rules that all citizens (including, obviously, political parties and politicians) make their own, as in a self-imposed dictatorship, explains in great measure why the conflicts become deeper rather than become resolved. The incomplete Mexican democracy finds itself besieged by those who are desperate for solutions. The good news is that it is impossible to rebuild the old system; the bad news is that there is no guarantee that it is advancing toward an integral democracy, the dictatorship alluded to by the Egyptian attaché.

*Begin-Sadat Center for Strategic Studies, BESA Paper No. 131.

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Carl Friedrich, one of the most important political theoreticians of the XX century, said that “to be an American is an ideal; while to be a Frenchman is a fact”. According to Friedrich, U.S. identity is defined in normative terms, while that of the French is in existential terms. These differences translate into very distinct cosmogonies that exert an impact not only on their own structure and political and governmental organization, but also on their way of acting. Our case is no different. Much of what today characterizes U.S. political debate, economically as well as security- and border-wise, derives from this perspective. The question is how we can further avail ourselves of the bilateral relationship despite these differences.

As Octavio Paz observed with such insight, the differences between Americans and Mexicans transcend the specific. In his words, “The border between Mexico between Mexico and the U.S. is political and historical, not geographical. To cross the border between the two countries is to change civilizations. Americans are the children of the Reformation, and their origins are those of the modern world; we Mexicans are the children of the Spanish empire, the champion of the Counter-Reformation, a movement that opposed the new modernity and failed. Our attitudes toward time clearly express our differences. Americans overvalue the future and worship change; Mexicans hold fast to the image of our pyramids and cathedrals, to values we suppose to be immutable, and to symbols that, like the Virgin of Guadalupe, embody permanence. However, as a counterbalance to their immoderate cult of the future, Americans continually search for their roots and origins; we Mexicans search for ways to modernize our country and open it to the future. The history of Mexico since the end of the 18^th century has been the struggle for modernization. It is a struggle that has been frequently tragic and often fruitless. To ignore this is to ignore what Mexico is today, with its economic vicissitudes and the continuous zigzag of its political system”.  As with Friedrich’s observation, the contrast could hardly be greater.

The contrasts are not limited to cultural and philosophical aspects. The Aztec and Maya cosmogony had coalesced centuries before the American Union came into being, even in concept, and this explains many of our disagreements, but none of this has impeded our deepening the relationship nor our leveraging our development by greater proximity to them. What we have not done is to understand them better as a principle for more successful and beneficial integration. Our lack of understanding of their processes, not only on the commercial and economic plane, but above all in how their internal politics and, these days, budgetary matters evolve, is cost-intensive.

In his study on U.S. internal politics*, Samuel Huntington affirms that there is an “American Creed”: “in contrast with the majority of European societies, there is and has been in the U.S. broad consensus with respect to certain basic values and political beliefs”. This fundamental consensus allows for surmounting the differences that daily characterize its frequently acrimonious political process; that is, for Huntington, political polarization in the U.S. is a permanent characteristic that does not weaken its stability because it is the product of its origin and of a political system that prizes competition and the active participation of all of the special interests. From this perspective, the polarization that one can see in their media and political discourse as well as  in the disputes and discussions on issues of enormous transcendence, for them and for us, such as NAFTA, or its budgetary strategy regarding the economic crisis, is real and deep-seated, but does not entail the risk of a breakdown. This, said Seymour Martin Lipset, is a core characteristic of “American exceptionalism”.

If one follows the controversies in terms of these themes (and others that are strictly political, such as that of whether Obama was born in the U.S. or not), the differences are not lesser ones and the viewpoints, exceedingly caustic. In the trade front, which can be appreciated today in debates relative to free trade treaties with Colombia, Panama, and Korea, the issue is much more mundane and, in nearly all cases, reflects specific interests in areas such as unions and businesses, which assume that they would be benefitted or harmed if there were greater commercial opening. The theme of the budget is particularly striking because America’s mightiness has permitted it to evade a profound fiscal adjustment, while it has exhibited an extraordinary incapacity to recognize its predicaments and act accordingly.

The fiscal theme is especially disturbing not only because the health of the U.S. economy is key to our growth, but also because its nonchalant attitude vis-à-vis fiscal balance tends to strengthen the critics of our stability, on which Mexican middle-class viability depends. In the fiscal terrain, the U.S. is grappling with deficits in its GDP of more than 10%, a number that, with the sole exception of 1982, we never surpassed, even in our worst crises.

