“Flash 18” was the code that a policeman once gave a friend of mine so that nobody would stop her again for having failed to take her car to the twice yearly pollution test. After threatening to take her to the police station, the motorcyclist offered her the traditional alternative: for a small fee he would forgo the traffic ticket and avoid the discomfort, but would also give her a code so that if any other police officer stopped her on that same day, he or she would let her go. The notion that the rule of law can be brought to bear and enforced in a society that already has more laws in the books that nobody can (or will) comply with is utterly absurd. The real question is how in fact this reality could be changed.

The situations of illegality that every ordinary citizen faces on a daily basis are endless. So are the attempts to correct or resolve these problems. For example, in traffic issues, we have had mayors or heads of government that have sought to criminalize any abnormal behavior, as much as those that have forbade their police to impose any fine. The problem that both face is the same and the fact that they have tried opposite solutions shows frustration vis-a-vis reality. In a city where there are no good traffic signs, where in fact it is impossible to comply with all traffic regulations by the very nature of the urban jungle in which we live, the notion of penalizing any violation of the regulation is absurd and lends itself to all sorts of abuse and corruption. The alternative, not to impose any fines, is total surrender:  the authority relinquishing all responsibility.

Some municipalities have opted to negotiate with the anomalies. In Naucalpan, a municipality next to Mexico City, the authorities negotiated with the “viene viene” (the name comes from the words “easy-easy, easy-easy” they use to help people park), men and women who serve a vital function in the absence of spaces for public parking. Local authorities asked them to register and submit to authority. Similarly, the cranes in the service of the city’s government have arrangements with the “franeleros” (called that way for the red flannel they carry to wash cars) of the city. In other words, rather than attempting to enforce the laws and regulations, the very authorities have legalized this modus Vivendi, thus accepting the existence of surreptitious parallel authorities and arrangements. If this is not corruption nothing is. Actions of this nature may solve the immediate problem, but they also imply succumbing, instead of acting as an authority: if you cannot beat, better join them.

The underlying problem is that these are all partial, temporary solutions, and, more importantly, they go against the possibility of building a society of institutionalized rules that allow every citizen to know where he or she stands and what are their rights and obligations. Workarounds like the aforementioned not only undermine the role of authority, but create an environment of irresponsibility and uncertainty. Some will use this lack of rules to commit abuses (as is the case with the informal economy), while others will not be willing to invest in the absence of security, the uncertainty inherent to the law and regulations, and the absolute unwillingness of the authority to enforce them.

None of these problems is new, but it is no use to assert that they are a colonial legacy. The problem is not where the problems come from, even though it might be interesting to know their origin, but to find ways to eliminate them. For decades, perhaps centuries, the country has been working to try to resolve them without actually doing anything: new laws are approved or new regulations are announced but still nothing happens. The problem is clearly not one of laws but of the unwillingness or inability of respective authorities to enforce them. And often, the laws themselves violate the basic rights of citizens, which is hardly an incentive for the people to see them as legitimate.

Some might say it is a cultural problem (“Mexicans are rebellious by nature”), while others might claim that this is a question of immutable traditions. But there are positive examples of transformation in the country, as seen in the northern state of Chihuahua, a state plagued by crime, that suggest that solutions exist if the problem of lack of continuity in the structures of authority is resolved, together with the lack of agreement on the rules that must be enforced.

The lack of continuity in the structures of authority is perhaps one of our greatest vices, one that is also the source of the weakness of our institutions. A new leader takes office, full of spirit. The first thing he does is to repave all the streets in town, starts to tackle the main issues and sometimes finds a successful way to solve a serious problem (as has occurred intermittently in the case of crime), but then he goes on to seek his fortune elsewhere and leaves everything hanging. The next administration comes full of vigor to fight with the former one and does something completely different. Works are left unfinished, projects have no continuity and the whole cycle starts anew. The worst part is that there is nothing the citizens can do about it.

The other side of the coin is the lack of agreement among those in power that are responsible for making decisions: there is no continuity because there is no agreement or incentive for one to exist. Historically, governments come as a gang dedicated to exploit the spoils and that means they do not want any rules to limit them, and alternation of parties in government has not changed this pattern. Sticking to an institutional structure would involve accepting that there are limits to rapacity and that is anathema in the context of the old political system that, unfortunately, has not disappeared, but that “perfects” itself daily.

