Luis Rubio

In these moments of deep political-economic convulsion, it is impossible to see the world without reference to relevant historical moments, from Edward Gibbon’s “The Decline and Fall of the Roman Empire” to the multiple stories of the beginning and end of the Cold War. Including among these are multiple calls of potential revival of the “Grand Game,” relating to the conflict that the Russian and English empires sustained through the 19^th century. Two modern versions of that era can be found: one, started by Paul Kennedy in 1987, who wrote his famous book “The Rise and Fall of Great Powers,” an invitation to think about the risks that the United States was facing as a superpower, almost literally days before the collapse of the Soviet Union (and. long before anybody saw China as a relevant actor in the world arena). Similar arguments have been made by numerous authors since then, albeit now in the context of the China-US conflict, such as Graham Allison’s “Destined for War,” whose subtitle betrays the core argument: “Can America and China Escape Thucydides’s Trap?”

In these days of rest, but of huge effervescence originating from the American President, here go some of my recent readings on the moment that we are living through.

The propensity to fall into a new cold war seems to be inevitable. Numerous books have been warning of the risk, others seem to be promoting it, but only one of those I read devotes itself to analyzing and studying the factors that could drive in that direction as the author tries to understand the rationality that animates both the Americans and the Chinese. The sound analysis, plus the fact that the author is of Russian origin conveys a unique quality to the book by Dimitry Alperovitch, “World on the Brink.”

In To Run the World, Sergey Radchenko seeks to elucidate the psychology behind the process of decision-making within the Kremlin in the post-war era. How to actually run the world was the objective through the Cold War. The author analyzes the distinct moments of this era within the Soviet government, explaining the logic of military interventions, the evolution of Soviet leadership from Stalin until Gorbachev, and the many attempts (and failures) to defeat the West.

In Rebellion, Robert Kagan analyzes the political-social dynamic, as well as the risks for American society, of the polarization that characterized it. His central argument is that the Americans confront the dilemma of building an integrated and multiracial society. His point of departure is that Trump has been the most recent politician of many in history, who, since the civil war in the middle of the 19^th century, have used racism to advance their cause. It is not the economy that is the issue, says Kagan, but the preservation of a white society, even though that fight has long been lost.

Marc-William Palen puts the world upside down. In his studio of free trade, Pax Economica, he breaks with all dogma and preconceptions. His general argument is very simple and straightforward: trade liberalization was always a revolutionary idea of ​​the Left, starting with Marx himself. It was conceived of as a plan of liberalization against the militarism and imperialism rampant in the 19^th century, bringing together socialists, internationalists, radical liberals, feminists and Christians. Trade without barriers (albeit with some supranational regulations) was conceived as a form of advancing the interests and needs of the poorest and most disadvantaged people. Today, Palen concludes, the de facto alliance between the extreme Right and the extreme Left threatens not only free trade, but above all the possibility of eliminating poverty in the world.

Ruchir Sharma published What Went Wrong With Capitalism, an ambitious book that argues that the world has been distancing from the virtues of capitalism by trying to protect the rich and the poor, the middle class and the workers. Ever-larger budgets are meant to reduce uncertainty, which is a natural component of the economic process. All this translates into ever larger expenditures to pay for the growing propensity to incur unacceptable risk in the financial realm, as well as in real estate and other ambits. Instead of promoting innovation, ever heavier governments threaten future well-being. Essential reading.

Kevin Rudd, Australia’s former Prime Minister, and an expert on China, a country where he lived and studied and whose language he dominates, has written several about that nation. One, which I commented on a year ago, is titled The Avoidable War, referring to the conflict between United States and China, but also taking a stand vis-à-vis Allison’s book, which I mentioned earlier. This year he published a monumental study On Xi Jinping, about the thoughts and policies of the Chinese President. In the era of Trump, this book makes it possible to better understand the political dynamic that characterizes the interaction between the two powers and at least some of the areas of the conflict that transcend the strictly economic.

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Luis Rubio

The French economist Frédéric Bastiat differentiated between what took place in front of everyone, which he denominated “the seen” in contrast with the long-term consequences of these observations, the “unseen.” His point was that it was easy to make ideological decisions or decisions in a conceptual vacuum, but on ignoring the behavioral manner of the members of society these decisions unleash forces and perceptions beyond the capacity of a governor to control. In the Mexico of today the society confronts the consequences of the actions and decisions undertaken by the government as well as those forthcoming from the outside. The mixture provokes enormous uncertainty.

This is not the first time Mexico finds itself before a considerable challenge, although the specific circumstances are very distinct. During the seventies, eighties and nineties, the country endured a succession of economic and financial crises, extraordinary levels of inflation (including the moment in 1984 when it seemed that the country was being plunged into hyperinflation), and interminable incredulousness with respect to the future. Today the population is satisfied, the President is highly popular, and everything would appear to indicate that the current reality does in no way appear to be like that of those ill-fated years. But looks can be deceiving.

