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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Sometimes it is impossible to figure whether to be proud or ashamed. Mexico has become dysfunctional without the capacity to map out a viable road to development, face up to the challenges that it confronts, or carry out well thought out plans that simply end up in failure.

The interview of astronaut Jose Hernandez Moreno to President Calderon is one of those moments that make us reflect on our circumstance and the nature of our challenges. Jose Hernandez exemplifies what thousands of Mexicans aspire to be and the legitimate success to which they are entitled. The pride of seeing a Mexican reaching the zenith of his career and the opportunity to be part of one of the world’s technological milestones is indescribable. Yet that pride must be tempered by the shame that comes from having to admit that his story is not within the reach of most Mexicans and, furthermore, that his story was only possible because his parents left Mexico in search of a better horizon for their family.

Perhaps the story of the new Mexican astronaut sums up the country’s problem: his story cannot be repeated by most of the rest of Mexicans. This should make us aware that there is something, or many things, that do not permit the country to grow at a fast pace. It is pathetic that for a poor Mexican (or his descendants) to be successful he had to migrate to the US. Such is the case of the major of one of the largest American cities (Antonio Villaraigosa in Los Angeles); Jose Hernandez, who became an astronaut because he lives in the US; or that Mario Molina could earn a Nobel Prize because he was a researcher in the United States. The context migrants face when they arrive opens up possibilities for them than no other Mexican that stays, has within his or her reach.

There are many pertinent questions that arise from such convincing evidence: Why is the country so dysfunctional? Why is there so much corruption? Why is it that nothing works? Why are most people so reluctant to change, including those changes that might benefit them directly? Why are decisions not taken and why are those that are taken so inadequate and often harmful? Why this immobility? How is it possible that even under a crisis as profound as the current one, the country does not respond? In sum, why are we so tolerant of immobility, to the lack of proposals and the irresponsibility of politicians?

Programs and laws come and go, but none achieves its objective. Nearly thirty years ago, in one of those Soviet-driven fits,  the notion of (democratic) planning was added to the Constitution. Since then, governments have churned out and published development plans every six years with their corresponding additions and updates but that is all they have done: publish and talk, not achieve their goals. Nobody questions that the country has undergone significant changes in the last decades but the results are meager. The question is why.

A possible answer, that is both accurate yet imperfect, has its roots in the political transition that began in the eighties and nineties and had its stellar moment when the PRI was defeated in the year 2000. Before the beginning o alternation of parties in the presidency, the political system worked around an all-president that derived his power from his association with the PRI and allowed him to impose his decisions. In recent years, as the reality of power changed (when the presidency “divorced” the PRI), the institutions charged with wielding and managing political power remained virtually the same. This would explain the ineffectiveness of Congress and the absence of mechanisms to generate agreements between the executive and legislative branches. From this, many have concluded that the problem today is the absence of a strong presidency or of democrats willing to play the role key stakeholders in an institutional setting.

However, it’s quite obvious that the country was not created in the year 2000. The reality is that its economy suffers from chronic stagnation since the mid-sixties when the era of “stabilizing development” came unstuck. The attempts to respond to that situation –together with the fiscal excesses of the Echeverria and Lopez Portillo administrations as well as of the liberalization of the economy undertaken by de la Madrid and Salinas- have proven either inadequate or insufficient to achieve the objective of high and sustained economic growth.

Thus, it would be wrong to blame the current paralysis on the political transition since the evidence shows that the previous almighty presidents did not carry out the much needed transformations that the country required to fulfill that economic aim by which they all swore. In one word, the results have oscillated between bad and dismal both when there was the power to make and enforce decisions as well as in today’s era of apparent paralysis.

If to this we add the social dimension: that invisible veil that Mexican migrants have managed to expose and display through their remarkable successes, but also with their own personal family dramas, the country has become a nest of privileges where only a very small fraction of people can achieve their aspirations. The rest have virtually no possibility of envisioning opportunities different from those that their social origin imposed upon them. The success of the poorest Mexicans living in the US constitutes brutal evidence that in other circumstance might make us proud, while in fact is nothing but a ruthless indictment against the country as a whole.