The history of legality in various countries and societies is not linked to culture or to the existence of an impressive police and judicial apparatus. Countries that have been able to establish legality as a mechanism to regulate life among citizens and guaranty respect for their rights, are those that have succeeded in making society, but especially the politicians and representatives of the people, accept the legal framework as a valid one. This can be seen both in the theories of Rousseau and Locke, as well as in political agreements like the Moncloa Pacts, whereby all Spanish political parties accepted the existing legal framework as a foundation for future development. What matters is that there is a commitment to adhere to a regulatory framework. The Spanish case illustrates that what is important is not the content but the fact: Spain accepted the existent frameworl because the alternative would have been chaos. Using the Moncloa Pacts as a starting point, Spaniards began to change their laws but from within the institutions that recognized the initial covenants. At heart, what Mexico needs is a great political overhaul that makes it possible to adopt a legal framework to which we will all submit ourselves.

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It is time to legalize the informal sector of the economy. For decades, we have lived in the fictitious world that claims that the real world, the good world, and the statistically relevant world is that of the formal, duly registered economy. Reality however, tells us otherwise. The informal economy is dynamic and employs millions of Mexicans that, in truth, are modern and competitive entrepreneurs, all of them willing to assume risks and satisfy their customers. The informal economy is real and is there for all to see. It is time to see life from a different perspective.

Now that taxes are being discussed, why not change the equation? Why not find the way to really pay the taxes that are already in the books, but not with more sanctions, but with less bureaucracy.

Let’s start with the obvious: formality is a bore, if not bureaucratic death. Formality was designed, if that term can be used, for large companies, those able to manage and process the myriad of requirements and regulations involved in the formal economy. Although costly, a large company can devote a small army of accountants and lawyers to register companies, pay taxes, obtain (and renew!) digital signatures, get deductions back, validate receipts and, God forbid, make sure an invoice is still valid (surely a major cause of tax evasion).

No small or startup business can comply with that string of requirements and monthly payments. The sheer weight of regulation renders it ineffective. Given the situation of having to register with the SAT (Tax Administration Service), the Mexican Institute of Social Security (IMSS) and other federal and local bureaucracies, a person who, by decision or lack of options, chooses self-employment, the next logical step is to opt for informality. Moreover, people that chose to live in the informal sector do not live badly either: he or she has access to health insurance (Seguro Popular), which is cheaper than the IMSS and (amazingly) is designed for those who are not part of the formal economy. If his or her daughter wants a scholarship at the UNAM (the National Autonomous University), informality allows them to argue that their income does not exceed the maximum permissible because there is no way to check. In sum, it would appear that living in the world of informality is like paradise compared to the bureaucratic tangle involved in the alternative.

It might seem that informality is benign and free of cost, but this is obviously not the case. Instead of paying taxes, people living in informality have to bribe inspectors, rely on moneylenders and speculators because they are unable to show proof of their income to have access to bank credits; instead of legal certainty they live in a permanent limbo that prevents them from growing even if they have a promising business; they are always stalked by politicians eager to sell favors, develop dependency relationships of patronage and control the flock. Informality can be hell.

Although there is no consensus among scholars of informality, it seems clear that there are certain prototypical characteristics among those living in the informal economy. There is no doubt that a person in the informal sector is willing to take risks in order to improve his or her financial situation. This element immediately sets them apart from those who choose a secure employment, with the many benefits that come associated, even if that means less potential for development. Assuming that a person consciously chooses informality, she knows she is entering a difficult world where life is earned every day of the week and where there are no paid holidays or social protection. Those that do so hope they will achieve a higher income throughout their life. Empirical evidence suggests that most of those who operate in the informal sector are in fact financially more successful.