Following Bastiat’s logic, what is seen shows two radically opposite circumstances; the unseen obliges us to contemplate the prodigious uphill struggle that the country has before it. The population is content, in that real incomes, thus the consumption capacity, have accrued in noteworthy fashion, an unarguable merit of the Morena governments. On the other hand, the economy is not growing at present, investment -both private and public- is not materializing and the anchor of stability that Mexico trusted in for three decades, the North- American Free Trade Agreement (NAFTA), is in question with the Trump administration.

Everything indicates that we are coming upon the end of an era of the Mexico-U.S. relationship, a period during which the Mexican governments slept on their laurels on taking advantage of circumstances they thought to be permanent and immovable but that now with Trump are coming to naught with no shock absorbers to be seen. NAFTA made possible the growth of a competitive, productive, successful and extraordinarily relevant industrial platform in terms of the generation of jobs, foreign currency and stability for the country in general. Exports became the main engine of growth of the entire economy, despite the colossal obstacles already in existence and those that multiplied along the way, starting with criminality, the dreadful infrastructure and the growing treaty violations, especially by the AMLO government. This was like smiting the feeding trough on purpose.

On the other hand, migration, considered an inalienable right in Mexico, permitted the avoidance of a social crisis, generated an immense flow of foreign remittances and facilitated the neglect of one government after another of the true problems of security, employment, education and health facing the country because migration was serving as an escape valve that seemingly entailed no cost. Similarly to exports, the threat of deportations opens the possibility of an immense social, economic and political crisis.

NAFTA was the way to procure conditions for the sustained growth of the economy. More political than economic in its original conception, the free trade agreement was constituted as a mechanism that, on being able to rely on institutional U.S. support, offered certainty to savers, entrepreneurs and investors. No one can be in doubt concerning the success of the instrument, but Mexico’s most appreciable fault was that of not understanding that it was a temporary mechanism: it was a means by which the U.S. government proffered its endorsement for Mexico to build institutions, the Rule of Law and counterweights for its “take off” in economic as well as social terms.

There is no doubt that there was a more-or-less continual attempt, from the nineties forward, to engender institutions that complied with these objectives, but by now it is obvious that these latter did not accomplish the legitimacy or functionality required for the effective achievement of their purpose. While several of those autonomous organisms accomplished their immediate aims, it is evident at this point that they were remarkably vulnerable. And that vulnerability goes hand in hand with the certainty indispensable for the economy to prosper and for the achievement of the objectives that all these governments said they want.

Independently of what is reached on negotiating with Trump, one would have to be blind not to notice that the future, to be successful, will depend not on the connection with our neighbor to the North, but instead on the institutional strength that Mexico develops for itself. The President’s strength is sustained in anchors that are overly fragile, therefore it would not be excessive to begin thinking about buttresses less susceptible to collapsing the day Trump gets out of bed in a bad mood or the day that the rating agencies say that enough is enough. The future must be built and, now more than ever, this depends on what is accomplished internally, because it’s not going to come from the outside.

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Luis Rubio

The decisive moments of the becoming of a country are those during which effective leadership arises that confronts grave adversity in contusive fashion. Present-day Mexico confronts two adversities: the foreign one and the one that is homemade. Regarding the former, the President is doing the best possible. The latter derives from a long time back, but it has intentionally worsened over the last seven years.  The combination bodes lethal and presses for answers to which as of today there appear to be none. There is no place to turn: The trajectory is not good, producing only one question: Will there be, first, a recognition of the moment in which Mexico finds itself and, second, the capacity, but, above all, will there be the willingness to do something in that respect? 

Trump’s onslaughts and the uncertainty accompanying these no doubt explain part of the moment that the Mexican economy is experiencing but one would have to be blind, or, more exactly, deliberately closing one’s eyes to not see the causes of a premeditated destruction of the few sources of certainty and economic viability, already weak in themselves, that the country counted on. Whatever is to come of the tariffs that Trump proposes, the country’s future will depend on what the Mexican government does, or fails to do, and, however much the Mexican President deserves acknowledgment for her management of the relationship with her U.S. counterpart, the road that the country is taking is not conducive to promising times ahead.

There are two ways that Trump could be blamed for the moment that Mexico is undergoing at present: one would be for evading responsibility for the ills that the country is up against, those of the past seven years and those of long ago. The other, the desirable one, would be to fault him -that is, utilize him consciously and, even, in a negotiated way- to carry out the things that the country urgently requires, independently of what ensues concerning the tariffs.

No one should be surprised that the economy is going downhill. A quick tally of what the country is enduring is more than suggestive of what falls directly into the lap of responsibility of the two  Morena-party governments: an insane expenditure to win the 2024 election; a strategy of social transfers, tenable in terms of justice but with criteria expressly conceived to impede the growth of production and productivity; price controls (gasoline, tortillas, gas) that will inexorably produce scarcity; the declining production of petroleum for lack of payment to suppliers; the absence of investment in  the transmission of electricity; and the cancellation of a modest, but innovative educational reform, a system in itself oriented towards control, not toward the development of the people or to the growth of the economy.