The tangible fact is that the country does not work. Everything seems organized and built to make life difficult for the population, to cancel opportunities and to close spaces for their development. On the other hand, if one looks at the way the budget is allocated and how Congress legislates, there is no possible doubt of where the priorities of decision-makers lie: the resources are allocated to the most powerful unions (for example, we spend great amounts in education, but most will not improve its quality, but will engross the pockets of the union) and the reforms are made so that they do not impinge on priority concerns (as was the case of the “energy” reform that did nothing but fuel the corruption in Pemex and promote the interests of the union and its beneficiaries). The few reforms that are approved, as the one on agriculture reform (the ejido), did not improve the reality, in this case of peasants.

The arena that should exist to discuss and conscientiously analyze the nature of our problems and challenges is rather focused on irrelevant speeches and ideological justifications. The discussion of key issues, such as PEMEX and the utility Luz y Fuerza, was never about improving the performance of the Mexican economy but about the myths of their respective expropriations. The same is true of most decisions of the executive and legislative branches: everything is a smoke screen to maintain the status quo. The pride of seeing the astronaut has to be tempered by the shame of the reality that drove his parents from the country.

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A few years ago, a group of American teachers’ unions launched a campaign whose slogan aimed to draw society’s approval: “if you think education is costly, try ignorance.”       I wonder what happens when ignorance starts with the government itself.

The challenges that the country is currently facing are enormous but so are the opportunities. In spite of this, for decades we have been unable to match one with the other and the result is that the problems pile up while solutions remain scarce. This takes place in the context of a changing world where the sources of opportunity, wealth and development are no longer the traditional ones. Education has become the centerpiece of a country’s development but we are still firmly focused on an industrial and agricultural economy that is yielding diminishing returns. The cost for the average Mexican is immense and rising.

All the relevant indicators show huge setbacks and obstacles that have become de facto walls: insurmountable obstacles to economic growth and wealth, but that also stand in the way for the advancement of the country as an organized society. Thus, we have before us fiscal and infrastructure problems, an inability -that at times seems almost genetic- for our politicians to agree on issues, and a police system unable to fulfill its mandate. All of these topics and issues are overwhelming but stand in weak contrast with the biggest adversity for the future: education

Education is the backbone of our problems for two reasons: first and foremost because what adds value in today’s economic system is the population’s creative talents and these are magnified and grow with education. The other reason is that our educational structure is a perfect microcosm of our political and even cultural reality. The Mexican educational world is characterized by an abusive union that paralyzes everything, a hyper bureaucratic ministry, a masked centralism where nobody takes action or governs and an enormous waste that has resulted from an ill-fated decentralization. The case and twilight of the educational system could be construed as laughable if it were not for the terrible damage it inflicts on the country’s future where every child is stuck without any chance of leading a prosperous life.

The current government attempted to change the way the Ministry of Education and the union related to each other. For years, the union leader had taken over the ministry and was used to bossing ministers. Presidents would bow and the rest would give in. One of them went to the extreme of traveling abroad to get direct instructions from her. The first step this administration took was to redefine that relationship: the educational agenda would be negotiated at the ministry, not at the presidential house, Los Pinos; and the relationship would be work-related (that is, employer-union) and substantive, centered on education, not on elections, strikes or demonstrations.

The next step consisted of negotiating a new scheme to manage the educational process that entailed a realignment of the incentives offered to teachers and students. The so- called (Alianza por la Calidad en la Educacion) Alliance for Quality Education (AQE) changed two key elements in the working relationship: in the first place it established that the hiring of new teachers would be done via competitive entrance exams, thereby destroying forever the sacrosanct practice of selling positions whereby new teachers would buy their tenure from a retiring one without any exam. Secondly, the ministry would hold yearly standardized tests and teachers would be paid according to the results, in other words, on the basis of a merit system, depending on student’s performance on these exams. In sum, the AQE attempted to link teachers’ salaries to children’s performance. A good teacher whose students passed his or her exam successfully could take home an annual bonus of up to 120,000 pesos  (approximately 9,500 USD). While the issue of what would happen to teachers who retired in the first years of implementing the AQE remained unsolved, all the teachers that were able to improve the student’s performance would have been rewarded with economic incentives.