Those fiscal imbalances in Mexico translated into a split-second collapse of economic activity and into an inevitable fiscal adjustment to restore the financial health of the economy. After several crises, we Mexicans finally learned in 1995 that fiscal disequilibrium produces nothing other than poverty. It is not a coincidence that the Mexican middle class has grown exactly at moments of economic stability: in the fifties and sixties, and from 1995 on. For Americans, their present crisis has no precedent in modern times, which has lead to ranting and raving at both extremes: by those desiring to revive the economy with heightened expenditure, as well as by those seeking a fiscal adjustment without additional taxes. If they take a look at our experience, they would see that adjustment is inevitable and that there is no panacea for taxes. The problem is that their economy is so important for the entire world that they have been able to transfer many of their costs to other countries (for example, in the form of bolstering the peso or the Brazilian real), although it appears evident to me that sooner or later they will pay the consequences.

There is nothing that we can do in these matters and even less so because they are consumed and divided by the latter. However, where we could do a great deal is in cultivating the local populations in which there is greatest opposition to themes that are vital to us, above all trade, migration, and border issues in general. Times of weakness are times of opportunity and much can be gained with a great territorial deployment. This is just what the Mexican Ministry of the Economy did when it identified the products that would be grounds for retaliation on the matter of truck transport. Acting by the principles of the “American Creed” and its liberal, individualistic, egalitarian, and democratic essence at the local level could transform the relationship and the preeminent themes for our development.

*The Promise of Disharmony.

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Myshkin, the hero of Dostoyevsky’s novel “The Idiot”, -erudite, coarse, naïve- arrives at an important party, obsessed with not breaking the Chinese vase in mid-salon. He attempts to maintain his distance from it, but, no matter how much he tries, ends up destroying it. The episode could be a photograph of the political transition that we have experienced. The objective was to construct an idyllic democracy that would foster development of the country and civility in Mexican society. The result has been political paralysis, a rising level of social conflict, ill-will, an abysmal economic performance, and, to top it all off, generalized pessimism. The issue is not about establishing guilt, but rather, of the pressing need to recognize that there have been unanticipated consequences, many very serious, with which we have to deal.

Beyond objectives or good intentions, the political change that we have undergone has mainly manifested itself in decentralization of power. From the erstwhile omnipotent presidency, we proceeded to a new political reality: that of actors, formal as well as informal, stockpiling power and resources with no responsibility whatsoever and without even minimal checks and balances. The principal characteristic of the transition has been the transfer of the resources and power of the Federal Government and of the presidency itself to state governors, de facto powers, and actors of the most diverse stripes, all having in common their distance from the citizenry, not being accountable and, for all practical purposes, without any checks and balances.

The consequences of this new reality can readily be noted in all ambits, but are particularly patent in the pathetic performance of our economy, lack of public safety, and the conflict that brews in permanent fashion in all public forums. The country benefited from the transition because the sources of systematic abuse inherent in the centralized government of yesteryear disappeared. However, costs have not been minor and risks are on the rise.

Costs in the economic milieu have been extraordinary. Decentralization of power, a circumstance that mushroomed over the past three decades and that was precipitated by the defeat of the PRI, was accompanied by the transfer of public resources. Conceptually, no one can dispute the fact that in a democratic system, resources are administered by the representatives of the populace and, without doubt, the state governors and municipal presidents are the public officials closest to the citizenry. The problem is that the concept does not square with our reality. In the first place, the overwhelming majority of revenues are collected by the federal government and not by state and municipal governments; secondly, real, effective mechanisms for checks and balances do not exist for the state and municipal governments: this was always a problem at the federal level, but now it has multiplied. Finally, resource allocation has translated into much less efficient and impacting expenditure, thus a lower rate of economic growth.

