The Pandemic Depression
The Global Economy Will Never Be the Same
Mexico has long been hostage to unchallengeable traditions: its nationalist approach to oil wealth, overly sensitive attitude toward sovereignty, entrenched labor monopolies, persistent corruption, and self-serving bureaucracy. Acquired over time, these attitudes and practices became cemented in the national soul and embedded in the habits of the government and society, sapping the country's potential.
The good news is that all of this is rapidly changing, as Mexico leaves behind its hefty psychological baggage. Yes, the last 15 years, a time of too little economic growth and too few reforms, have been frustrating, especially for those who expected the transition to democracy to solve everything. But these years have unveiled a new national consensus: a broad agreement on values that, despite seeming normal for any other modern democracy, did not figure clearly in the Mexican public consciousness until very recently.
The vast majority of Mexicans now agree that the only way politicians should get and keep power is through the ballot box and that the clamor for greater accountability and less corruption is legitimate. They believe that protecting human rights, adhering to the rule of law, and ending the culture of impunity are nonnegotiable goals. They demand due process rights and greater security, and they think poverty and social inequality must be reduced, along with the influence of Mexico's powerful monopolies and oligopolies. Yet they also reject any macroeconomic policy associated with large public deficits and consider the advantages of globalization, free trade, and economic integration with the rest of North America greater than the drawbacks.
This new paradigm has slowly displaced the revolutionary nationalism engendered by the centrist Institutional Revolutionary Party (PRI), which held the presidency from 1929 until it was defeated in 2000 by the conservative National Action Party (PAN). In elections this past July, the PRI retook the executive branch when Enrique Peña Nieto resoundingly beat the PAN presidential candidate and the left-wing Party of the Democratic Revolution (PRD) made a surprisingly strong showing. This outcome was superficially disconcerting: the campaign was bitter, the winning candidate obtained only 38 percent of the vote, his party failed to win a majority in either house of Congress, and the left fell just short of winning enough seats to block constitutional reform. But the presidential campaign also revealed just how many things Mexicans now agree on, and the elections, despite their muddled result, may actually point to a more promising future. Mexican politicians could now be on the verge of finally passing dearly needed reforms that have been postponed for far too long.
More than anything else, the PRI was thrown out of office in 2000 because of its fiscal irresponsibility and cronyism, which had led to the horrendous economic crises of 1976, 1982, 1987, and 1994. Yet Mexicans need not fear a revival of that ancien régime. Democracy destroyed its centerpiece: a single party with a constitutional majority in both houses of Congress, led by a president lacking counterweights in any other branch of government.
Still, old-fashioned corruption continues to dominate local politics. Huge public-sector labor unions are stronger, more autonomous, and more inefficient than ever; so, too, are other public and private monopolies. None of these groups has been subjected to the rule of law or democratic presidential authority.
Paradoxically, however, these very interests are now helping prevent a return to the presidential omnipotence that once supported them. No one in Mexico wants a powerful president: not local authorities, who wish to avoid the central government's budgetary oversight, not the unions, which want to keep their monopoly on hiring and firing and on collective bargaining, and not the country's major businesses, which fear any kind of antitrust legislation. Voters don't want a strong executive, either. Since 1997, they have denied four consecutive heads of state a legislative majority. This sentiment alone should be sufficient to prevent the reemergence of a populist government that would plunge the country once again into the budgetary fiestas and austerity hangovers that felled the PRI.
There are other reasons for optimism. The PRI may not have reinvented itself entirely, but Mexico has. Peña Nieto will be the first president who came of age professionally in a democratic Mexico. He was barely two years old at the time of the old system's darkest moment, the 1968 government massacre of student protesters, and was 28 when his country held its first more or less democratic election, in 1994.