The goal of these reforms was very simple: to bring down the barrier that the existing educational status quo represents for the country’s progress. Had it remained in place, the Alliance promised the possibility of advancing towards a genuine equality of opportunity for all children. Certainly, in a country with such an acute inequality, nobody could expect an overnight radical change, but changing the patterns and incentives that would guide teachers in the future no doubt constituted a way of improving and transforming the lives of children, especially the most disadvantaged.

Even though the union leadership negotiated and signed the AQE, very early on it started to back down, in part due to conflicts like the one in the state of Morelos, but more importantly so, because of the loss of union power that the Alliance inevitably entailed. It might have been the closeness of the midterm elections, but it is now clear that rather than pushing ahead, the president chose the siren’s songs and the promise of electoral support by the union, a premise that has always been doubtful.

Said and done: as predicted, the recent elections showed that the support of the teachers’ union made no difference for the ruling party: the PAN could hardly have done worse. In contrast to this, the union was able to free itself from the commitments acquired under the AQE and the government abandoned the project of educational reform. Beyond the politics involved in this decision, the Mexican economy will pay the consequences and the problems of inequity will only worsen.

When Secretary Josefina Vázquez Mota left the Ministry of Education, many interpretations and speculations were put forth. The passing of time confirms the hypothesis that the president chose the political and electoral relationship with the union over and above the transformation of the educational system, maybe the only project his government would have been able to leave behind. The evidence that the Ministry of Education is again under total union control is so unambiguous that we are left without alternative interpretations. Pathetic.

In politics, it is results, as opposed to intentions, that matter. The result in education is that we are back under the reigns of union control, and Mexico’s children will now have to wait a few more decades before they are able to have the opportunities they deserve and that are the government’s responsibility. Some things are measured by what is accomplished. This one will have to be measured by what could have been.

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As Miguel de Cervantes wrote in Don Quixote, “if appearances are removed, it becomes obvious where the first confusion lies.” In foreign policy, the first source of Mexico’s confusion lies in forgetting our geographic location and giving in to Chavez’s alluring swan song. There is no contradiction in developing brotherly, media-rich or personal closeness with the southern neighbors while at the same time, trying to advance north our most basic and fundamental interests. In fact, the key, and complexity of our foreign policy lies in being able to strike a balance in articulating an active presence in the south together with a decisive brokering of our interests towards the north. The former is politics, the latter, development.

The farce with which Manuel Zelaya, the deposed Honduran president concluded his visit should make us reflect on the difference between our interests and our hearts. Beyond the lesson for the government, that entails being used by someone they meant to use, the fact remains that Mexico has very clear interests both in the north and in the south, and that these sometimes do not coincide, for whichever reason, with the public attitude that a government must hold.

In politics (both foreign and domestic), it is perfectly legitimate for a government to look after its various audiences and support bases. Sometimes, this will imply budget decisions, in others it will mean appointments and in other, just pure discourse. These types of support and deployments are necessary because they help placate or satisfy, depending on the situation, different sectors and groups regardless of the fact that the attention being offered has no real content or is simply put, merely rhetorical. Politics is a balancing act that seeks to achieve the sum of opposites that are usually incompatible.

Rhetoric and reality go hand in hand when we construct political strategies that constitute the instrumental arm of any government’s activity. For decades, our government’s foreign policy actions were guided by rhetoric and this was sometimes incompatible with reality. Rhetoric took the shape of fraternal and unrestricted love; the reality was an unspoken agreement of non aggression and mutual respect. Rhetoric appeased politically active and weighty sectors within the country while reality allowed Mexico to be safe from Cuban guerilla activism. Both governments understood the difference and knew that Mexican rhetoric, including its votes in multilateral fora, were part of the game. The United States government understood it too: they all participated and acknowledged the underlying reasoning and the circumstances.

The unspoken strategy of the Estrada doctrine, a cornerstone of Mexican foreign policy, summarized the Mexican stance; we respect others and we demand respect for ourselves. Decades after the end of the Lazaro Cardenas administration, which defined the doctrine, when the Partido Revolucionario Institucional (PRI) started to gaze in the mirror with shameful glances and started to accept as factual the illegitimacy with which both the opposition and society at large viewed them, the Estrada doctrine seemed to loose its momentum. This was exacerbated when the Fox administration chose to follow a foreign policy that aspired to be coherent in speech and deed.