Speaking of informality often brings to mind the image of a vendor on the street, one of many that sell their wares (from popsicles to meringues), contraband or any type of furniture and objects, as well as food. But informality is infinitely greater, ranging from manufacturers of pirated discs to plumbers, carpenters or distributors of goods next to food vendors at construction sites, those selling juice (some on huge truck racks) and bicycle renters in parks. In addition to all these actors of our everyday national life, there are a number of activities that are prominent in the informal sector. The common denominator is not tax evasion, although it is undoubtedly a universal feature in that world, but the courage, the drive for self-improvement and willingness to take risks. That is, these are the entrepreneurs that Joseph Schumpeter, the great economist of the first half of the twentieth century, might have described.

Formal entrepreneurs tend to despise informal ones, while the latter reject any association with the term “empresario” while, in practice, that is exactly what they are. But the fact that there is this axiological opposition says a lot about our social and political reality. What matters is that everyone can grow and produce for their own benefit as well as that of the country as a whole

The underlying theme is that, on the one hand, formality is not paying off in terms of employment or economic growth while, on the other, informality is hampering the growth of individuals and their businesses and nothing has been done to facilitate their inclusion in the formal economy. In practice, this means that the sector in the economy that could be potentially more dynamic is castrated, while the one that is given full recognition, is not yielding enough growth or the income taxes that the country needs. It’s time to reverse the pyramid and that means understanding and recognizing the dynamics of informality and adjusting the bureaucratic and regulatory paradigm to make it possible for those in the informal economy to cease being there, without annihilating them along the way.

COLOPHON. Far from my nature or purpose is to write an apology on behalf of informality. Obviously, I am not proposing to turning to small, unproductive shops as an alternative to a modern, thriving economy. The objective is no to strengthen or to promote the growth of tiny “changarros”, small, unviable shops, and even less to argur for privileging tax evasion. The opposite: our formal structure not only impedes growth, but makes it impossible to develop a large sector of the economy that, with suitable incentives, could add a exceptional dynamism and value to our economy. With the insertion of the informal sector in the formal economy, in the context of a rational tax structure, perhaps with the 2% that was recently proposed, the Treasury would be the big winner without having to kill the goose that lays the golden eggs. Countries showing the highest rates of economic growth have been able to resolve this mess better than we have and their citizens have better lives.

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Years ago, in a rural area near Calcutta, I watched fascinated a Hindu priest leading a worship ceremony of a cow. The devotee spent hours feeding the animal flower petals and washing its body as if it were a deity. It was a touching scene. In Mexico we have many sacred cows -from oil to no reelection, including a whole range of other issues- but perhaps none has had such a high impact in recent years as the famous “political cost” that politicians invoke when they want to avoid deciding on just about anything.

Political cost has become a virtual deus ex machina, an argument out of nowhere that serves to explain and, above all, to justify just about anything. Because of the alleged political cost, nothing can be reformed or changed. By the magic wand of the alleged political costs, fundamental issues such as the rules governing energy or the urgent need to re conceive tax policy are simply untouchable. Although it is clear that many of the actions, decisions and reforms the country needs entail political costs, it is also true that the term has become an excuse for not doing anything.

Any change or reform inevitably affects people and interests; otherwise there would be no issue. The very idea of reform involves changing the status quo and that, by definition, involves changes in the distribution of costs and benefits. Our problem is that everything is focused on the costs and none is focused on the benefits. The consequence of this attitude is that we are permanently betting on the short term. Instead of carefully evaluating the potential benefits of a particular reform or for legislators and government officials to articulate a communications strategy and develop a stakeholder base for reform and, at the very least, to defend their position and be able to act, everything leads to inaction.

Under that logic, the result cannot be any different from the usual one: the preservation of the status quo which, in our reality, implies ensuring that poverty, privilege and other calamities that characterize the country remain forever. James Freeman Clarke coined the famous phrase that “a politician thinks of the next election — a statesman, of the next generation.” Judging with that yardstick, our politicians have become mere echoes of phrases, negotiators of business interests and careful advocates of the existing order. Instead of investing in a different future -personal, partisan and national- they are staring into the rearview mirror to make sure nobody can ever accuse them of affecting anyone not even touching them even with a rose petal.

