The country has undergone radical changes in its political reality and perhaps there is no area in which this change has been greater than in the relative power of the states and their governors. After decades of subordination to the president, governors have become the owners of public expenditures and the main articulators of political power. In principle, this need not be objectionable, except that this power comes with absolute impunity due to the terrible way in which decentralization was carried out:  money was transferred without any accountability.

The issue is not a minor one. The old presidency dominated all aspects of national public life, this was possible because the president had the party, the PRI, on its side to enforce his orders. Once the PRI ceased to be an instrument of the president, which happened with the election of Vicente Fox, the old system collapsed. The PRI stopped being an instrument of the president, PRI members lost their leader; and (almost) all the previous political mindset became irrelevant.

But the losses of some ended up being gains for others. The power that in the past was held by the presidency migrated to the governors, to party leaders in Congress, and to the parties themselves. Today we have a new reality of power, but the institutions of yesteryear remain the same. The result is a huge imbalance. Power has diversified, but no new mechanisms to exert accountability have been established. Instead of reinforcing the institutions, they have been weakened, to the benefit of a few who get rich without any counterweights.

In other terms, power was decentralized, but not federalized. Power flowed from the presidency to other arenas, particularly the governors, but the growth in power was not accompanied with an equivalent responsibility. Governor’s increased their power and, above all, the fiscal resources at their disposal, but that power did not come with a requirement of transparency or accountability. Governors were suddenly awash in tax revenue without having to explain their origin, justify their destination or respond for their use. Most had no idea how to carry out proper spending to benefit the community.

In some cases, such as education and health, the consequences of this process have been pathetic: though these services were decentralized years ago, the federal government continues being responsible for almost everything. Governors organize gala openings of clinics or give away free school supplies without someone ever defining their attributions or obligations. From their perspective, everything is a photo opportunity and nothing else.

The explanation for all of this is simple: the resources are federal but expenditures are a state affair, creating a rift between the source of the resources and the way they are spent. In a properly balanced system, resources would be levied locally and control mechanisms exist at that level. However, it is much easier and politically profitable for the governors to lobby the federal congress and count of the support of the members of Congress from their state that they themselves appointed and help win with those very resources than to invest in people, be accountable for their actions, or have to explain the origin or use of those resources. In short, governors and mayors do not pay any cost for the resources awarded to them, nor do they have any incentive to promote economic growth. Their only interest is spending for self promotion or personal gain.

The country has been subjected to the decentralization, but not the federalization, of power. The difference is absolute. Decentralization involves the transfer of power and resources from the center to other agencies (to governors and political parties alike), but this change does not involve a change in responsibility. Federalism involves a transfer of power and resources to other actors, but with counterbalancing mechanisms so that governors or other actors are forced to respond to the additional power granted to them so that they have no choice but to account for the use of the resources.

Our current reality entails a permanent imbalance both of power and resources. Worse still, the resources are poorly used and often wasted because that is the incentive that governors and members of Congress have before them. The paradox could not be greater: people torment the president for the slow rate of economic growth (i.e., he is seen as the person or power responsible for it), but the resources and the power to decide reside with the governors and in Congress.

The country needs a new political arrangement that redefines responsibilities, generates sources of balance at the state and municipal level, and creates conditions that will actually allow us to revive the economy. Federalism, understood as the simultaneous transfer of power and responsibility, would entail a redefinition of national politics. For example, instead of lobbying the executive, federalization would mean that governors are accountable for their spending and their actions to their own electorate, and not to an ethereal entity such as the federal Congress. Resources would no longer be federal but would become state (or municipal), and would start depending on the local community for their exercise.

What we have had in recent years is an absurd transfer of resources from the federal government to governors without any form of control. Although there are formal control mechanisms (and sometimes laudable efforts by the office of the general auditor when it tries to evidence the extravagant spending that takes place), it is clear that controls are nonexistent in practice: governors do as they please with the existing resources, as we have witnessed in recent years and saw, in “technicolor”, as the old advertisement went, in the recent elections.

Instead of a Lampedusa type of game that aims at giving the appearance that everything is changing but with the true objective that everything remains the same, the country needs a comprehensive reform in its power structure, one that would bring match power and responsibility.

The essence of federalism lies in attaining a balance. It involves the strengthening of the electorate as a counterbalance factor. It also involves, necessarily, a radical change in the structure of financing public expenditures, where states and municipalities become the source of much of the spending that takes place in their jurisdictions. Centralism in Mexico originated in the source of the resources. If we are to create a stable democracy and a balance of power, we must begin with the essence: the sources of money.

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In Samuel Beckett’s play, two characters, Vladimir and Estragon wait for Godot, but Godot never shows up. The members of the PRI (Revolutionary Institutional Party) are convinced that the Mexican people are eagerly waiting for their return with open arms. The PRI may or may not win the presidency, but it has certainly not shown it has understood the ways in which the country and the world have changed.

It is hard to remember the atmosphere that prevailed when the PAN defeated the PRI. Beyond the election of president Fox, the population overwhelmingly gave a sigh of relief, partly because of the opportunity inherent in alternation of parties in government, but also by the very fact that PRI members had behaved civilly, not making good on the threat that union leader Fidel Velazquez had long made in the sense that “we achieved power with weapons and with them we would defend it.” With otherwise weak anchors, the country thus entered another stage in its history.

Nine years later, the picture has begun to change. British observers have noted that when the Labor Party wins there is great enthusiasm, but when the Conservatives win there is a sense of enormous relief. There is no doubt that we experienced enthusiasm with the PAN victory. The big question today is whether people are ready to vote with relief the return of the PRI.

This year, the PRI harvested the product of their vast organization capabilities when compared with the incompetence of other parties. Their territorial structure allowed them to dominate entire regions, while the memory of the “Peje” (Lopez Obrador’s 2006 show of incivility), and the setbacks of the current government bestowed them almost a majority in Congress. In contrast to the naiveté that characterizes many of the PAN politicians and governors, the PRI governors demonstrated strategy, leadership and political skills. They also displayed an extraordinary array of corrupt practices: co-option, vote buying, threats and distribution of sinecures, all of which continue to be an integral part of their arsenal. Will this combination be enough to lead a government in 2012?