The fall of the Berlin wall changed the world and, in our case, the PRI wall collapsed and we were suddenly disoriented: the PAN governments became critical of the ways others were ruling. Relationships that were crucial to our stability, such as the one with Cuba, started to experience fractures. The previous understandings became obsolete giving rise, among others, to misunderstandings, some of them rather humorous (like telling Fidel Castro to come and leave before lunch so as not to upset Bush) but, above all, the government lost support from critical domestic constituencies that were not costly but extremely valuable politically. A new form of Manichaeism emerged when we thought that a closer relationship with the north excluded an active, yet respectful and non militant presence in the south. Spain, to quote an obvious example, never confuses their real interests with its widespread commercial, media and political presence.

The current government, when first came into office, adopted a policy of friendly rapprochement while trying to soften disputes inherited from the Fox administration. It acknowledged the need to avoid unnecessary conflict. Soon, however, we ended up in the opposite extreme. The key elements of our relationship with the United States were abandoned: the administration lost track of the growing needs and combativeness of Mexicans residing in that country and chose to privilege its contacts with the south at the expense of those with the north, as if reality demanded it do so.

One thing is rhetoric and another one is reality, and both ought never get them mixed up. Auguste Comte, the French sociologist believed that at the root of all historical crises lies a profound intellectual confusion. Nobody can object and deny the impending need to reestablish a functional relationship with regimes such as the Venezuelan or the Cuban, each extremely significant in its own way. But in both cases it is obvious that we cannot achieve a certain coincidence except in terms of a necessary coexistence, which as I can recall, was the true sense of the Estrada doctrine. Pretending to coincide has led us to experience some bitter moments which at times have been pathetic.

A case in point is our recent experience with Honduras. The Mexican government had to rebuke the coup d’etat staged against Manuel Zelaya, for this was the only public position it could take while it surely served to maintain its legitimacy in the south. Yet, in spite of the latter, it could not afford to ignore the particular circumstances that surrounded the case (the Congress in Honduras convened and the Supreme Court instructed the Army to act). No matter how much we read between the lines, it was not a caricature Junta removing an innocent victim from the presidency. It was logical and reasonable to maintain a formal stance but the current state of affairs makes Mexico’s militant support of Zelaya hard to comprehend. Giving the deposed president a formal welcome as head of State knowing full well that his staunchest supporters came from the most backward and aggressive regimes in the region, implied, in the best case scenario, a case of naïveté and in the worse, a stupid error in judgment.

No government can afford to confuse its country’s interests with rhetoric; they are just not the same, yet the latter should always constitute a useful tool to achieve the former. In any case, what matters is to achieve our interests: development and stability. In the region where we live, the first can be procured north and, for the second, it is vital we maintain respectful peace with the south.

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 Foreign Affairs, September/October 2006
By Luis Rubio and Jeffrey Davidow

 Summary: The July 2 Mexican election was about more than picking a president. It represented a choice between continuing the liberalization of recent years or returning to the past. Neither alternative, however, offers a solution to the country’s problems. To address those, the next president must not only deepen reforms but also extend their benefits to the many Mexicans who have been left out of the process.

Luis Rubio is President of CIDAC (the Center of Research for Development), in Mexico City, and a co-author of “Mexico Under Fox”. Jeffrey Davidow is President of the Insitute of the Americas and the author of “The U.S. and Mexico: The Bear and the Porcupine.” He was U.S. ambassador to Mexico from 1998 to 2002.

A WAKE-UP CALL

Mexico’s July 2 election was not only a contest to select a president and a new Congress. It was also a referendum on the future of the country, and voters recognized it as such. The national question essentially came down to whether Mexicans wanted continuity with the reforms of recent years or a return to the past — whether the country should keep pursuing the political and economic liberalization that started in the mid-1980s or go back the state-driven development model of the 1970s.

The first choice was represented by Felipe Calderón of the conservative National Action Party (PAN), the second by Andrés Manuel López Obrador of the left-wing Party of the Democratic Revolution (prd). Although Calderón seems to have edged out López Obrador for a victory, both received about one-third of the vote. (López Obrador rejected the results and took his protest to the streets and the courts.) But neither Calderón’s promise of continuity nor López Obrador’s reactionary populism offers a solution to Mexico’s deep and abiding structural problems.