Before, in the Golden Age of centralization of fiscal resources, Mexican Department of the Treasury had at its disposal enormous resources that it profusely applied to projects of development. The so-called “bolsas”, residual monies left over after satisfaction of current overhead expenditures (salaries, rents, administration costs), constituted an enormous portion of public funds and were employed to promote regional development, essentially through the construction of infrastructure. One year, the decision was made to electrify the southeastern region of the country, another, to build a highway to Queretaro, and another, to construct Cancun. The Federal Government conducted cost-benefit analyses of each project and generally decided in favor of those offering the best potential for raising the general economic growth rate. The dispersion of resources, which is the norm at present, possesses very distinct characteristics: there are very few governors who do economic cost-benefit studies. Rather, their criterion comprises personal, electoral, and political benefit, usually in that order. The result has been much greater corruption and opacity (which benefits the governors) and much less economic growth (the only way that more jobs can be gained for the average Mexican). That is, the population has lost, whereas the politicians have won.

The security crisis is a second consequence of decentralizing power and resources. The resources, functions, and responsibilities that were decentralized to the states were never adopted by the governors as their own. This is not to say that the former security scheme worked well, but decentralization had the effect of destroying what existed without anything substituting for it, with certain trifling exceptions. The result is the chaos in security that we are presently experiencing; its essence has nothing to do with narcotrafficking proper, but instead, with the fact that organized crime plagues the entire nation without the effective intervention of any police or judicial institution.

No agreement exists on when the political transition began or of what it consisted, but it is evident that the successive electoral reforms between 1978 and 1996 had the effect of favoring increasingly even-handed electoral competition, until the PRI was defeated at the polls. If the objective of the transition was to defeat the PRI, the transition complied. If by transition we wish to say the founding of a modern, more egalitarian and civilized, country, the transition has been a disaster. It suffices to read the newspaper or watch the newscasts in order to observe a nation progressively bitter and in conflict with itself. The problem lies precisely in that the transition confined itself to the electoral, leaving everything else to chance.

The big question is how to correct the present situation. If one observes similar countries that have been successful, such as South Africa and Brazil, we urgently need a strategy and leadership. The transition should have been an institutional commitment, but was nothing more than a collection of good intentions and remarkable arrogance. We must now deal with the consequences. On one occasion, Montesquieu affirmed that “there is no crueler tyranny than that which is perpetuated under the shield of law and in the name of justice.” In Mexico, we must start by eradicating the tyranny of excess, abuse, and the absence of checks and balances for the reign of the law to begin.

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In Greek mythology, Pandora, the first woman on Earth, was introduced to Epimetheus in revenge for his brother Prometheus’s having purloined the secret of fire. In her new abode, Pandora found a two-handled amphora in which all the evils and disgraces of humankind had been concealed. Her curiosity piqued, Pandora opened the jar, inadvertently releasing all of the evils. Only hope remained inside. In recent days, with its resolution in matters of interconnection and the Federal Telecommunications Commission (COFETEL), the Supreme Court let loose many evils, condemning us to hope, because that’s all there is, that the Court knew what it was doing and that it did not create an ill-starred precedent.

Although, as has been its recent custom, the Court did not delve into the heart of the matter, in its resolution on interconnection tariffs emitted by the COFETEL it opened a veritable Pandora’s box not on the immediately relevant theme, but on what the public interest is. I’ll proceed by parts.

The recent vote of the Supreme Court of Justice of the Nation (SCJN) denies the possibility of obtaining a court injunction with respect to resolutions on interconnection tariffs emitted by COFETEL. The Court decided that suspension in matters of regulatory-type injunctions is not fitting, which has enormous implications for directly involved companies, but above all for the consumer. The reasoning that led the Supreme Court justices to arrive at this conclusion is the following: first, interconnection tariffs are “of the public interest”, and second, the enterprises involved are concessionaires, that is, they enjoy the benefits of a public good.

At first glance, just as it has been interpreted in the press, the resolution has had the benign effect of cancelling for TELMEX the opportunity of impeding the functioning of COFETEL as the regulatory entity through a strategy founded on the systematic and infinite interposition of injunctions. Protecting their interest, TELMEX had been doing precisely the same thing for years, which hindered the regulatory organ from imposing its regulations (some good, others bad) on actors in the telecommunications market. In terms of this specific theme, if COFETEL effectively reduces the interconnection cost, the market would acquire enormous dynamism. So far so good.