The assets of the PRI are obvious, but so are its liabilities. Its capital lies in the ability and experience of its operatives in government: seventy years in power created a political class most of whose members are able and competent to govern. However, the PRI’s power worked not only because of the capacity of its members, but because of the structure of corruption that accompanied it. Although the PRI criticizes the incompetence of the PAN in the duties of government, its own history is less linear than its members pretend it to be. One cannot forget that the financial crises that began in the seventies were the product of the PRI and its own abuses, that the educational chaos in our midst is the result of a structure designed to control and not to educate, and that the corruption prevailing in entities such as Pemex is inseparable from the history and reality of the PRI.

Nobody can deny the political prowess of the PRI, but it has done nothing to distance itself from the less-than-presentable history. The competition between the pre candidates for the PRI candidacy is prototypical: none of the contestants cares to show better governance, greater productivity in their state or a project that will transform the country. Their vision is the traditional PRI vision and one of an earlier Mexico: for them the world has not changed. As illustrated by the recent revenue law, the PRI continues to have no purpose other than maintaining the status quo.

The PRI has not undergone significant change, it continues to espouse development ideas that are incompatible with the world of today and its members do not even pretend to understand the reality in which they would have to rule. The lack of vision of the PRI contrasts with the Chinese premier who not long ago said that “in a globalized world he who conquers is one who conquers markets, not ideologies.” Where are the markets we intend to win with the PRI? How is PRI planning on giving poor Mexicans the possibility of breaking away from the bonds, almost all of which are a PRI legacy, that block the progress of the country? Their business card is experience and capacity to govern: but, given their track record, these strengths are an insufficient and inadequate response to the challenges facing the country today.

According to some scholars, the American political system “was designed by geniuses to be operated by idiots.” The Mexican political system was designed by pragmatic politicians who were responding to the circumstances of the twentieth century. Nevertheless, for seventy years they mostly managed to keep peace, stability and economic growth. The problem is that the PRI system was dependent on geniuses to operate it because pragmatism is naturally limited. Occasionally an idiot came to power and almost managed to destroy the country. Now the PRI presents itself as the only one able to lead Mexico’s destiny. How will we know if the anointed is a genius or an idiot? The question is not an irrelevant one in a country characterized by weak institutions, easy to subdue, and more so by PRI’s able and experienced politicians.

A party that has not reformed itself and whose business card is reduced to contrasting its history with the ills that characterize the governing party has little to offer in a tight race and even less to convince a population exhausted by decades of misrule. Furthermore, the notion that the future can be better because the PRI is in government is a fallacy. What we need is not only a good driver, assuming that is what the PRI would provide, but also have a vision likely to achieve the transformation sorely needed and that the population demands, but against which so many interests collide, many of them are close to the PRI itself. A proposal that does nothing but repeat the formulas that led us to the crises of the seventies and nineties, and one currently embraced by the PRI, can only be seen as a pathetic aspiration for change. Suffice to contrast that vision (or lack of vision) with nations like China, Korea, Chile and Brazil to perceive how small and limited their project is. Mexico does not need, and has no use for, the old PRI, a party that hides behind a thin veneer of modernity.

The PRI has a great story to share with the electorate but lacks a modern and innovative vision, one able not only to attract votes, but to bring the people to a new stage of development. Looking closely at their stars –like their governors and members of Congress-, it is difficult not to conclude that too many Mexican politicians are paralyzed by a combination of inertia and lack of backbone. Small obstacles are always presented as if they were the Kilimanjaro, and they speak of “political costs” as if dealing with them were not their function and responsibility. The PRI needs a narrative that matches a vision that is different from the one that served it well fifty years ago but that is dead now: the Mexico of today is no longer that of the year 2000 and even less of 1929. Mexico’s future requires something radically different, and better, from what PRI is now proposing.

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Ever since I can remember, any discussion about the public purse is always framed within the context of the need for a “real” tax reform. What I have never been clear about is what is meant by “real” because everyone seems to have his or her own definition. It would not be very keen to assert that truth is in the eye of the beholder: Everyone wants everybody else to pay taxes in order for each to maintain one’s exemptions. This contradiction leads us to live in a world similar to the legendary “Ministry of Truth”, of the country invented by George Orwell in his famous novel “1984”: what is said is not what it is meant and the truth is never spoken. Everything is said in “newspeak”, the language invented by Orwell, to denote ways of mixing propaganda with half-truths, so that, at the end of the day, everybody is still clueless.

The paradox could not be more eloquent: we live in a world pretense -fiscal and otherwise-, one in which we never speak with the clarity needed to understand the terms of what is being debated. With respect to taxes we all have our favorite villain, but nobody wants to talk about their own privileges. If we are to believe the rhetoric that pervades the public sphere, agriculture needs subsidies because otherwise it will not survive and therefore farmers should not pay taxes. Writers and actors create exceptional works that deserve tax exemption. The middle classes have been very hard hit, forcing the government to subsidize gasoline, a way of not paying taxes. Businessmen are employers and therefore deserve to be exempted.  Unionized workers exemplify our sovereignty and therefore should enjoy duty-free benefits

It would not be an no exaggeration to say that the common denominator of all these examples is that everyone considers himself an exceptional case and because of this, worthy of tax exemptions. Obviously, no country can function like this: it is not possible to move towards equality, defined as one wishes, while citizens do not feel responsible and, therefore, committed to the country’s progress. Nor is it possible to walk towards development while we all live in our small little world of exceptions. In the tax arena, more than in any other, privileges are counterproductive because they destroy the very essence of citizenship. Unless this basic equality is brought to the forefront, the country will remain mired in an ongoing simulation in which we all pretend to comply but nobody actually does it.

We can criticize our legislators for the tax clunkers they churn out but, regardless of the world of pretense in which they themselves live, it is also true that they have no choice but to respond to the circumstances that surround them and that world is the set of petitioners, self-centered individuals who believe they have entitlements but no obligations, and citizens, all of which believe they are deserving of special treatment. In this context, the pragmatism that characterizes our politicians is not surprising: they try their best to upset the least possible number of interests and hit only those who have no alternative. Their approach is equivalent to walking on a minefield where, as the members of congress learned in recent weeks, it is very easy to get hit.