Calderón’s appeal — most evident among the better educated and the better off and in the northern half of the country, where the North American Free Trade Agreement (NAFTA) and economic reform have had the most beneficial effects — rested on his argument that the financial stability, social peace, and moderate economic growth of recent years were too important to risk with a return to the policies and governing methods that had not served the country well in the past. López Obrador spoke more to the less educated and the less well off and to the center and south of the country, where the reforms of the past two decades have produced considerably less positive change. He rejected Mexico’s current governing doctrine, which holds that the nation is best served by the internationalization of its economy, the reduction of state controls, the creation of independent, counterbalancing institutions, a greater play of market forces, and a decreased role for politics and parties in the running of daily life. López Obrador argued that the country has been heading in the wrong direction since it broke away from its tradition of strong government and a subordinate economy. During the campaign, Calderón attempted to distance himself from fellow PAN member President Vicente Fox, who had canned him from the cabinet. He argued for more effective and expansive social programs. But in fact, Calderón’s message was an endorsement of Fox’s policies and the recent trends in Mexico’s economic and political development. His campaign was oriented toward the future; López Obrador looked to the past.

Nostalgia for a simpler time played a strong role in López Obrador’s campaign. As mayor of Mexico City, he “got things done” — a new highway and city beautification projects — in a way that suggested that he was a throwback to the power brokers of the long-ruling Institutional Revolutionary Party (PRI) before that mammoth became hopelessly mired in the tar pits of corruption, cronyism, and economic crisis. (Rebels such as López Obrador abandoned the PRI to form the prd.) He also capitalized on Fox’s inability to meet the inordinately high expectations that he had created. (Probably no politician could have met those expectations, even one much more skilled in political infighting than Fox proved to be.)

López Obrador’s greatest strength was his ability to exploit Mexicans’ sense of victimization and disillusionment. He spoke to and for those who see themselves as the losers in the process of modernization. With a campaign appeal more blatantly class-based than anything recently seen in Mexican politics, he turned a passive population of poor and middle-class people who have remained on the sidelines of economic growth into a social movement demanding to play a role in the transformation of their society.

Poverty in Mexico remains endemic. Neither the old PRI approach to development (which in this election was espoused by López Obrador) nor the more recent attempt to modernize the economy through limited market-based policies has succeeded in reducing inequality in any significant way. In fact, Mexico never really liberalized its economy and politics to the extent necessary for a modern society: some reforms were ambitious, but many favored cronies, and under the PRI governments that preceded Fox, reform left the old political system and its vested interests untouched. As a result, the benefits of reform have been less than expected, and many people were wounded and left wanting: the peasants, workers, and small-business and factory owners overwhelmed by international competition and displaced by the forces of a modern economy. It was from these groups and their sympathizers — the intellectuals and social activists of the left — that López Obrador constructed his movement. He reinforced their belief that now more than ever success in Mexico depends on having the right parents rather than on effort and merit, and that there is an imbalance not only of wealth but of opportunities kept in place by the rich and the powerful.

López Obrador’s supporters were unconcerned that much of what the candidate advocated — stronger state control, more subsidies, greater government spending, lower international reserves — had been tried before and failed, often resulting in monumental financial crises for the country. Nor were they particularly troubled that his approach might lead to a more heavy-handed and intolerant and less open government. He seemed to promise a return to a purified, powerful, but this time honest and competent PRI (although he never explained his vision in that way).

Optimism characterized Fox’s 2000 campaign: the expectation that the alternation of parties in government would open up a world of possibilities for the country and its citizens. Although an understandable thirst for social justice motivated many of López Obrador’s followers, that desire was heavily mixed with feelings of disappointment, resentment, bitterness, and jealousy, which were so apparent in the masses of people who came to the streets to protest the electoral results. The deep divisions that marked the campaign and the post­July 2 reaction do not bode well for Mexico. When he is inaugurated on December 1, the new president will have to deal with a challenge that neither continuity nor a return to the past can successfully overcome.