To this I hasten to add the changes in the rules of the game in matters of regulation of the economy (competition, communications, energy, transparency and access to information); the elimination of the sole effective institutional counterweight that the country possessed, The Supreme Court of Justice of the Nation, due to that it acted as corresponded to it; and by consciously ignoring the problems of security and violence that harass the population for six long years.

The country drags in its wake an essential problem of governmental capacity dating from the nineties, when agreement was reached for an equitable and level-playing field competition in electoral matters that resolved the problem of access to power, but that overlooked the necessity of reforming the structure of the government, thus creating the chaos characterizing the relations among the three branches of government; the violence and insecurity that the citizenry suffers through; and the dysfunctionality of the federal system. The result has been a bifurcated country, with both sides coexisting in one and the same geographic place, where a formal and an informal economy exist, a country of rules and another of violence and a modern country (with a formidable and highly productive economic base) hand in hand with a lagging, unproductive and government-dependent economy.

None of this has to do with Trump, but the U.S. President can end up killing the goose that lays the golden eggs: the part of the country that is productive, competitive and successful. This cannot be minimized: the recession that the country is apparently entering into is integrally the product of Morena. It is its actions, during these two administrations, that have caused the current situation. Instead of fostering the growth of productivity and generating wellsprings of certainty, the current President asks us to trust her. Unfortunately, that is insufficient, in that what generates trust are realities, not promises.

But there is indeed one thing that is at hand and that the President could make her own: rather than regretting the havoc emanating from abroad, the alternative would be to negotiate with our neighbors to obtain their support in undertaking the transformation that Mexico has been postponing for four decades thanks to that the free-trade agreement and migration (prior to AMLO)  made it easy to not engage in reforming and whose smattering of advances were purposefully decimated by AMLO.

The choice is clear: blame Trump or get the job done. And that would imply devoting oneself body and soul to two very concrete things: Create conditions that generate certainty and dramatically accelerate the growth of productivity.

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Luis Rubio

The context speaks for itself but is not consistent. The country is experiencing a species of schizophrenia: on the one hand, it would be difficult to conceive of a higher popularity level for the President. On the other hand, the perception of risk reaches a good part of the population. The former may be explained by the continuity that the current government has sustained, in terms of strategy as well as in social programs, while the latter is more difficult to elucidate, but the combination of both creates an environment of uncertainty that threatens the viability of the governmental programs, thus of the President’s popularity.

The perception of risk emanates from two groups of factors: on the external side, the pounding coming down from President Trump entails a complex and aggressive agenda that is perceived by broad sectors of the society as ominous for the country’s stability and the viability of the economy. This perception is accentuated by the uncertainty that this implies as well as due to the lack of obvious alternatives. As always in the history of Mexico, aggressiveness on confronting the colossus of the North helps with respect to popularity, but even those who are blindly loyal to the Morena party perceive the risk, which suggests that there is greater understanding than disposition for resorting to nationalist rhetoric.

Regarding the internal side, the risk perception derives from the fiscal deficit, the potential effects of the judicial reform, the “revision” of the United States-Mexico-Canada Agreement (USMCA) and the concentration of power. Certainly, not all the citizenry thinks the same concerning these elements, but situated within the context of Trump, few feel at peace with respect to the future and there is no way that Mexico will emerge immune from this entire trail of factors. In any case, the gravity or profundity of the impact depends a great deal on the government itself, and it is there that the uncertainty begins.

The government is in control, or has the capacity to be in control, with respect to some of the risk factors, but its ability to influence those not under its control is, naturally, much less. What pertains to the economic and fiscal strategy is obviously its own prerogative, although it is similarly obvious that the way that the public resources are employed can increase or mitigate the perception of risk. The case of the judicial reform is emblematic: the government has not only defended and driven the reform, it has also discredited any criticism or counterproposal, without recognizing that this constitutes an immense source of uncertainty.

With respect to the exterior, the government does indeed entertain the capacity of negotiation in the face of the initiatives posed by President Trump but remains an open and risky process. Perhaps more importantly, the immense vulnerability characterizing Mexico for both the average Mexican as well as for potential businesspeople and investors seems not to be recognized by the government. The insecurity, to which the government has certainly attempted to respond, is a fundamental component, but the end-of-2024 constitutional reforms package is not acknowledged as a factor of lack of confidence.

Additionally, all of this must be viewed within the context of the disappearance or destruction of any vestige of counterweight and regulatory autonomy, which is anathema for whosoever is preoccupied with, or who has the responsibility to be preoccupied about the future. The recreation of the power monopoly in the Presidency may be applauded by the beneficiaries of the governmental programs, but it eliminates all recourse against the authority. If to this are added laws such as that relative to preventive imprisonment without a judicial decision, it is impossible for the government to try to aspire to attract investment to the country. On persevering in those mechanisms, the potential of achieving high growth rates is null. Therefore, more uncertainty.