All this makes me think that the fiscal problem in Mexico is ill-posed. If one looks at the numbers, it is clear that Mexicans collectively pay less taxes than the ones paid in most other countries, the same for developed countries as for the ones similar to ours. The problem is that nobody cares about this fact. What Mexicans care for are not statistics, but the bad public services they get, the waste incurred by our politicians, the perks enjoyed by all sorts of groups, sectors and parties, not to mention the outlandish transfers that are made to the state governors, as well as the Pharaonic slices that are taken by universities, the judiciary, and the security the apparatus.

It is possible that each of the line items of the expenditure budget is justified and merits it, but this is not what the overwhelming majority of the population thinks. That is why the “real” tax reform will never be possible until we have transparent public spending. Public spending in Mexico is a black hole that is allocated in the shadows and is exercised without control. I repeat: it is obvious that much of the spending by the various entities and levels of government is not only necessary, but properly exercised. The problem is that results are unsatisfactory because there are so many signs of excess, corruption and squandering that it becomes impossible for citizens to commiserate with legislators when they are trying their best not to step on land mines when trying to define taxes and public spending.

Until citizens acknowledge the government’s judicious use of public funds they will never agree to pay the taxes that are needed to finance the country’s development. From this perspective, the entire country’s tax logic is reversed: the government (including governors, legislatures, municipalities and the judicial system)  should first have to draft a credible report on how spending is exercised, how it achieved the proposed objectives, or why those objectives were not met and, therefore how it intends to correct its ways. Once that milestone is passed, the government would propose the objectives for the coming year and the budget it would need to fulfill them. Only then, once the previous budget is disclosed and the projects for the following year are discussed, would it be possible to approve the tax bill. Such a process would force the citizens themselves to recognize the urgency of the projects and justify their own privileges.

At the end of the day, in democracy, there is nothing more important or more complex than the allocation of public monies. This is where the two main components of public life come together: the citizens that have to pay the costs of living in a society and those in charge of governing who must carry out the mandate of the citizenry through the budget. What we have witnessed in recent days is merely the demand of citizens for the politicians to account for the Mexican government’s pathetic performance in fulfilling its duties and responsibilities.

Nobody in her right mind can doubt that Mexico needs a comprehensive fiscal reform, but it would have to be comprehensive, i.e. cover both sides of the equation. Without transparency in spending and accountability on the part of those in charge of spending, citizens will never feel compelled and, therefore, will continue to defend their benefits to the grave. That’s what university presidents and governors do on a daily basis. Why not citizens?

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Mexico is not the first country in history to suffer from political conflict, institutional structures with little propensity towards understanding and paralysis in decision making.If one looks at the world in general, this is the typical scenario and it is why there are so many poor, backward nations, without much potential. But there are some countries that perform exceptionally well and a few who have found a way to really advance. Decades ago Mexico was among the nations that seemed like winners; today we seem determined to compete for the last spot.

Developed countries have strong and reliable institutions that avoid extremes and allow continuity regardless of the quality of their governments. In the absence of strong institutions, like in Mexico’s case, only an effective leadership that builds trust and finds ways to add society’s impulses with the politicians’ craft can have a similar effect. In recent decades Brazil was able to find just that right combination and has now started to excel. We, on the other hand, are stuck because we do not have that fundamental combination.

Many argue that the country’s main problem lies in the intensity of the conflict which we live in. However, when one takes a look at the sour and vitriolic debate taking place in the U.S. regarding the health care system we can conclude that democracies are not always peaceful, civilized and free of antagonism. Our conflicts are not more intense than those of other democracies. What distinguishes us is that we are unable to resolve any of these conflicts and challenges adequately. Gone are the days, until the sixties, when the old political system concentrated power, gave functionality to the government and fostered development. Since the advent of electoral democracy, we have stumbled in ways that have only become more pronounced. Today we have a dysfunctional political system that has not developed the capacity to make decisions and face the challenges ahead.

The public debate has generated many ideas to correct these ills, most of which focus on the need for the government to have a legislative majority or, why not, to adopt a parliamentary system of government. The concept sounds logical but does not solve two core problems: the first is that it is not clear how it would be possible to agree and adopt the kind of reforms that are needed if politicians cannot agree on issues such as the ratification of some ambassadors, not to mention the budget. The other problem that this perspective does not address is that the presidential system Mexico has, was designed to limit presidential power, and if there is anything that unites Mexicans that is the hope that there is never again an all-powerful president with the freedom to impose his decisions on the population as a whole. At its core, the notion of creating structures meant to achieve a legislative majority close to the president in any of its modalities is nothing else than an attempt to rebuild the old presidential system, at least in some of its facets.

Whether any reform of this kind might eventually be useful, what we urgently need right now is for our politicians to begin to earn their living by solving the wrongs we face through negotiation because without this we cannot even begin to contemplate  the scale of reforms that are being proposed. There are some positive examples that show us that this is perfectly plausible.

A few days ago I had the opportunity to participate in a seminar on Brazil. Four speakers presented different perspectives on the changes that have characterized the country in recent decades. At the end of the session I reached three conclusions: first, the reforms Brazil has undertaken are important but are nothing out of this world, nothing that would not be possible to implement in Mexico; second, the Brazilian political system, although very different from ours, is not simpler, more institutionalized or easier to manage (i.e., building a legislative coalition); and, thirdly, its success has resided in the unique capacity of at least the last two presidents -radically different in characteristics and ideology- to join forces, give continuity to government programs and, above all, become spectacularly effective leaders. In short, Brazil has had a clear leadership; a consistent strategy that has gone beyond governments and political parties; an acceptance and disposition that starts from the president to the last politician of the need to build coalitions; and, in addition to the above, a great willingness to avoid simple moral judgments among political actors and create a foundation of trust and respect, without which agreement on key issues is inconceivable.