AN INCOMPLETE TRANSITION

To deal with the disaffected and the dispossessed, Mexico’s economy needs to deliver more benefits to more of its citizens, and its government must become more effective, open, and honest. This will require deep reform of government institutions, bureaucratic procedures, the tax and educational systems, many laws, and even the constitution. Mexico’s political and economic leadership has not seriously taken on this challenge, preferring the comfortable status quo. And although both López Obrador and Calderón talked incessantly of change during the campaign, they provided little evidence that they clearly understand the depth of the problem.

The path that Mexico started down 20 years ago is not the wrong road: it has simply not been well enough traveled. The country’s principal goal should be to put the economy into a high-growth orbit and to make the leap from the pack of struggling second-tier economies into the developed world.

Mexico’s economy has sustained its hard-won stability for the past dozen years — no mean feat after 25 years of inflation, crises, and devaluations. But it has not grown fast enough to absorb the supply of labor or to tend to the serious social tasks that the country has been postponing for decades. Fox promised to deliver seven percent annual gdp growth and to create over a million new jobs a year. He managed only three percent annual growth and an average of only 100,000 new jobs a year. True, he was hobbled by the effects of a lackluster U.S. economy for much of his term, but this government’s failure to meet its goals was mostly due to its inability to bring about important structural changes that could unleash the Mexican economy and provide opportunity to many of the people who would come to vote for López Obrador in 2006.

These failures were all symptoms of a more fundamental problem: the inability of Mexico’s institutions to work effectively. For seven decades of PRI rule, the institutions of government were secondary actors. The party conferred on the president an extraordinary ability to influence all events through its wide web of extragovernmental control. With the defeat of the PRI in 2000, the “new” presidency became much weaker, for Fox had only his constitutional powers to manipulate. This change, along with both a PRI attitude that saw Fox’s failure as its ticket back to power and Fox’s own political inexperience, led to a six-year period of governmental paralysis that added strength to López Obrador’s campaign.

The ineffectiveness and the political manipulation of the institutions of government have led to widespread distrust on the part of much of the population. López Obrador was able to generate mass support for his rejection of the election results because so many of his compatriots are preternaturally inclined to believe the worst about their government, including, in this instance, the national electoral commission, which is in fact effective, efficient, and honest.

For Mexico to break the vicious cycle of public distrust, resentment, and insufficient development, there must be a reform that matches the new reality of political power with the institutions that are supposed to wield it. In a sense, Mexico’s institutions need to be refounded. An ambitious reform would transform the relationship between the Congress and the executive, the structure of Congress itself, and the party system. Those political institutions served the PRI era well, but they make little sense today. For instance, 200 of the 500 members of Mexico’s lower house represent no constituencies but are political operatives chosen by the party hierarchies. The hallowed Mexican tradition of no reelection of public officials (at least not to the same office) means that many officials pay little attention to their constituents, causing further disaffection. A revision of the relationship between the states and the national government and of the operation of the giant state-owned oil and electricity monopolies are also in order. Even a modest reform, one that would create mechanisms such as a “guillotine law,” which establishes a peremptory period for a legislature to act on an executive bill lest it be automatically approved, would help rebalance the relationship between the legislature and the presidency.

Some of the most glaring dysfunctions of the Mexican system are well known and frequently discussed. But little has been done to change them, because the status quo benefits important vested interests. Evasion and loopholes in the tax system mean that the government collects too little of Mexico’s national product to allow for adequate growth-stimulating redistribution through social programs, infrastructure development, and education. The need for serious fiscal reform is paramount, and will be even more so as pensions become ever more costly for an aging population. In addition, the labor market remains inflexible. Excessive protection for workers translates into fewer jobs: industries are unwilling to hire new workers because they cannot release them when an economic downturn takes place. Labor reform is an important key to economic growth. Mexico also shares shame of place with North Korea as the only two countries that still prohibit private risk investment in oil and gas exploration. This restriction limits the potential for energy growth at a time when Mexico (the United States’ second-largest source of foreign oil) sees its oil production declining and gas imports from the United States increasing. Legal and constitutional changes are imperative if Mexico is going to be able to exploit its vast energy resources.