From long ago, the problem in Mexico has been that of power. For years, after the dissipation of the PRI-government alliance that typified the political system during the past century, the problem was the lack of decision- and action-making capacity, the absence of institutional structure for the relationship among the federal branches of government (Judicial, Legislative and Executive) and among those powers and the state governors. Now, from AMLO on, the reality, and, in consequence, the discussion, must be another. Mexico’s political problem no longer is that of debility among the branches of government, but of submission to the Executive, thus the risk arises from the lack of the institutionalization of power, a circumstance that obviously does not worry those holding it, but it should worry them if they wish to be successful in their economic programs, therefore, in their popularity.

In the old system, a “strong” president constituted a source of certainty, even if they lasted only a single six-year term in power. The institutions that were created, with greater or lesser clairvoyance, during the democratic period had as their objective conferring permanence to certainty. Now, the challenge is to find the way to re-institutionalize the political system, an objective that would not only require enlightened leadership, but also an equivalent capacity of and proclivity for negotiation both with society as well as with the organized political forces. An enormous challenge in this era of monopolies and inward-looking governments.

www.mexicoevalua.org
@lrubiof 

Luis Rubio

The China-United States conflict precedes Trump. After years of economic complementarity, for which someone coined the word “Chimerica” to describe a relationship that ties together the relative strengths of each of those nations -manufacture for the Asian giant, creativity and technological innovation for the superpower- these two began to distance themselves from each other. Many were the causes of the separation, but there is no doubt that the disconnect unleashed enormous forces around the world, at the same time accentuating the characteristics of each of the parties. On the U.S. side, the retraction hardened with respect to the so-called globalization, while China focused on propping up its strengths, starting with that of technological education. Many lessons here for Mexico in both cases.

In a recent article by Sam Dunning entitled China’s Unstoppable Chinese STEM Army: America can’t halt Chinese innovation, the author describes the contrast between U.S. failures in educational matters, above all its distance regarding technical training, in the face of the Chinese emphasis on science (S), technology (T), engineering (E), and mathematics (M). China, just as have many of the most successful Asian nations, dedicated themselves to build a future on a solid platform of physical, health, and educational infrastructure. In what concerns education, as this article suggests, the Chinese favor scientific and technical education to increase the productivity of their economy and to raise the standard of living of their population. From that logic derives an entire ensemble of actions that not only have permitted them to transform their economy and their country in general, but also to establish the bases for their future. As other nations of that region have evidenced, it is yet to be determined whether it is possible to sustain compatibility between their political system and their economic development, but what there is no doubt about is the spectacular transformation that China has undergone over the past four decades. 

In the light of that panorama, one must ask oneself what is it that Mexico has achieved during that same period. Like China, Mexico recognized in the eighties that its economy no longer functioned, and that major surgery would be required to confront the challenges imposed by a growing and demanding population. From that time, a period was embarked upon of economic reforms and, eventually, political reforms, which modified the economic structure from the country’s core, as well as of the structure of power. However, no one is surprised that, despite an infinity of advances, the result has not been wholly satisfactory and much less so when it is compared with what nations in other latitudes have achieved that invested in educational systems and infrastructure in systematic fashion.

The appeal that China has for many members of Mexico’s Morena Party in that context is evident. At least one should be grateful that they see in China an example and not in Cuba or Venezuela. At the end of the day these Morena constituents understand that what is indeed significant here is in effect the economic transformation. Nonetheless, what they yearn for in China is the authoritarian structure of political control that the Chinese government exercises. On the other hand, it does not stop being paradoxical that they are attracted by the results, but they are not willing to do the work to get to a similar place.  Where are the infrastructure projects -based on cost-benefit calculations- that would liken Mexico to the Asian giant? Where is the promotion of private enterprises to carry out that transformation? Where can one find the educational system oriented toward technological development? The model that appears attractive to them involves a great deal of work that no one in Morena seems interested in replicating.

Much more relevant is the example that other Asian nations provide that attained similar transformations without the brutal authoritarian controls that distinguish China. Korea, Taiwan and even Thailand, Vietnam and Maylasia, not to mention India, illustrate reform processes much closer to those of the Mexican one, some having obtained the consolidation of fully democratic political systems on a par with notable economic and social successes. It is obvious that there isn’t only one way to advance, but the Mexican way has been clumsy, to say the least. In very much the Mexican own style, after the initiation of the reforms, an incomplete but articulate and coherent project, what followed was reactive when not the product of mere occurrences.

And there it is where Mexico persists: in occurrences, dreams and disputes. The great lesson that the diverse Asian nations depict is their clarity of course and their concentration on the construction of conditions to make possible the attainment of their objectives. Mexico has gone from failure to failure: some administrations liberalize, others impose controls; some worry about security, others revile it, without doing anything to resolve the underlying problem. All talk, but no one confronts the true obstacles that keep the country prostrated.  

The past cannot be changed, but instead of seeing Trump as a threat, why not see him (or use him) as an opportunity for taking a great leap forward, to provoke the transformation that Mexico obviously requires but that appears to be hindered by all those interests and dogmas.