However, more careful review of the contents of the resolution reveals a profound oversight by the justices concerning the implications and transcendence of their ruling. In the first place, as noted by Justice Margarita Luna-Ramos (who was not in agreement with the content of the resolution and voted against the majority), all laws contain an expression of “public interest” that legislators include as a matter of course. From this perspective, to deny suspensions in judgments on injunctions in all themes and matters in which the public interest is claimed would imply destruction of the protection of the right to an injunction granted to the interested parties in all laws! In other words, by not probing the essence of the matter, the Court limited itself to a resolution that concerns the specific theme, but one that also created a precedent of galactic dimensions for any other theme that betakes itself to appear.

The other element skirted by the Court is similarly worrisome. Given our constitutional structure and how it conceives of private property, countless economic activities are managed not as the property of private individuals, but rather as governmental concessions to these parties. Concessions abound for ports, airports, highways, telecommunications, radio, television, and mines. With its decision, the Court established the precedent by which suspension can come to be denied in the presence of any acts of authority for any private-enterprise concessionaire. This principle recasts the entire concept, no less, of the relationship between private parties and the State.

The purpose of the Rule of Law is to protect the citizen from arbitrary action of the State. According to Hayek, the Rule of Law in essence implies that “the government in all its actions is bound by rules fixed and announced beforehand -rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances”. This resolution of the Court confers on the State the precedent of being able to cancel any concession. This is precisely what Hugo Chávez has done in Venezuela in recent years.

A government with an inclination resembling that of Venezuela could, thanks to this jurisprudence, usher into bankruptcy any commercial concessionaire only to nationalize it at a later date. The mechanism would not be difficult to imagine: first, establish an exaggeratedly high tariff that would correspond to an incremental cost for the respective company, or a ridiculously low levy that corresponds to such a paltry income that it would end up wiping out the enterprise. Of course, the aggrieved concessionaire could request an injunction and, over time, win the judicial injunction and demonstrate that the administrative resolution was unjust or that it was in non-compliance with the terms of the concession. But, as we have observed in the case of Venezuela, it could in many of these cases be a Pyrrhic victory because these affairs take years to sort out and, by the time the Court steps in, the majority of companies would have failed. When a government persists (recall the seventies in our country), the potential for destruction is interminable.

What is evident is the flagrant contradiction inherent between the immediate theme (the suspension: to concede or not to concede) and the fundamental issue (what the public interest comprises). Because the Court limited itself to deliberating on the immediate matter, it opened an enormous Pandora’s box in matters of much greater transcendence. In a word, it granted the government an expropriatory power through the rear portico.

Affairs directly related with the suitability of interconnection tariffs will resolve themselves. However, this mania of SCJN justices not entering into the heart of the matter will perhaps make life easier for them and avoid very controversial resolutions. However, the cost for society and for economic development can wind up being prohibitive due to the precedent that they establish. More importantly, not entering into the crux of the matter implies the Court’s abdication of its constitutional-court function, permitting the conflict, or survival of the fittest, to resolve itself.

John Locke, an XVII-century English philosopher, affirmed that “Wherever Law ends, Tyranny begins”. The Supreme Court has just positioned us a little closer to this possibility.

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Success and opportunity are in the air and even the most modest of citizens alludes to the future. The question is what sustains this flagrant optimism to such a degree. Brazil impresses us because of the attitude of its population and because the possibility of development has grown despite the obstacles imposed by its impenetrable bureaucracy, the deteriorated infrastructure, and the existence of oligopolies in one market after another. What impressed me most in a recent visit was their daring and the way they do not allow themselves to be intimidated by the adverse conditions: instead of complaining, they do whatever they must to be successful. The contrast of Brazil with Mexico is impressive, not due to its developmental strategy but, rather, to the attitude of its people.

The obvious explanation for its recent success is found in two circumstances: a predictable environment, which is the product of a set of serious although relatively modest reforms, but, above all, the continuity of their economic policy. President Cardoso carried out reforms in the nineties and President Lula continued these without changing course: the rhetoric changed but the path was maintained. On the other hand, the Brazilians have had the exceptional leadership of two presidents, in particular the second of the two. Lula transformed Brazil not only by his decision to maintain the course (no mean feat) but because, on not changing things or implementing radical measures, he consolidated the democratic institutions. In addition, he privileged the future over the daily problems and convinced the population to stay the course. Attitude and leadership worked magic.