Conjuring political cost  as a defense of inaction hides not only an unwillingness to act, but also a deep conservatism that borders on reactionary politics. While that may be understandable in established parties of the right, the phenomenon is also observable in the leftist PRD (Partido de la Revolucion Democrática): in sharp contrast to the modern European left, our PRD members oppose any change with the same vehemence that their peers from other parties. Interesting coincidence: all of them swear by paralysis, no matter the cost it entails.

The case of the VAT is particularly striking. PRI members claim they oppose any change in the value added tax because the changes adopted in 1995 (when the tax was raised from 10% to 15% in the middle of a terrible recession) had resulted in the loss of their legislative majority in 1997 and of the presidency in 2000. It might seem clear that if one drew a direct causal line between the decision made on that tax and the profile of votes, this conclusion might be justified. It is also true that the PAN, in one more of its audacious electoral tricks aimed at the very short term, capitalized on the image of PRI members as they partied after passing that law.

However, if one looks at the big picture, the perspective is much more complex. In 1995, when the VAT was approved, the Mexican economy shrank by almost 7% and inflation surpassed 50%. Moreover, these circumstances took place within an exceptional environment in which, for the first time in history, vast numbers of middle-class families had borrowed to buy houses, cars and various consumer goods. The economic contraction resulted in severe loss of jobs and income for millions of Mexicans, while interest rates exceeded 100%. Countless families who felt the country was finally “turning upward” towards development suddenly saw their dreams shattered. Many of these families lost their homes, many others their car and almost all faced all kinds of family disruption.

Politically, the economic crisis came together with a key conflict within the PRI ranks where traditional politicians reclaimed the leadership of the party, displacing the technocrats that had ruled the country since 1982. Although, in economic terms, the development strategy pursued by the Zedillo administration was very similar to that of its two predecessors, the bitter criticism that it aimed at them brought about a deep internal split that only now, without the technocrats, is beginning to heal.

From this perspective, it is absurd to blame PRI’s electoral disaster in 1997 and 2000 on the increase in the VAT. By the mid 1990’s, the PRI had been losing popular support and its legitimacy was increasingly being questioned. For the average Mexican citizen the economic catastrophe of 1995 was infinitely more expensive and imposing than the increased tax rates. As soon as a structure for electoral fairness was put in place (which happened with the so-called 1996 political reform), the population voted against the party which had done nothing but produce one crisis after another since 1970. In all this, the VAT was nothing more than a minor distraction. But for the PRI, the issue of the VAT as the cause of their loss became a myth, a revealed truth that lives on.

For me the obvious lesson of the second half of the nineties is that the governing party increases its vulnerability every time that its actions (or promises) produce a crisis or when the people believe that a crisis can result. On the issue of government finances the Mexican people long ago learned the lesson that fiscal irresponsibility (that the PRI is once again proposing) is much more costly than an increase in the VAT, especially if the rationale for a tax increase is duly and clearly explained and losers are compensated along the road.

The cost of not undertaking the reforms the country needs is every more costly because its absence prevents the economy from growing at an accelerated pace. The paralysis in the country is due not to the VAT but to the myth of “political cost” that serves as an excuse to protect interests and “sacred cows”, both much more pernicious to voters than the risk inherent in reform.

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A legend, allegedly concocted by Voltaire, tells that Isaac Newton formulated his law of gravity when an apple fell on his head and wondered “why did the apple fall?.” Ipso facto his theory was born. Centuries later, the PAN (Partido Accion Nacional) is bent on defying Newton’s law. Instead of devoting themselves to the complex problems of government and, if they wanted to, to assess their recent failures, the panistas are bent on acting a party permanently in the opposition.

The PAN lost its way on two occasions and for two almost opposite reasons: one for having no strategy and another for its excessive rigidity. The first time happened in 2001 when the new PAN administration had the opportunity to redefine the Mexican political system and lay the foundation for a truly democratic change, but the then president, Vicente Fox, proved unable to understand the magnitude of his own success: the forces that were unleashed by the defeat of the PRI or the changes in structure of power that would take place as a consequence. The second took place this year during the midterm elections where the government and its party were lost in their own prejudices, ignoring the dynamic of an intermediate electoral process. Both promise to be defining moments for the future of the country and of the PAN.