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@lrubiof

Luis Rubio

Two very different moments portray recent times. One is that of AMLO and what he represented. The other is that of Claudia Sheinbaum. Although they have stemmed from the same locus in these last years, from Morena specifically, their histories are clearly distinct. The movement that AMLO headed was, in the words of Fernando Escalante, “a great offensive of the political class against the State.” The second moment is that of the current government, whose origin no longer harkens back to any of the PRI currents of the 20^th century but instead refers to the political Left that emerged with the university student movement in the eighties and that eventually fused with the “historical” Left into what ended up being the United Socialist Party of Mexico (PSUM). Although one government arose from the other and insists on persevering in the project of the ancestor, its essence is different and will undergo distinct consequences. However, rather than leading toward a great future, both have succumbed to what Román Revueltas calls a “strong and non-negotiable Mexicanness.”

As a “son” of PRI, AMLO dedicated himself to concentrating presidential power and to conferring preeminence on the government. AMLO’s project was easily identifiable as derived from revolutionary nationalism, one of the two prominent branches of the PRI in its origins. The PRIsts always entertained the conviction of sticking to the formal rules, at least in appearance, modifying -but not annulling- the status quo and, above all else, preserving political stability. The materialization of that vision lay in economic growth as a factor of both development as well as of stability, values that AMLO opted to subordinate for the building of a clientelist system with obvious political as well as electoral benefits, but at a monumental cost for stability and the future. Where he deviated with respect to the tradition of his party-of-origin was in AMLO’s contempt for formalities and institutions. While his predecessors carefully honed their discourse and outwardly revered the institutions although all the while violating their rules (under cover of darkness), AMLO chose to concentrate the power in his person, not in the presidency. Perhaps more transcendent, his entire government devoted itself to undermining, if not destroying, the legacy that he defined as “neoliberalism,” the economic project that pulled the country out of the ditch from the eighties on and that led, indirectly, to the political liberalization of the nineties.

During her first months as President, Claudia Sheinbaum has clung to the pathway marked by her predecessor, but she has been exhibiting significant differences. Above anything else, by personality, history and training, she is the most distant from the old PRI that Mexicans have known. While her PAN predecessors continued to pay deference to the ways of the old system, she has etched her own style from day one, beginning with the reverence she shows toward her predecessor, something heretofore unknown in previous Mexican political history. Secondly, in contrast with AMLO, she not only understands the importance of economic growth in terms of attacking poverty and inequality, two of her project’s central values, she is also poised to find the way to accelerate it. Her strategy for achieving this (budgetary, rhetorical and institutional) can contradict that purpose, but it does not seem to me that there exists the least doubt regarding her conviction in that respect, further evidenced by her dedication to dealing with Trump. Third, her security strategy recognizes de facto notonly the enormous deficit left to her by her predecessor, but also the brutal cost of those famous bear hugs, as they comprised an incentive for the consolidation of organized crime in diverse regions of the country and sectors of the economy. Finally, she has been explicit in her conviction that the government has the responsibility of not only leading the development of the country, but also of regulating it and being the central factor in that process through public enterprises. That is, her stance remains one of Leftist conviction, not of convenience, such as that of her predecessor. 

Clearly, these are not irreconcilable visions, but they are very distinct. Both favor the government over the market and public enterprises over private investment. Also, both share an anti-American streak, independently of whether, on their rational side, they recognize the need (or inevitability) of preserving the trade agreement with North America as well as a functional relation with the American people. Paradoxically, in many senses, both AMLO and the President represent much of the traditional character of the Mexican.

Román Revueltas argues this from start to finish: “Mexico has ended up not liking the West. It also is not thrilled with modernity. It takes solace in, it is true, the permanent evocation of a mythical past, local of necessity, obligatorily autochthonous.” Revueltas poses the central dilemma that the country faces from an anthropological perspective: “The outdated victimization of our people, inculcated at an early age in the schools and seasoned with the corresponding resentment, has rendered the flowering of a strange repudiation of our Northern neighbors.”

AMLO navigated without committing himself; now in the Trump era, Mexico has no choice but to define itself fully: toward the future or toward the past. The President will have to choose.

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Luis Rubio

Absolute power, insinuated by Lord Acton, is not a guarantee of good government. And even more so when all that power lies in the hands of an ethereal entity called the Morena party that, now without the active leadership in control of all the processes of AMLO, is becoming a complex, increasingly bureaucratic entity with a propensity toward fragmentation. And worse yet when the absence of even the most minimal semblance of counterweight -the result of the popular vote as well as of the illegal overrepresentation in Congress produced by AMLO- does nothing other than embolden the most extreme, radical and disruptive elements of the party.  All of this leaves a president in control of part of the administration and with a demonstrated ability for conducting the complex relationship with Trump, but not with recognition of what makes an economy work.