The essence of Brazil and other similarly successful nations is that they have construed a reform process not as a sequence of epic battles that will suddenly change the world, but as a gradual process of change that everyone understands, that serves as a compass for the population, and that translates into a growing enthusiasm and a winning attitude. Instead of untouchable and illuminated leaders, these countries have managed to resolve wrongs, set priorities, and build a base of understanding on clear objectives and trust among actors who can cross party and ideological barriers for the sake of the greater good.

In Mexico we have structural problems that sometimes seem insurmountable. The example of Brazil shows that all that is required is a willingness of politicians to meet, look each other the eye and engage in conversations that lead to decisions that everyone can support. That’s what the Concertación did in Chile when the former enemies, the Socialists and the Christian Democrats, and it is exactly what supports the ruling coalitions that sustained the governments of Cardoso and Lula in Brazil.

In Mexico we have exceptional politicians that have been able to build agreements and decisions that transcend party and ideological lines, but unfortunately these have been limited to procedural topics and less complex issues. The same should be happening at the highest level of government as well as the legislative and party leaderships because that is the only way it will be possible to change the country. The absence of predetermined institutional frameworks cannot be an excuse for people not to be able to understand each other, while building an atmosphere of trust and shared responsibility that can make it possible to lift the country out of the hole it is in. Anything else is no more than supine irresponsibility.

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The story tells that on the eve of the Battle of Trafalgar, Admiral Nelson called his captains and showed them a fire poker and told them: “I do not care where to train this instrument, except where Napoleon tells me to, because then I will do exactly the opposite.” The members of the Mexican Electrical Workers Union (SME in Spanish) seem to have concluded that they could do anything, even poke the president’s eye, without any consequences. After decades of waiting, Mexican society got the news that they would finally get rid of the plague that not only produced constant blackouts, but stole from it without scruples. In a single act, President Calderon was able to shake off three years of mediocrity, and the “Atenco syndrome” (namely, Fox’s inability to build the Mexico city airport when faced with the slightest popular mobilization), and open a door of opportunity that he and his party had been promising Mexicans for years.

So far, the government has demonstrated something that we knew the president had in him (an unstinting capacity to make decisions), but also the ability to carry them out (something that has not always been true). The way this process has evolved allows us to assess each component of the decision separately, together with the rest of the political forces and myths that accompany them. The Mexican Electrical Workers Union has given us a unique window of observation.

Let’s start with the obvious: the explanation of the measures taken by the government has been less than optimal. While the SME has for years been a very militant union -always ready to create conflict, block roads and raise havoc, even before the company was acquired by the state-, the ills of the Light and Power Company cannot be solely attributed to its union. Instead of managing the company, many administrations over the past several decades simply relinquished control of the company to the union, a fact which may explain its poor condition, but certainly does not free the government of its responsibility. In their very particular way of solving (or hiding) problems, the system devised by the PRI always favored cooptation over exercising the authority and responsibility that was required to manage the company. This defective relationship led to a company that did not operate on the basis of productivity or efficiency but on relationships of power. The SME became abusive because the other side was always willing to pay in exchange for peace. The rationale of blackmail -and the permanent threat of upsetting the most politically explosive region and part of the population (those living in such a complex urban environment as Mexico city and its surrounding areas)- gave the union an aura of invulnerability. The union, in turn, sometimes supported some governments while others were simply subject to extortion. Both tactics seemed to work for the government and the union. As to the cost it entailed, well, too bad.

The government of President Calderon was about to follow the same logic of accepting endless extortion of this and other unions and interests. Unlike the PRI governments, whose letter of introduction was political stability, even if costly, the two PAN administrations offered change, cleanliness and the end of corruption. However, until this juncture, they had not shown the ability or willingness to do so. The act of liquidating the Light and Power Company changes the context and, to the extent that the government upholds its decision, it opens up enormous opportunities for the future. It all depends on what the government does from now on.

The context here is crucial. In the old political system there was a counterweight against abusive powers that prevented them from going too far. It was in these circumstances that the so called quinazo (after the jailing of the infamous oil union leader named La Quina early in the Salinas administration) took place: beyond the unquestionable fact that it took huge guts to imprison the oil leader, actually it was the enormous power of the old presidency against a quasi independent power that had violated with the unwritten rules of that regime (to never challenge the president). The decision by President Calderon takes place in a very different context where there is a host of hyper-powerful groups (hence the name “de facto powers”, that describes those who live above the law –in all walks of life- and with sufficient power to challenge the government and avoid any competition), which today’s presidency lacks the power to submit the way it happened in the past. The closing of the Light and Power Company is therefore infinitely more courageous, but also more risky.

We still need to know if this is the beginning or end of the story. Once the current process is concluded, where many elements of risk will persist for some time, the big question is what comes next. The reactions we have observed so far are, in almost all cases, predictable. Society is expectant, hoping there are no blackouts and that the transition towards the Federal Commission of Electricity (the utility that serves the rest of the nation) is uneventful. If these expectations are met, everybody will remember this moment happily. The political parties have faced the very difficult position of having to define themselves against a union characterized more by its excesses and corruption than by its productivity. Anticipating this, and disarming many critics, the government proposed an extremely generous severance package for company’s employees and also stressed that it does not intend to carry out the privatization of any part of the company. The oddest thing was that all these critics, including some political parties, were forced to defend their cronies on the basis of their ineptitude, abuse and corruption. It looked beyond dignity and not naturally endearing to an electorate that has known only bad service.

What is not obvious is whether the government will leverage this success to advance the project of change than its predecessor and its party have been feasting on, but have not accomplished, or whether this will be an exceptional and isolated act of courage in a sea of tears. The quinazo is also relevant here. President Salinas deposed a leader who had dared to challenge the presidency, but did not go any further. It proved to be no more than a settlement of scores among contending powers: he did not change the company, in that case Pemex, that continues to be the same nest of corruption, nor did he benefit society in any way. The issue, of course, is not the Light and Power Company since this has been liquidated, but the rest of the government-owned enterprises and, generally, the very core of the way the government operates. History and tradition in the Mexican government always involve the purchase of wills, as the labor contracts of other public entities show (like oil and education) and the endless transfers of monies -legal or illegal- to the media conglomerates. No wonder the “de facto powers” do as they please and shamelessly end up getting away with anything.