Mexicans of the present generation will never get to understand how was it possible for Fox to squander the golden opportunity created by the 2000 election to dismantle the PRI’s power structure. Upon reaching the presidency, Fox had the chance to negotiate a democratic transition that could transcend the electoral dimension. The moment was not only auspicious, but exquisite for two reasons: as could be seen that night at the Angel, the people, including those who did not vote for the PAN, were all behind the new government, eager to enter a new stage in the country’s history. The other reason was key in terms of timing: PRI members were biting their nails off, terrified of being jailed for corruption charges or for any other reason stored in their collective conscience. They were ready and willing to negotiate almost anything.

We can only dream now about what could have been the content of such a pact, but what is clear is that they could have exchanged the sins of the past for a new future. Fox could have proposed an agreement that would lead to a restructuring of the sources of power in exchange for the legitimacy of those involved and peace for society. How much would have been possible is a matter of fiction at this point, but the missed opportunity was monumental. The PAN government initiated the first non-PRI administration imitating the PRI: instead of changing the government, they mimicked it. Today the PAN is increasingly more alike the PRI but without the skills to govern.

Instead of taking the giant leap, Fox was content to sit in the presidential chair and give Sebastian Guillen, aka Subcomandante Marcos, media control. The PAN, embodied in its president, displayed the great limitation of not having experienced senior managers in their ranks. Nine years later, the PAN continues to display an incredible inability to create them.

If Fox came to power without strategy and vision, the second PAN government, headed by Felipe Calderon, arrived with the opposite attitude: to control everything to the point of excluding everybody other than those personally loyal to the president, regardless of competence. The recent mid-term election is a good example of the consequences of wanting to exert total control. While the PRI articulated a regional strategy for each of the states and districts of the country (because Sonora and its wine orchards is not the same as Oaxaca with its indigenous traditions), the PAN adopted a single national strategy. This made sense in the presidential race where candidates have a national, almost universal presence, but is an absurd strategy when it involves a regional or local dynamic: citizens expect relevant answers to their circumstances. The PRI gave ample promises (and plenty of goods), while the PAN handed criticism to the PRI. The PAN’s loss was its own doing. Looking forward towards 2010 and 2012, there is no reason to believe its performance will be different.

PAN was born as a party of citizens and for the citizenry. Its birth was a reaction to the party of the revolution and an invitation to develop a strong citizenry. Seventy years later, the PAN seems divided, unable to understand power and citizens are deserting it. Their internal feuds, incredibly ideological, are incomprehensible to most voters. Their inability to govern effectively is astonishing. As the recent budget cycle put in evidence, it was the PAN that undermined the president’s bill. Their internecine quarrels as the ruling party, in addition to being expensive and stupid, are striking. What was tolerable nine years ago today has become untenable. There is perhaps no better indicator of the new challenge facing the PAN than the young voters, those that had never voted before: almost none of their votes went to the PAN

The PAN has two options: one is to continue digging its grave in the form of internal bickering, parochial conflicts and rejection of power and their own president; the other is to start building a party of and for power, but from the perspective of its origins: the citizen. The first path, the one it has chosen since assuming office, will inevitably lead to the scaffold. That is the way extremist, and very powerful, groups that conform the party are leading it in a way that is irreconcilable with real politics, the politics of power, where negotiating with all legitimate political forces is a point of departure. Perhaps the young people who in 2009 voted for the Green Party or other options did so because of intense advertising, but it is also possible they did so because they no longer see in the PAN an option capable of governing the country.

The alternative for the PAN is to redefine itself in terms of power: find an arena that allows it to reconcile its original base, the citizen, with the realities of power. Its natural inclination is schizophrenic: on the one hand to repudiate the government while, on the other, negotiating political reforms that imply a betrayal of the citizenship, such as happened in the latest electoral reform and is now being attempted in other political bills. The PAN will never win a presidential election if it remains unable to offer a real choice of power on behalf of the citizenry. Its dilemma is a simple one: the PRI will always be preferable if the PAN strives to be as the PRI but with no ability to govern. The PAN has to show it can govern or it will go back to what appears to satisfy the spirits of its traditional contingents: the opposition.

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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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