An interesting country, big and diverse, with enormous distances, Brazil lacks a railroad infrastructure, which saturates the highways with cargo trucks. Foreign commerce suffers from the poor ports and connections with the interior. The most successful exports –meat, grains, and minerals- work because their production is found near the coast.

The obvious question for a Mexican visitor is what have they done that is distinct, what has given them the strength about which they boast today. Without doubt, the difference lies in their attitude and the leadership, because in structural terms, there is more myth than accomplishment. The Brazilian government collects many more taxes than the Mexican government (most of the difference are taxes raised at the state and local level), but their expenditures are not very praiseworthy; in fact, it could be argued that more money has done nothing other than promote Pharaonic projects that are, moreover, costly in legal tender and in results: from the construction of Brasilia, that bureaucratic monster distant and isolated from the daily reality, up to its industrial policy.

Lula’s great project was to finance the poorest families with a program similar to Oportunidades, whose contribution (just like in Mexico) was that millions of persons became incorporated into the consumer circuits: his explicit objective was to create a middle class society. What Lula did not do away with was the promotion of Brazilian industry: the government has financed the internal and external expansion of many private enterprises just because they are Brazilian. The great question mark is who has paid for this and how this has been paid for. The answer is very simple: very high taxes generate sufficient funds for all types of projects, but at the expense of the population. A Toyota Corolla car, which in Mexico has a price tag of 256,000 pesos, costs Brazilians 524,000 pesos. As economists say, there is no free lunch.

Therein dwells the main difference: in the 1980s, Mexico opted for placing the consumer as the beneficiary and the objective of the economic policy, while the Brazilian policy favored the business corporations. Everything else derives from this strategic focus: the government of Brazil does everything possible to strengthen the capitalization of its enterprises, to raise their profitability, and to protect them from the competition. This does not imply that the country is closed to imports, but rather, that its central objective resides in the construction of an economy strongly influenced by the government. The result is that consumers have access to products that are much more expensive and of worse quality than Mexicans do. Some day Brazil will liberalize its markets and this will entail a severe adjustment, such as the one we already went through in the past couple of decades. Much of that history is yet to be written.

In contrast with Brazil, which has been consistent in its economic strategy, we have been barging about: something opens, another closes. There is no consistency, no sense of direction: we have not dared to take the citizen model to politics, monopolies, and privileges. The absence of strategy and of leadership explains in good measure the different perceptions that we Mexicans and the Brazilians entertain with regard to the present and, above all, about the future.

There is another substantive difference. Although the numbers of homicides as a percentage of the population are worse in Brazil, the reality is that these are two distinct phenomena at play. Brazil is confronting a huge problem of criminality in some cities,   beginning with Río de Janeiro, but it is not a problem that expands on a day-to-day basis to the rest of the country as occurs in Mexico. In addition, Brazil has been serious about creating strong policing capacity and has chosen “creative” ways of facing its ills, such as taking the World Soccer Cup and the Olympic Games to, precisely, Río, both projects conceived, at least in part, as means to clean up saturated zones of criminals and to transform the region. The problems they face are very different in nature from those that Mexico confronts and cannot be compared just by the statistics.

Perhaps the important question would be whether Mexican could do something similar, that is, to strengthen the government as a factor of development and to protect and subsidize the productive plant. Brazil’s internal market is much bigger than that of Mexico, which affords it a relative advantage; however, the true difference lies in that Brazil has had a tremendous source of financing –its exports to China- that have permitted it to fund all sorts of projects (and excesses) through the public purse. Additionally, the funds that they were able to obtain for the development of new oil fields will procure for them immense cash flows that, employed intelligently, could do miracles. If one recalls, at various times, Mexico has enjoyed a similar windfall that has, nevertheless, left little. The problem, there and here, lies in the manner in which the money is employed. When the external conditions change, Brazil will be obliged to carry out a great fiscal adjustment; although the Brazilians have had great sense of direction, when that happens, it is not obvious that they will be more successful that we have been.

Mexico and Brazil opted for distinct modes of interaction with the rest of the world; however, nothing guarantees that their model is superior to ours. What is clear is that success lies in how competent the strategy is for achieving development: neither has found the Midas touch. All things considered, the fundamental difference is one of focus and vision: Brazil has a plethora of optimism. A little good leadership and clarity of objectives here could also do magic.

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