The contradiction is conspicuous. In fact, read contradictions, in the plural. Morena, everything that that “movement” represents, is allergic to economic growth, but this is required to finance the interminable cash transfers it needs to fuel its client base, without which the supposed hegemony would cease to exist. AMLO understood well the inconsistency between loyalty and economic improvement: when people progress and become middle class, he said, they stop being loyal, thus it’s better to keep them poor and dependent. That worked for a while, but, as illustrated by the excessive and irresponsible fiscal deficit incurred in 2024, its limits are egregious, the reason why President Sheinbaum knows there is no option other than promoting economic growth. Her “Plan México” constitutes a recognition of that political imperative but also evidences the enormous distance between the objective -growth and nearshoring- and her comprehension of what would be required for productive investment to materialize.

Morena has driven a series of laws, constitutional amendments and incoherent regulations, nearly all these incompatible with a growing economy. The upcoming recession is palpable proof of this: however much the functionaries congratulate each other on the investment received from the exterior in recent years, the reality is that there has been practically no investment since the beginning of the past government of AMLO back in 2018. The savers, entrepreneurs and investors, national as well as foreign, have many options at their command and will never opt for those that entail intolerable risks. Risks such as those inherent in a politicized judiciary, a bureaucracy that changes the rules of the game according to the whims of the functionary or president in turn and, above all, a political apparatus that can change the Constitution in the blink of an eye. Only out of ideological zeal and political intransigence can it be expected to attract investment in this way. 

The era in which the markets, mainly the financial ones, could dictate the limits of governmental acting (of all world governments), as took place during the last nearly half century, has passed, giving way to the reappearance of the power of the State. However, investment can equally be directed to distinct places, depending on the objective conditions of each locality. The term nearshoring has been in the vernacular of the world of commerce and the economy for years and the logic would seem to establish it as obvious that Mexico would be the great beneficiary of that geopolitical circumstance due to its geographic location and the existence of the United States—Mexico—Canada Agreement (USMCA). Notwithstanding this, there have been at least three slipshod governments that assumed that the opportunity would materialize on its own with no effort (or that it was not an opportunity at all). The evidence shows that the great beneficiaries have been countries such as Vietnam, Indonesia and the Dominican Republic, nations that seized the opportunity without flinching.

And then came Trump. To date (and this could change in an instant) President Sheinbaum has achieved a functional relationship, skirting the worst outbursts of her U.S. counterpart, but the fragility of the relationship is evident, whenever the gentleman in question wallows in a half-cooked idea or, more important, in the enormous vulnerability of Mexico, which Trump understands full well. Still more importantly, the “arrangements” arrived at do not include objective measures to which the parties can remit in the case of a disagreement, implying that everything is (and I fear will be) in the air for the next four years. And there is no worse dissuasive element to saving and investment than instability and uncertainty.

What is peculiar is President Sheinbaum’s extraordinary (and praiseworthy) willingness to negotiate with Trump and to devise ways and arguments to pacify him in the face of the absolute indisposition to understand and accept the need to review deep-rooted concepts and prejudices that are contrary and counterproductive for appealing to investment and promoting economic growth. It is not sufficient to recognize the need for growth and private investment (a milestone in itself after AMLO), because a decision to save or invest does not hinge on the rhetoric, but instead on the objective conditions and these have come to evolve as running precisely counter to what a potential investor requires and demands. 

As Deirdre McCloskey states, “the evidence is overwhelming: that liberty, not coercion by a private master or a public state, inspires people to continuous betterment. For the poorest.”

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@lrubiof

Luis Rubio

Mexico is split into two worlds with perceptions appearing to be irreconcilable. According to recent surveys, President Sheinbaum commands more than 70% approval, while the remainder of society disapproves of her, frequently in resounding fashion. In general terms, these numbers are not radically distinct from those observed in the 2024 presidential election or from the trends of recent years. Perhaps the big question is what this tells us about the present, but, above all, with respect to the future of the country.       

The first thing that should be elucidated is wherefore these numbers derive because on their permanence depends the entire governmental strategy. When the government relies on such high approval numbers it is easy for it to ignore the rest of society, whether because the government loses sight of it or because it has consciously decided to ignore it. That is, this is about a calculation and a wager: the calculation concerning whether that support base can be maintained with the existing strategies and the wager having to do with there not being factors that alter the equation.

According to Alejandro Moreno’s surveys starting in 2023, 60% of the population felt satisfied, it had seen the growth of its real income thus of its consumption capacity, therefore it approved of the then-president’s management. On its part, the remaining 40% disapproved of the president’s management on considering that it was damaging the future well-being and attempting against the prospects of growth and development. The central difference between the two contingents lies in the level of schooling, as well as in the contrast relative to their place in the socioeconomic structure: those who live day-to-day against those able to count on relative certainty in their economic future. The former have benefitted from the direct transfer programs of the Morena governments, while the latter agonize over the country’s long-term stability and viability.   

That is, the crux of the contrast seems to lie in each contingent’s perspective of time. For the cohort that feels satisfied, what is important is the here and now; for the remaining 40% what matters is the perception of the future: Where are we going? This is about perspectives emanating from very distinct visions and economic realities, that expose the circumstance of a divided country: the one that has had the opportunity to advance on the education ladder and the one that remained mired in an educational system that does not prepare one for the job market nor for life. The former enjoy reliable employment while the latter count on governmental “supports.”

