Mashing Mexico’s Monopolies

The Peruvian writer Mario Vargas Llosa described Mexico under the Partido Revolucionario Institucional (PRI) as the ‘perfect dictatorship’; an exquisite balancing act of entrenched special interests. Much like Mexico under Porfirio Díaz, who ruled between 1876 and 1911, the PRI ruled for 71 years through a highly effective mix of clientelist networks, moderate modernisation, and the promise of relative human security.

Image courtesy of Presidencia de la República, © 2012, some rights reserved.
Image courtesy of Presidencia de la República, © 2012, some rights reserved.

This stultifying stability had a number of consequences; not least notorious examples of high-level bribery and graft, such as the case of the oil-workers union giving the then President, Lopez Portillo, a $2million mansion as a gift. The same man encapsulated the rampant patrimonialism of Mexico at the time, declaring, ¡Mi hijo es el orgullo de mi nepotismo! (My son is the pride of my nepotism!).

This soft, sclerotic authoritarianism came to an end with Vicente Fox’s election victory in 2000 at the head of the opposition party, the PAN (Partido Acción Nacional). This was a monumental election victory as it meant Mexicans had achieved something very rare: ridding themselves of an authoritarian regime by ballots instead of bullets. The PAN repeated the trick in 2006 with the election of Felipe Calderón (under the 1917 Constitution, a post-revolutionary Mexico decided that Presidents could only serve one term; making the PRI masters of window dressing if nothing else).

 And yet, against all odds, the PRI is back. Enrique Peña Nieto was sworn in as President in December 2012. Despite campaign gaffes that would make Gordon Brown’s ‘bigoted woman’ jibe  look like a Sarah Palin performance on University Challenge (he couldn’t name three books which had influenced his life and didn’t know the ‘price of a tortilla’- the Mexican version of the price of milk) he won by just under a 7% margin.

Nieto has real reforming zeal. He is determined to banish the PRI’s tarnished image and cement Mexico’s place at the top table of global trade and investment. Its position in  ‘MIST’ (Mexico, Indonesia, South Korea and Turkey), the acronym given by Goldman Sachs to the next tier of emerging economies with about 1% of global GDP each as well as being members of the G20, underline its growing confidence and importance on the world stage.

Nieto’s first four months of Presidency have been jolt to the system to those who thought that, once in power, the PRI would slump back to its ‘dictablanda’ ways. In order to overcome the legislative gridlock that blighted his predecessor’s presidency, he formulated a ‘Pacto por México’ with the two opposition parties (the PAN and PRD). This has allowed him to extend his political honeymoon and carry out some genuinely important reforms with unprecedented bipartisan support.

Just as the PRI had a monopolistic control on political power for seventy years then, and in large part because of this fact, the words Mexico and monopoly have become synonymous.

The ‘Pacto por México’ aims to change this, with important caveats. The accords are wide-ranging: going from an economic programme to increase growth (currently at a robust 3.9%), to security and justice reforms, action to curb corruption, improvements in democratic accountability and the deepening of a rights based culture. (All the proposals are detailed here: This bipartisanship has been hailed as the ‘100 days of solidarity’, a pun so poor in reference to Gabriel Garcia Marquez’s novel that the Foreign Affairs Review of St Andrews would never stoop to. (See: ‘Flamby Stops Wobbling’ or ‘The Blame in Spain Falls Mainly on the Game’ for details).

Nieto’s landmark achievement to date is an education bill that fundamentally alters the power ratios in Mexico’s education system. The education union (‘El Sindicato Nacional de Trabajadores de la Educación) is immensely powerful in Mexico and regulated the payment of teachers as well as their hiring and firing. Apocryphal stories of teachers selling their jobs to other people as well as parents simply passing their jobs on to their children were not the stuff of fantasy. The state has wrested back its control, as well as imposing more rigorous testing, with sanctions for those who fail, to help drive up standards. The leader of the Education Union, Elba Esther Gordillo, a member of the PRI until 2005 has since been arrested on charges of embezzlement.

A telecoms bill was passed by the Lower House of Congress that aims to introduce more competition into the market. Currently Carlos Slim’s ‘América Móvil’ and another company ‘Televisa’ collectively share 80% of landline, 70% of mobile, 75% of broadband between them. This has made Carlos Slim the richest man in the world.  The proposed bill would give a newly created regulator power to break up companies that have a market share above 50%; it will be voted upon in the Senate in the coming days. Even placing this bill on the floor of the house has raised Mexico’s currency to a 20 month high, as international investors respond to Nieto’s reforming intent.

However, trouble broods. Political honeymoons get their name from mirroring the (sometimes!) transient conjugal bliss; some are already speculating on an amicable separation when the local elections take place in July and pit the three parties against each other. Therefore, one must critically appraise Nieto’s political strategy. Is it better to pick the deliciously succulent low hanging papaya of education reform (in which elected officials faced down an undemocratic interest group), only to be squashed by a falling tree when the special interests of the telecoms industry come calling?  Or is he simply building unstoppable momentum in order to take on the real political and economic prize, reform of the oil industry?

Reform of ‘Petróleos Mexicanos’ (Pemex) will be much tougher. Since nationalisation 75 years ago the company has always lacked technical capacity and resources to extract the huge reserves of untapped oil. There are Constitutional barriers, as he will need to secure a supermajority in Congress to alter the Mexican constitution in order to allow foreign direct investment. The Left have held multiple rallies opposing any reform. The inherent problem is actually a PR one; any attempt at opening the sector up is liable to be branded as auctioning off Mexico’s national resources to nefarious foreign companies.

Whatever the outcome, Nieto has shown himself to be an effective executive in his first four months in office. Whether the grandchild can take on the granddaddy of Mexican monopolies, the oil industry, is another matter.

One Reply to “Mashing Mexico’s Monopolies”

  1. Wow that was odd. I just wrote an extremely long comment but after I clicked submit my comment didn’t show up.
    Grrrr… well I’m not writing all that over again.
    Anyways, just wanted to say great blog!

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