President Calderon has created a great opportunity: to begin to transform Mexico into a modern society, where the interaction among all parties (unions, government, business, media and political parties) is based on open and transparent laws and procedures. The opportunity lies in beginning to turn Mexico into a law abiding country with strong institutions. That is the real challenge.

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Imagine a place where everyone is suspicious of others, in which everyone is willing to achieve their goal at any price, and one in which abusing and assaulting a neighbor is not only common practice but enjoys full legitimacy. Sounds far-fetched and rather ludicrous, but this is the logic that characterizes our tax system and, indeed, much of the way our economy is run. And not only the economy.

The government does not trust the citizen, the citizen distrusts the government and we all think we are very smart when we prove the other wrong. The distrust is so widespread that speed bumps are put next to traffic lights to enforce the stop signs ant traffic lights. With such levels of mistrust it is impossible for things to work because everyone is always thinking about how to best protect themselves, and which path, regardless of how shady it might be, they must take to survive and, in some cases, succeed.

The tax issue is a particularly soar one because mistrust has monumental consequences. The big vice of the old political system -the endless need to control everything and everyone- never disappeared from the field of economic governance, especially the fiscal side. What disappeared, or was attenuated in the political realm, as a result of the PRI’s defeat in 2000, is still alive among the tax authorities and not because of ill faith, but because it is the animal’s nature. The spirit of control is the result of mistrust and this constitutes an obstacle to economic growth.

There is much talk of the need for a fiscal reform and, throughout this decade, there have been several attempts to change the tax regime in order to ensure higher revenues with a better distribution of the tax burden. None of these reforms has prospered in part because members of the Legislature have had an excessive concentration of their own short term goals, but mostly because there is no understanding of the overall impact of taxation on economic growth. The fact that the proposed reforms always come along with ever more stringent control and regulation mechanisms deters even those who support and share the need for a comprehensive reform in this area. Paradoxically, the more controls there are in place, the greater the size of overall evasion.

The first question that should be addressed is who pays and how much it costs to comply with tax obligations. If such a perspective were to be followed, the emphasis would inevitably fall on how to reduce the costs of compliance to encourage the formalization of those who today are in the informal economy.

Instead of approaching the issue this way, the tax authorities are so suspicious of the citizens that the whole focus is on imposing regulations and endless bureaucratic rules whose sole purpose is control, not economic development. This way of approaching the tax issue discourages the creation of formal businesses, increases the size of the informal economy, and overloads those who fully meet their obligations and satisfy all requirements and procedures. At the same time, it makes it easier for larger companies, those that do have the resources to defend themselves, to focus on the extraction of rents instead of increasing productivity. The sum of this vicious cycle is that less formal enterprises are created, there is a decrease in the taxpayer base, and the tax authority feels it necessary to employ so called “terrorist” tactics to accomplish its responsibilities. The economy ends up being extremely inefficient as too many resources are devoted to tax avoidance and all at the expense of economic growth.

This belligerent logic of suspicion practically forces people and businesses to avoid taxes and live in the informal economy. Instead of using available resources to create current and future wealth, the government devotes available resources to compensate politically powerful groups in order to maintain the status quo. The vicious circle is closed when political criteria, including the nurturing of  clienteles, matches the fiscal one because this way everybody ensures that nothing will change.

The mistrust that reigns in the government regarding businesses and citizens in general, has its mirror image on the other side, although for different reasons. Every time that the government imposes a regulation, the public looks for a way to go around it. It does not matter how many rules, a frequent event, the tax authorities issues, there will always be a creative mind devoted to avoid falling into the clutches of the Treasury. Along the way, vast resources that could be used to create wealth and jobs are squandered.

Countries that work best tend to have tax systems that are very different from ours: they typically concentrate on a combination of a general consumption tax (a VAT) with an income tax with one rate and minimal deductions. This approach makes life easier for the taxpayer and encourages formalization. With a simpler scheme like this, politicians can empower themselves to universalize the VAT because the benefits to the population become tangible and obvious.

Instead of this, what is being discussed in Congress is exactly the opposite: more and higher taxes, new tax rates, new regulations, and an even greater complexity. The tax collection logic behind the project under discussion is at odds with the urgency to stimulate economic growth. Thus, unless the objective is explicitly defined as the growth of government, the entire discussion is flawed and will not help solve the problem we are in.

The context in which the fiscal plan is presented is even more pernicious: we have companies in trouble because of the current economic situation and the fiscal approach entails charging more to those in urgent need of oxygen. How does the government and Congress expect that this will contribute to a rise in investment, a condition that, one would assume, is necessary for economic activity to flourish?

The obsession with macroeconomic balance is fully justified and is a sine qua non condition to maintain economic stability. However, public finances cannot be seen as an objective in themselves. Public finances are a tool to promote development and the fact that they are in balance should be seen as the result of a successful policy approach. Working towards a fiscal balance as the one and only objective only achieves the annihilation of the economy and when this happens, finances and government are no longer relevant.

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Nothing like reality to put things into perspective. Mexico City, that present and historical political and ceremonial center, is collapsing due to lack of investment. Instead of building and maintaining the city’s infrastructure, recent governments have privileged very visible and politically rewarding spending at the expense of substance, with the consequence that the city is beginning to collapse. Water shortages, the explosion of the Western Interceptor sewer system, the extremely poor quality of the electric infrastructure and the lack of an effective police system are all signs of the neglect and of the inattention that the city’s essential tasks have been subjected to. Like so much else in the country, reality hit us.
The story is familiar to all: from the moment the Mexico City mayor is elected what we’ve had are presidential candidates, not city administrators. This change, small in appearance, has altered everything. The incentive for the ruler is to generate support and develop clienteles rather than administer the bowels of the city. A road work such as the second floor is showy and the subsidy program for the elderly is even more profitable, in political terms, than fixing the sewers. Nevertheless, today we know that those programs were made at the expense of maintaining the infrastructure that is essential for the functioning of the city.