Perceptions are crucial for electoral purposes, but they constitute a risk when their support system is tenuous. To the degree that the government can guarantee that its cash transfers will continue to flow and that their real value will not erode through greater inflation, the bet would seem reasonable. Contrariwise, to the extent that the economy was to confront adverse head winds, the strategy would become exceedingly risk ridden.  

To date, the government has preserved a politico-electoral strategy designed by AMLO sustained not only in the transfers, but also in an introspective vision of the economy, geared toward protecting what exists. With some exceptions, the current government has followed the same general trend, but, although with a content that is more ideological and more quarrelsome and defying, as illustrated by the recent exchanges with Trump, it has recognized the importance, and inevitability, of closer economic ties with the U.S.

Were one to observe the panorama without electoral bias, the present government strategy would appear to be quite daring. On the one hand, the economy faces essential problems: inflation continues to be high; the debt, while not at catastrophic levels, has been growing; the fiscal deficit is highly worrisome (in itself as well as the manner in which it affects the creditworthiness determined by the rating agencies); and the potential conflict with Trump threatens the viability of the principal growth engine of the economy, the exports. On the other hand, except for the issue of security, where it is clear that a new strategy is being attempted, the government has not been doing anything to revert the sub-standard trends observed in education, health, infrastructure, justice, and the Rule of Law. In any case, the reforms of the past months in matters of justice, energy and autonomous entities point in the opposite direction. 

In diverse forums, President Sheinbaum has expressed her conviction that nearshoring comprises a great opportunity for building a successful future. This deals with, without doubt, a possibility that could be fruitful. However, the wager would imply returning to square one in terms of what has been done in the past months for the sake of creating an environment of predictability for investment and conditions for Mexicans emerging from the educational system to possess the qualifications that the job market exacts. We certainly are not there as of today.

When one contemplates the government’s approval and disapproval numbers, the relevant question is who will be right at the end of the road: those who are satisfied or those who are worried because they see the risks multiplying and that the opportunities are not such.

www.mexicoevalua.org
@lrubiof

Luis Rubio

An old American saying goes that “it takes two to tango.” For many decades, Mexico and the United States learned to dance with each other, though, after a serious and promising start, their heart stopped being there. In the eighties, amid a severe economic crisis that threatened to the destroy the country, Mexico began a series of internal reforms and opted to get closer to the United States, a decision that implied a radical rupture in historical terms, to ensure the viability of the reformist project and the Mexican economy in the long term. The United States saw the moment as the great opportunity that it could offer Mexico for it to transform itself. The original agreement, NAFTA, followed this political rationale. However, the seeds of a complex future were sowed from the very beginning, as Mexico contemplated the free trade arrangement as the end of a process of internal reform, while the United States saw it as the beginning of a great transformation of its southern neighbor. Today, it is the United States that is experiencing a convulsion, leaving little doubt that, whatever the outcome, it will impact Mexico.

Trump won his second term with the majority of the popular vote and converted it into a license to alter the status quo in radical fashion. Assisted by his new great friend, the businessman Elon Musk, Trump has provoked not only major revisions in international relations, tariffs, and the agency for international development (USAID), but he has also devoted himself to restricting public expenditures already approved by the Congress, promoting the early retirement of vast segments of the bureaucracy, eliminating agencies and departments without warning, thus creating enormous confusion. There are many ways to read the ultimate objective, but the whole structure of the American government is experiencing spasms and contortions.

Interpretations of what is being attempted fluctuate from the extreme that Trump pretends to become an autocratic king, to those that suggests that the process led by Musk aims to discredit the government itself. Though these interpretations are not exclusive, they reflect the personalities of the central actors in this drama. The history of the U.S. started with the rejection of European religious imposition (from which much of the derision to a strong central government derives), to which one must add the libertarian current to which Musk belongs, who believes that a government must function the way a business works. On his part, Trump has a series of well-established ideas, among which the use of tariffs is preponderant as a negotiating instrument (a key trait of the American president, who sees the world as a series of transactions), as much as his sense of revenge against the “deep state” that, in his reading, is responsible for the steal of his electoral victory back in 2020.

Both Trump and Musk have a history that explains much of their vision and, especially of the viciousness with which they are acting. Trump got to the presidency with a deep sense of resentment due to his perception that his country has been the victim of its own actions, starting with the Marshall plan after the second world war, to the growth of China as a competitor of the United States, and including the countries that, like Mexico, have become important suppliers of inputs, all of which he sees as an afront to the average American worker. On his part, Musk grew up in the era of apartheid in South African and saw how that society deteriorated, which led him to become a maximalist in his demands for order. The combination of these two characters explains much of the noise that emanates from the north and that affects the rest of the world.