Peña Nieto will also be the first PRI president not handpicked by his predecessor; every PRI candidate since 1934 was appointed by the outgoing president, then rubber-stamped in a sham election. No one can guarantee Peña Nieto's democratic convictions, but when it comes to creating a sense of accountability, being chosen is not the same as being elected. Besides, Peña Nieto lacks a majority in both houses of Congress; the left-of-center PRD will continue to control the country's second most important elected position, the mayoralty of Mexico City, which it has held since 1997.
What's more, the new president will have to coexist with a thicket of institutions that have recently won substantial autonomy from the executive branch: the central bank, the Federal Institute for Access to Public Information, the National Institute of Statistics, and the agencies that regulate elections, finance, telecommunications, trade, and prescription drugs. Most important, for the first time in its history, the country has a truly independent and potent supreme court, which made life miserable for former Presidents Vicente Fox and Felipe Calderón but better for ordinary Mexicans. Neither Peña Nieto nor anyone else will find it easy to tame these new bureaucracies.
Mexico has also transformed its relations with the rest of the world. The country has entangled itself in a web of free-trade agreements and other international treaties with human rights and democracy clauses that have locked in its open economy, its orthodox macroeconomic policies, and its commitment to democratic rule. Mexico has signed and ratified a myriad other international conventions since 1998 that subject it to constant foreign appraisal. If reempowered PRI officials try to use their positions to get rich, foreign and domestic whistleblowers stand ready to denounce them, just as they did under Fox and Calderón.
More broadly, the environment in which Mexico's politicians operate has changed immensely since the early 1990s. Mexico's media outlets are freer, better, and stronger than ever. Civil society has become more organized, powerful, and vibrant. For better or for worse, the government can no longer do what it wants.
TERMS OF AGREEMENT
These forces of accountability should keep the PRI government on track to pursue the policies it has promised. More than ever before, the PRI and the PAN, and their supporters, agree on what reforms are needed -- so much so that the two parties could join forces to enact them.
Several weeks before the July elections, a group of Mexicans from different professional, political, regional, and generational backgrounds posed questions to each presidential candidate. All four replied in writing, and their answers revealed a clear wish to accelerate change, not restrict it. The candidates agreed that Mexico needs a better police force with more officers and that the military's role in domestic security should recede. They all wanted to create a national anticorruption commission. They all supported subjecting teachers and other school employees to independent evaluation. They all promised to eliminate tax exemptions and loopholes. And they all said that Mexico's prosecutorial machinery should be totally autonomous. In addition, three of the four candidates -- Peña Nieto, Josefina Vázquez Mota of the PAN, and Gabriel Quadri of the New Alliance Party -- who together obtained nearly 70 percent of the vote, agreed on three other fundamental reforms. They supported opening up Pemex, the state-owned oil company, to private investment; encouraging public-private partnerships for infrastructure investment; and creating a universal social-protection system that would include health care, social security, and unemployment insurance.
The commonalities bewteen the PRI and the PRD, however, are practically nonexistent. Andrés Manuel López Obrador, the PRD candidate who lost to Peña Nieto, has accused Peña Nieto of buying votes and will in all likelihood oppose his reforms, even if some of the PRD's backers might support them. Traditionally, the PRD has sat on the sidelines of national politics, limiting itself to contesting the government's strategic decisions. It has led only -- and this is no small matter -- by passing liberal lifestyle legislation in Mexico City, such as laws allowing abortion and same-sex marriage.
Despite the PRD's opposition, the overlap between the PRI's and the PAN's agendas could turn Mexican voters' shared preferences into actual policies. The two parties first banded together in 1988, after the left unleashed mass protests against that year's grossly manipulated elections. That reaction convinced the PRI and the PAN that if they did not embrace a modernizing platform, they would both lose the next election. So the two parties fleshed out the terms of an institutional transition to democracy, a plan for full-throttled liberalization of the economy, a way to end land reform, and the preparations needed for NAFTA. Since then, no reform of any magnitude in Mexico has been passed without negotiations between the PRI and the PAN, and their frequent disagreements have only slowed the country down.