Attaining higher levels of economic growth will require a combination of foreign and domestic investment and a more competent government. In some sectors, such as energy, attracting more investment will be dependent on significant legal or constitutional changes. But in all cases, increased investment will demand a much more effective government, less cumbersome regulations, a fair and transparent judicial system, more consumer-conscious public utilities, improved infrastructure, and a concerted effort to promote competition by limiting the power of private and government monopolies and of public-sector unions, all of which profit from keeping things the way they are.

The enormous social gaps that the country faces and that López Obrador effectively spoke to in his campaign must be addressed with greater vigor. The overarching perception is that many people (perhaps a majority) have been left out of the development process. Many of these are not the poorest of the poor but rather those who face unsurpassable obstacles in their daily lives while watching wealthier Mexicans do well and boast loudly. The administrations of Ernesto Zedillo (1994­2000) and Fox developed professional, high-quality programs to address poverty. These programs (which have even been copied in other countries) actually made a considerable dent in Mexico’s level of abject poverty, but the percentage of those considered to be poor still hovers around 50 percent.

These programs use the educational system to help children of today’s poor stay in school, thereby disrupting the cycle of poverty. But the educational system as a whole is in profound need of investment and reform — the latter much fought against by powerful teachers unions. Public education in Mexico has not yet risen to the challenge of converting itself into a vital source of opportunity for the era of the information economy and of Mexico’s introduction into the global market. Changing the system will take much more than new textbooks. A modern educational system geared toward the development of true equality of opportunity would alter Mexico’s social structure radically. Equally important, a modern system to finance education and to fund higher studies for poorer people would create opportunities that today are absent. All of this will require not only the resolve on the part of the new president and the new Congress to carry out changes but the political skills necessary to transform the underlying structures as well.

Mexico’s government must also find ways to lighten the weight of bureaucracy and red tape. Creating a new company in Mexico is difficult and expensive. Maintaining a legal entity and complying with tax and other requirements is so burdensome that millions of Mexicans set up informal, non-tax-paying businesses. Avoiding bureaucracy and tax collectors makes sense from the perspective of the individuals involved, but it does not do enough to create wealth, permanent well-paying jobs, and resources for legitimate government needs. Mexico must expand the modern sector of the economy by developing government competence and entrepreneurial competitiveness while addressing the inequitable social structure of Mexican society. Neither López Obrador’s reformulated PRI-ism nor Calderón’s Foxist campaign promises offer the kind of root-and-branch structural reform that is needed.

Once the new president is sworn in on December 1, he will have to begin immediately to promote both economic growth and greater social equity to provide today’s poor with opportunities to move upward. The new president will have no time to spare. The world is moving too fast. Mexico no longer follows Canada as the United States’ second-biggest trading partner. It has been bumped down the pecking order by China. Unless the next six years bring high and sustained economic growth, millions of new jobs, and accompanying programs designed to decrease social inequality, the country will fall further behind in the global race, and more of its people will become disaffected and disenchanted. The grievances and resentments that played such an important role in López Obrador’s run for power were not created by him. And they will grow unless Mexico enters a period of profound institutional and economic change.

Such reforms are essential, but some are so immense and politically difficult that they have disheartened Mexico’s political leaders and caused them to redirect their energies to softer targets. Mexican politics has been notably sterile and unimaginative in recent years, marked by small-minded games of intrigue and daily point-scoring over opponents. All of the three major parties need considerable internal overhauls. The prd is a collection of tribes, and its moral leader and founder, Cuauhtémoc Cárdenas, is notably uncomfortable with López Obrador’s brand of populism. The PRI, humiliated by its third-place showing, will likely enter a period of internecine warfare. And the PAN will surely recognize that its performance in the election was hampered by an internal division between its more modern, business-oriented wing and the old school of social conservatism.

Much political blood will be spilled in the coming months, but the very instability could provide some new opportunities. Both Calderón and López Obrador made reassuring sounds during the campaign about broadening the base of their governments to include former opponents. Whether they were serious remains to be tested, but in a divided Congress, there will be no chance for movement without political coalitions built on a consensual program of reform.