The issue here is not one of assigning blame but of the negligence that results from our political structure. As illustrated by the farce regarding the Cuajimalpa and Miguel Hidalgo boroughs, the city government lacks the most basic counterweights. The mayor controls the local Legislative Assembly, de facto appoints the local Electoral Institute, and controls the Electoral Tribunal in Mexico City. With this power structure, no one can limit or even put in evidence the excesses or omissions of the person in power in forefront issues such as water, security, sewers and electricity.

The water issue is particularly hurtful because it reveals decades of neglect. In addition to over-exploiting its groundwater, the City consumes a disproportionate amount of the precious liquid that comes from other entities. Water is managed poorly, as illustrated by the enormous number of leaks that occur before it reaches its destination. It costs a fortune to “import” water from the rest of the country, then it is not charged and on top of this, it is also wasted. Other cities that manage their water well charge it at least at cost and, by charging for it, provide incentives that induce very different behaviors from those that characterize the population of this city, and create recovery schemes that today we are far from being able to contemplate. PRD mythology (and certainly the PRI’s when they were in charge) has prevented us from devising schemes capable of supplying the water needed in novel ways. Now reality has set its terms and there does not seem to be even the ability to recognize that the essential was abandoned for the sake of constructing three presidential campaigns.

The same goes for the city sewers. For decades there was a dual system, one for rainwater and other for sewage. However, instead of continuing to invest in systems that could create an outlet for this waste and, in turn, prevent flooding, the political decision was to use existing collectors for both purposes. The system previously used for collecting rainwater did not have a coating suitable for handling sewage and now it had to be urgently repaired. However, as illustrated by the explosion in one of the great collectors of the city and the danger posed by the Western Interceptor, the city is under threat not because it rained too much but because they have not built the collectors needed for a mega city as ours.

Public safety is another one of those issues that seem unsolvable. It is true that the police system that once existed was not a modern one, but the chaos of insecurity that citizens have endured for at least the last fifteen years should have been addressed and resolved by those who govern us since 1997. This has not happened and the citizens pay that cost on a daily basis. Instead of effective policing, Mexico City is still characterized by pre-modern vigilance systems but without the political controls that were in place before. The result is that nobody trusts the police and they do not fulfill their duty as they should.

The traffic chaos cannot be attributable to a particular government, but certainly the City is responsible when the cause of chaos is a march or blockage by special-interest groups, whether they are unions or any other like-minded groups: instead of authorities protecting citizens, their priority has been to empower their and protect troublemakers that are politically close to the governing party. The case of blockades by electrical workers from the electric utility Luz y Fuerza is even worse by the fact that the power service in Mexico City is the worst in the country and that could not happen without the complicity of local government.

Clearly, the particular situation of Mexico City within our peculiar federal structure demands the concurrence of federal authorities in many of the issues that are essential for city life. Many of the investments that are needed for water and drainage, to name the most obvious examples, require federal funding in addition to the cooperation of the authorities of the City with those of the neighboring State of Mexico. Yet this fact does not acquit the City government of its responsibility.

In our municipal tradition, which limits terms of government to three years, the local ruler has no time to do much: the government takes some months to understand his or her tasks and responsibilities, and then spends a year doing what they can. By the end of the second year the politics for succession is in full swing and, last but not least, the outgoing mayor begins planning his next job. In sum, it is difficult to hold accountable a (modest) mayor for things that he or she did not do.

That is not the case of Mexico City. After twelve years of one-party rule and even, in many cases, the same officials in different administrations, it is impossible for the PRD not to assume the responsibility that belongs to them. Twelve years is enough to show priorities and decisions. The recent floods illustrate years of neglect, omissions and, in short, complete lack of responsibility.

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When referring to the “astuteness of the creoles”, Jorge Luis Borges criticized the “spirit of cheated legality or comfortable illegality” that characterizes our culture. Being “astute” said the Argentine writer, did not imply ceasing to be ignorant. This observation came to mind when reading and listening to comments and opinions that politicians and intellectuals have put forth regarding the problems the country faces in terms of governance and capacity to deal with the crisis and promote economic growth. What is remarkable about the public arena today is the urgent need to solve the wrong problem.

The universal diagnosis in the political arena seems to be the inability to put together legislative majorities that will favor the country’s governance. Following this logic, the country has been adrift since 1997 when the PRI lost its legislative majority, because the president’s party no longer has a reliable majority in Congress. The inexorable conclusion of this analysis turns out to be obvious: the only way to solve the country’s problems is to create mechanisms that will guarantee the existence of legislative majorities. Sounds nice and logical, but judging by the evidence, that’s not what people want, plus it does not solve the root of the problem: even with majorities, earlier governments were not working either.

The proposed solutions to the problems identified can be roughly summarized in three major categories: a) redefine the party system to reduce their number, ideally to two (changing the system or adopting a runoff election); b) abandon the presidential system in favor of a parliamentarian one that, by definition, grants control to the party that achieves a governing coalition; and c) build a somewhat artificial mechanism, like the French head of cabinet or prime minister, who can achieve control of the legislature and become a alternate and parallel source of power vis-à-vis  the presidency.

The three conceptual solutions have merit and respond to the shown inability to rule the country. The problem is that these are vehicles that seek, as in 1929 when the PNR, predecessor of the PRI was created, to solve the problem of politicians and power, not of the issues that matter to the population and of the legitimacy of the decision making processes.

Today there are two evident facts. One is that we face an obvious problem of governance. The three branches of government, particularly the Congress and the Executive waste more time trying to understand each other (unsuccessfully) than trying to decide the relevant issues and act accordingly. This paralysis has given rise to proposals, explicit or implicit, that what is required is that skilful politicians get the means to impose decisions, institutionally or through other means, so that the country can return to the path of economic growth. In other words, what is required is to return to an era similar to the PRI in which the president could impose his will. This time it could be the president or whoever holds the legislative leadership, but the principle is the same and the hypothesis is obvious: Mexicans are incapable of governing themselves and what we need is a strong leader who decides and imposes his views. Several of the aspiring candidates to exercise power support this stance: the same holds for those who proclaim the urgent need for the president to exercise extra constitutional powers, as for those who propose the creation of new structures that will achieve the same result, but this time from the legislature.