Seen from afar, especially from Mexico, which has recent experience with an aspirant autocrat (with the power to make it true), the big question is whether the United States has effective counterweights to contain the excesses in which Trump might incur. One way to assess this would be to look into the control that the party of the president has in its legislative chambers and many governorships, but it would be excessive to derive from this a certainty that these august bodies would bend to the desires of the president. In contrast with Mexico, American legislators have to respond to their voters, which limits the propensity to yield before the pressures of the president (which are not small). Furthermore, there is no uniformity of ideology, politics or practice among Republican members of Congress, as illustrated by the endless juggling that the Republican Speaker of the House must play to attempt to get his budget approved, even if only for a few months at a time. Checks and balances appear more effective than they might seem.

The other factors of counterweigh are the markets and, in the long run, the most transcendent, is the judges, several of whom have thwarted the president’s actions and issued restraining orders to the presidential duo. It remains to be seen how the Supreme Court aligns itself, given that its members have, both by structure and necessity, to respond to history and not to the president or whomever appointed them. The prospect is, inexorably, of a time of uncertainty and unpredictability, just when Mexico requires the opposite… In any case, the stakes are enormous for Americans, the world and, certainly, USMCA and Mexico in general.

www.mexicoevalua.org

@lrubiof

Luis Rubio

Perhaps there is no greater factor of dissonance in national political life than the confrontation of visions, interpretations and expectations that characterizes the ongoing political debate and public opinion: for some everything is fine, for others everything is bad. Part of the explanation surely originates in an ideological clash that leads to extreme perceptions and part in an idealization of the present or the past, respectively, and its consequent extrapolation. Is there a way to elucidate what is behind the clash of visions?

The conflicting narratives are very clear: for those who perceive that everything is bad, democracy is dead, and the future can only worsen; for others, everything is fine: people are happy, the government is popular and, therefore, the future is promising. Are both equally valid? The answer is key for the future, the economy and the government itself.

There are two “hard” facts that allow us to analyze the phenomenon: one is that AMLO’s popularity was almost never below 60% and that of CS is above 70%. The other fact, which is repeated regularly in the polls, is that the country is divided into two blocks: the 60% who are happy and the 40% who are not. The first ones live mostly from day to day and their circumstances have improved in recent times thanks to remittances, cash transfers and the minimum wage. For their part, the 40% have a reliable economic situation (a job or a stable income) that allows them to think about the future and they see with concern the dislocation of some key variables (such the lack of counterweights, the debt, deficit, productivity).

Two things seem unquestionable: one is that popularity does not guarantee the permanence of the status quo or economic and financial viability. The other is that, as a consequence of recent constitutional changes, the political reality that today many see as catastrophic was not as popular or successful as the detractors of the reforms claim. I do not mean to suggest that the outlook is benign, only that Mexican democracy was weak, that AMLO violated electoral legislation with impunity and that as soon as the Supreme Court challenged presidential power it was overthrown. In other words, the supposed supports and counterweights of democracy were more mythical than real.

For the majority of the population (that 60% who voted for Morena), the “democratization” of corruption, the inequality that AMLO skillfully exploited and the deterioration of real income in recent decades weighed more heavily. Democracy, plurality and its structures were never popular.

It is not that today’s pessimists were blind to everyday reality. They simply tended to see what was happening benignly or as problems to be solved; thus, much of their current pessimism stems from the fact that constitutional formalization makes those potential solutions impossible, which undoubtedly constitutes a profound political change.

My point is not to justify either narrative, but to understand that reality was much less favorable than what those who today denounce political deterioration argue, while recognizing that the government (AMLO and CS) has been much more skillful in responding to the daily concerns of the majority of the population. This does not imply that their strategy is good or sustainable, but that it has been extraordinarily effective and popular.

I have no doubt that part of the explanation for the contradictory narratives lies in the fact that the population has normalized (or taken for granted) things that would be unacceptable in other latitudes such as insecurity, corruption, low growth or poor public services. But, in contrast to that, real income and the consequent growth in consumption have had an obvious political benefit. It remains to be seen whether popularity responds to a new legitimacy or if it is a mere reflection of economic improvement, key factors in electoral terms.

All of which does not mean that the most thoughtful and worrying analyses regarding the future are wrong, only that they are out of sync with current reality. Analytically, it is obvious that the government strategy works only so long as the factors or vectors that support it do not change. If at any time the variables (exchange rate, public finances, USMCA, rating agencies) that make the government strategy possible and viable are altered, everything would change. Also, the absence of counterweights will inexorably affect investment decisions, with their consequent impact on the rate of economic growth.

In the end, the crucial factor lies in the government’s ability and willingness to respond skillfully and quickly to the challenges, both internal and external, that may arise. While AMLO enjoyed an extremely favorable environment, CS faces a much more uncertain outlook, largely due to the complex legacy that AMLO left both economically and in the constitutional structure, but also because of Trump. Her responses to date have been more geared toward wrapping herself in the flag to satisfy her base and ideology than responding to a changing reality. But the future depends on how she responds.

www.mexicoevalua.org
@lrubiof