JOINED AT THE HIP

It is a given that Mexico’s success or failure will have a significant impact on the United States. The two countries are linked by a constant flow of commerce, culture, and people. Mexico’s complex attitude toward the United States defies easy description. It is often contradictory: at times Mexico seems to act like one large Melanesian cargo cult waiting for whatever might fall from the northern sky, and at other times its fears of a loss of sovereignty and its natural prickliness keep the the United States at an unnecessary distance. Mexico has tried to maintain the pride of distance while still enjoying the practical benefits of propinquity.

The relationship is particularly awkward now because of the high tensions in both countries over immigration. Misreading President George W. Bush’s natural Texas goodwill and rudimentary understanding of the issue, President Fox decided to bet his administration’s fortunes on a change in U.S. immigration policy. The two presidents met at Fox’s ranch in February 2001 and agreed to reach an understanding on a new approach within a matter of months. Political operatives in the White House, however, soon put a stop to serious consideration of the proposals offered by the State Department. They argued that liberalizing the law was too dangerous politically so early in the president’s first term. After September 11, this view was set in concrete.

Unfortunately, Fox and his first foreign minister, Jorge Castañeda, could not, or would not, read the writing on the border wall. They blundered by insisting on pushing for solutions that had become politically untenable in the United States and by actively scuttling possibilities for incremental change. Fox and Castañeda made the same mistake that successive U.S. administrations had earlier: they publicly reduced the complexity of the U.S.-Mexican relationship to just one issue; for Washington it had been drugs in the 1990s, and for Mexico City it became immigration. The Mexicans’ absolutist position and misreading of the U.S. political scene gave the White House a way out of taking any action, allowed the immigration issue to fester, and turned what had been a fringe group of right-wing members of the U.S. Congress into the voice of the Republican Party, ultimately resulting in the grotesque House bill passed in 2006 that would declare illegal aliens felons (as if the United States needed 11 million more criminals to track down).

The poorly handled immigration issue also caused both governments to lose focus on the most critical goal: facilitating trade and investment to promote economic growth and greater competitiveness for North America as a whole. This is the true key issue in the U.S.-Mexican relationship. The immigration mess is a direct result of the lack of growth and opportunity in Mexico. The U.S. Congress may pass some legislation that will be touted by its supporters as the answer to the problem, but it will be as ineffective as previous efforts. As long as Mexico remains poor and the lure of opportunity across the border persists, workers will continue to head north. Neither walls nor new laws will stop the flow. But there are immediate steps that the United States could take to make the flow more orderly and humane and, not incidentally, give the new Mexican government an important public victory early in its tenure.

An early test of how willing Washington will be to help Mexico relates to the last stage of compliance with the NAFTA agricultural provisions, which would end the remaining Mexican limitations on the importation of corn, beans, and powdered milk. Previous Mexican governments did not concern themselves enough with preparing Mexico’s poorest peasants to face competition. The new government should create an assistance program directed to that segment of Mexican agriculture, so that the producers can survive, while at the same time negotiating a schedule of compliance with its NAFTA partners. This is one area in which a comprehending U.S. attitude could help immeasurably.

Washington should also focus on how to help Mexico grow its economy. There are several possible steps it should consider. A major fund for infrastructure development to facilitate trade, along the lines of what the wealthier northern European nations created for their poorer European Union colleagues, would make sense and benefit both countries. But it is doubtful that the political mood of the United States would support that or that Mexico could develop the right mechanisms to make the best use of the additional resources. Another initiative, perhaps with a greater chance of political success, might be a massive infusion of funds to improve Mexico’s educational system. Certainly, the United States could end its foot-dragging on some NAFTA provisions (such as opening the border to Mexican long-haul trucks) and try to find a mechanism for NAFTA dispute resolution that is effective and efficient. Energy cooperation with Mexico has been limited, largely owing to Mexico’s sensitivity on the issue, but the new focus on alternative fuels could open some doors for international cooperation. And among the many good reasons for the United States to review and reduce its farm subsidies, an especially compelling one is that these subsidies undercut small Mexican producers, which pushes them across the border to find work.

Nearly 200 years of often rocky U.S.-Mexican relations cannot be totally reversed over the next six years. But a closer working relationship would help both nations address mutual issues. Mexico must provide its citizens with more opportunities. This is a Mexican task, but the United States has a vested interest — and a role to play — in its success.

https://www.foreignaffairs.com/articles/mexico/2006-09-01/mexicos-disputed-election

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