The other incontrovertible fact is that the population has consistently voted against the formation of a legislative majority from the party in the presidency. There are many possible explanations for this phenomenon, but the fact is indisputable. Since the electoral reforms of the 90’s, which came into fruition with PRI’s loss of its perennial control of the legislature in 1997, the president’s party has not achieved a legislative majority. A structural explanation is that the combination of a presidential with a multiparty system results in a permanent mismatch because it makes it highly unlikely for any party to achieve a majority. Other explanations are less technical but equally relevant: particularly in regard to midterm elections, the race is territorial in nature and that offers huge advantages to parties with strong historical roots at the local, state or regional level, and not to the person holding the presidency.

Whatever the correct explanation is, what is clear is that people prefer that the president not have a legislative majority at his disposal. The question is why. And, regardless of what politicians argue, it is clear that the people do not want a parliamentary or semi-parliamentary regime even is this were much more efficient. From the perspective of common citizens, the greatest risk is precisely that a “strong man” (either the president or a legislative leader) tries to impose his will because then all the hard won checks and balances would disappear. This rejection of the inherent risks involved in excessive power in the hands of one person is what defeated Lopez Obrador in 2006 and, in general, why the PRI lost in 2000. The population clearly prefers the status quo, even if this translates into an economic performance well below desirable levels or below the country’s real economic potential, than the risk of one crisis after another.

The country’s real political problem is not the absence of majorities or of decision making and governing capacity but the absence of institutional mechanisms to govern without excesses. That is, the country has to solve two problems simultaneously: one is to create the structure that organizes power so that it becomes possible to make decisions, and the other is that these decisions do not harm the population. In a country with weak institutions such as ours, this combination of factors is very difficult to achieve and maybe this helps explain better than anything the current stagnation in which we live: as long as there is no reasonable certainty that the president is prevented from committing abuses, the people will always prefer paralysis because the alternative-chaos- is too costly as could be seen, over and over, in the crises of the seventies through the nineties. Mexicans do not want an all-powerful leader, what they want is a government that works for their benefit.

The philosopher Karl Popper argued that the real dilemma was to build a system to control or get rid of bad rulers without resorting to violence. In Mexico it seems that we have been able to prevent these rulers from reaching power, but we have been unable to create a functioning government. The real problem is not one of parliamentary majorities, but of checks and balances designed to avoid excesses, not to paralyze the country.

The distance between the government and the population grows by the minute. While some officials speak out on the need to face the economic crisis, the population tends to withdraw. On the one hand, the absolute NOs: no new or different taxes, no change to the structure of import tariffs, no changes to the PEMEX regime, even if only to increase revenue to keep the party going. On the other hand, the equally rotund YES: more services, more budget, more expenditures, more benefits. While this goes on, the fiscal situation –less revenue and more expenditures- is beginning to turn into a phenomenal risk. In the absence of purposeful leadership, one capable of explaining the trade offs and the risks, the crisis is becoming a perfect environment for the resurgence of the demagogues.

Although the rejection of extravagant government spending, starting with the governors, is almost universal, the evidence indicates that the entire country has come to expect that “someone” -the government, oil, or the Virgin of Guadalupe- will always be there to provide and get us out of a crisis. It is not that people are unable to understand that they cannot spend more than they have, since that is the reality of everyday household economy. What happens is that people see the obvious: that public services are very poor and that there is always money for all causes except for those that matter to citizens. The politicians’ wasteful spending is so blatant that nobody in their right mind sees the logic of paying more taxes to support public insecurity, water scarcity, high energy prices, or low quality education and health services. The evidence is overwhelming.

The case of businesses is no different. Companies in Mexico live overwhelmed by bureaucratic requirements, various taxes and bad public services. Most do not have time or the possibility of engaging in anything except trying to survive. Some end up in the informal economy but that creates new problems. Many have managed to create or tailor to their needs government regulations that allow them to reduce the virulence of their competitors, some in the form of imports that participate in their markets. Given the context in which they operate, it’s hard not to sympathize with their refusal to raise taxes or to reduce the protection mechanisms they enjoy.

The attitude of citizens and employers, each in his or her private world, is perfectly logical, but wrong. The citizen has no choice but to defend his or her interests because their ability to influence the decision-making process is null. For their part, businessmen employ self serving arguments, which are not necessarily false, to defend the protection mechanisms afforded to them: my counterparts elsewhere, they claim, do not have such high energy costs, communications work for the users and not against them, the infrastructure works, there is access to credit, there is no contraband, crime is a minor problem and public services are of good quality. Faced with this, the Mexican businessman has little to offer except his ability to broker relations with the government in exchange for protection. That is, while the Chinese or Korean businesses focus on work, increase their efficiency and manufacture better products, Mexicans have to settle with things not deteriorating even further.

Between one thing and the next, there are always plenty of freeloaders. Recently, a European businessman visited Mexico to explore the possibility of a multimillion-dollar investment in the food processing industry. Since this is a company with a large presence in a variety of markets, its success lies in increasing efficiency, improving logistics, adopting new technologies and developing ever better products. What he found in Mexico is an industry with many players but all of them using old technologies, with small sales volumes and high margins. After visiting the industry leaders he found that none have even the slightest interest to cut costs or increase their efficiency, let alone invest in improving the quality of their products.

In a competitive market, the European businessman would envision Mexico as a wonderful opportunity to displace the existing non-performing businesses as a disruptive force in favor of the consumer: introducing better products at lower prices. However, little by little he understood how the sector works and concluded that there was no way he could compete. First, these businesses live in a world of opacity and tax evasion and have no incentive to go public by quoting their shares in the stock market. Second, import tariffs make it unprofitable to import their product, something that in turn protects them from foreign competition. Third, distribution is controlled by a monopoly of which they are all are part, making unaffordable the entry of any competitor that is not part of the game. In sum, participants in this market live more than happy exploiting the consumer.

Clearly this example is not transferable to all other economic activities. Many sectors have suffered severely by foreign competition and some have been totally devastated. However, not all those who have suffered are inherently evil or incompetent entrepreneurs. But most pray for protection and demand the government not to change anything. The consequence of the status quo is that nobody who could benefit from a better tax structure and greater competition in the economy (i.e. the absolute majority), seems willing to break the vicious circles that characterize us as a country.

The irony is that by opposing any change in fiscal or economic regulation, most Mexicans have become radical advocates of everything that does not favor or benefit them: the squandering of the public purse and the protection of uncompetitive firms. That is, they are opposed to higher rates of economic growth and better jobs.

The country is stuck largely because of the absence of leadership capable of explaining the dilemmas we face, proposing solutions and advocating a renewed vision of the future. As the opinion polls show, the population is opposed to every and any change and that is an environment prone for the rebirth and growth of demagogues and dangerous catch-all proposals for economic development . The atmosphere of opacity that characterizes us merely serves to preserve the worst in the country, destroying any possibility of developing a new economic era. If we do not take advantage of this crisis, then nothing will foster change and we will all suffer the consequences.

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It is trendy to say that the crisis finally “caught up with us”. The notion that the country has not defined its “national project”, that the actions and decisions of the past decades were not the right ones and that the reforms that were undertaken have been unsuccessful if not wrong, is ubiquitous. Obviously there is much truth in this, but I would propose that what really hit us is the core of our being, a very PRI-like way of behavior, which consists of always avoiding the hard choices, pretend to accommodate all postures, interests and positions, and only to change as much as needed so that everything remains the same. It is that unwillingness to decide and to assume the costs of the urgent choices that the country needs (and that everyone involved in politics knows full well, regardless of whether they like them or not), that caught up with us. The problem today is that more of the same is no longer viable because it does not address our problems. As Ayn Rand once wrote, “you can avoid reality but you cannot avoid the consequences of avoiding it.”

In recent days President Calderon proposed a package of far-reaching measures that could help address the crisis, while the other parties, especially the PRI, responded with a set of concrete proposals, very different from the ones put forth by the executive. While we should welcome the change of tone implicit in the fact that solutions, rather than mere criticisms and disqualifications, were discussed, what is remarkable is the closed and circular debate all of these proposals entail.

The history of the last four or five decades speaks for itself. The collapse of the policy of “stabilizing development” in the mid-sixties was followed by a state driven project that was only made possible by the availability of external debt as well as by the fact that oil prices were high. When both of these disappeared from the scene, that whole project collapsed, giving way to the first two mega financial crises of 76 and 82. Then came the project of reform and economic liberalization that involved joining a rapidly globalizing world economy, but the profound reforms this project needed to be successful were never made.

The president’s proposal is an attempt to address the deficiencies and limitations of the liberalization project which, with all the adjustments that are required both because of the structural defects with which it was conceived and because of the new international reality, is the only one capable of generating jobs and wealth in the long term.

The PRI proposal is an invitation to recreate the seventies (in fact, its architects are the same people responsible for economic policy and for the crises back then) and, although it includes some ideas that could help alleviate the immediate situation, its most ambitious elements, aside from derailing what already works, would only contribute to stimulate demand in a country whose problem is lack of supply and, therefore, would lead us directly to a crisis of domestic manufacturing (in contrast with the current, imported crisis). The lack of imagination and, worse, of memory, is extraordinary: it is as if this proposal stemmed from the assumption that society doesn’t notice or did not suffer the consequences of those crises.

What really hit us was not the international crisis but our own way of being. The PRI’s tradition of “stay put” has been a way of not deciding, of avoiding the responsibility to govern. That way of reacting and responding inflicted on us a terrible damage. Even in times when far reaching reforms were advanced, all came tainted with an inevitable reluctance to complete the job, especially when this meant disturbing significant interests, something that in turn guaranteed deficient results and underperformance. Instead of tackling problems, finding solutions and accepting the inevitability of paying the costs of any reform, the PRI’s tradition consisted of “negotiating”, conceding, co-opting, subsidizing, avoiding and evading. Never a hard choice.

When, in the eighties, things for the PRI turned electorally sour, the PRI’s own coined the term “concertacesión”, a term that mixed the word fixing with conceding, to criticize the eternal wheeling and dealing that, from the perspective of those party members, entailed ceding too much. But the important thing is that those arrangements never clarified anything and didn’t even serve as a quick fix. In retrospect, this neologism illustrates more about the priistas and about the country than they imagined: it summarized an entire way of being that infected all Mexicans. So much so that the unwillingness of the later panista governments to introduce radical change and to renegotiate the rules of the game reflects the depth and extent of the PRI’s culture and tradition across all of society. That’s what really hit us.

Italy offers a very interesting and relevant point of comparison. As the PRI in Mexico, Italy was for decades ruled by Christian Democrats. While the Germans rebuilt their nation after the destruction caused by the war, the Italians set out to enjoy life, avoid the hard choices, pretending that this course of action was all that was needed. Led by its enormous entrepreneurship and increasing European demand, the Italian economy grew and developed. Good judicial and police systems were able to control the mafias, all of which seemed to indicate that political instability and uncertainty were a minor problem that would have no consequences. The problem is that Italians, like us, believed their own lies. Once the euro was established as the common currency, what was previously flexibility became a straitjacket. The Germans have raised their productivity in a remarkable way, while the Italians have been unable to face their problems. Their only option now would be to carry out the kind of reforms they have been avoiding for decades. The notion that one can maintain the status quo permanently and without costs proved to be a monumental mistake.

The “stay put” mentality protects business interests, favors friends and partners, preserves impunity and allows participants to think that the problem is temporary and that with a little time, and a lot of spiel, everything will be solved. That explains why instead of tackling the crisis, our politicians focus on their own interests: “not one step back in the budget” says the president of the National University, UNAM, a concept that seems unintelligible to governors who can only conceive increases to their own budget as the basis for negotiation. They are all avoiding reality.

The president’s implicit invitation is to begin to understand that the world of the past, the one of fantasies financed by oil, is coming to an end and that only an ambitious mental transformation, followed by structural changes, can give us the opportunity to break the vicious circle in which we find ourselves. Now it will be up to society to hold politicians accountable and ask them to fulfill their mandate.

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