Today, in contrast, the two parties can forge an alliance on a number of long-delayed reforms. On oil -- an emblematic issue in Mexico since the country nationalized its petroleum industry, in 1938 -- the left is opposed to changing the current laws, but the PAN and Peña Nieto both support a constitutional amendment allowing private investment in Pemex. Passing that would attract badly needed foreign capital and represent a giant legal and psychological leap forward for Mexico.
The PAN and the PRI also agree on the dire need for a sustained campaign of trust busting. Politicians from both parties have argued that Mexico must reduce its concentration of power and wealth through a vigorous push against all breeds of monopolies -- public and private, economic and political, and in industry, banking, telecommunications, labor, and the media.
On the war against organized crime, too, the PRI and the PAN share a strategy. During this year's campaign, Peña Nieto and Vázquez Mota called for two important changes to Calderón's approach. First, they advocated concentrating scarce resources on combating violence -- preventing kidnapping, extortion, and murder -- rather than on capturing kingpins or interdicting U.S.-bound drug shipments. Second, they proposed overhauling Mexico's law enforcement system and increasing the federal police force from about 30,000 officers to some 100,000 officers over three years.
During the 2012 campaign, more than 66 percent of the seats in Congress -- the threshold needed to approve constitutional amendments -- were won by candidates who agreed on these issues and others.
LET'S MAKE A DEAL
The PRI and the PAN don't see eye to eye on everything, however. Peña Nieto has stressed his intention to build a universal social-protection system financed by the central tax fund as opposed to individual contributions, which would mean raising Mexico's value-added tax and eliminating energy subsidies; the PAN is not quite convinced.
Although both Peña Nieto and Vázquez Mota said they would continue to cooperate closely with Washington in the war on drugs, the PRI may want to distance itself from aspects of Calderón's strategy, something that any winner in 2012 would probably have done. Some pollsters believe that the main reason the PAN fared so poorly in the elections was because of its unpopular antidrug campaign, an expensive undertaking that has resulted in more than 60,000 deaths since 2007, visible human rights violations, and severe damage to Mexico's image abroad. Given the huge costs of the war, there are no easy areas of convergence between the outgoing team responsible for the current state of affairs and an incoming administration seeking a break with the past. In fact, the PAN probably remains split on this issue, as do the PRI and the Mexican public.
The PAN, for its part, has called for several major reforms that Peña Nieto dislikes. The party wants to allow mayors and legislators to serve consecutive terms, a practice that has been outlawed for nearly a century, and has recommended adding a runoff round to the presidential election so that the next president would need more than the 38 percent of the vote that Peña Nieto got in order to win. (Peña Nieto fears that such a change would allow the left and the right to join forces to defeat his party.) The PAN has also proposed transforming public-sector unions by stopping automatic dues collection, ending the government's recognition of unions and its ownership of collective-bargaining rights, and banning unions from firing employees who do not submit to their points of view.
These disagreements between the PRI and the PAN provide an opportunity for a deal: Peña Nieto could accept the electoral changes he opposes in exchange for the PAN's support for the unpopular but beneficial reforms the PRI blocked during the two PAN presidencies, such as liberalizing the labor market, permitting private investment in the energy sector, closing tax loopholes, and raising tax rates to finance a new social safety net. The stage is set for PRI and PAN politicians, during the tail end of Calderón's administration and the first months of Peña Nieto's administration, to construct a substantive agenda and a constitutional majority for its approval.
In the past, Mexico's five-month interval between elections and inauguration -- a long period of awkward coexistence between the lame-duck government and the incoming administration -- has led to currency devaluations, mass demonstrations, expropriations, internal power struggles, and even rumors of a coup. This time, however, the PRI and the PAN have tried to negotiate a mutually beneficial and productive interregnum. They have planned for legislators to pass reforms during the congressional session between September and December that will allow the departing administration to take credit and the new government to hit the ground running.
The legislative agenda includes long-term structural reforms concerning Pemex, labor laws, and taxes, but it also entails more immediate changes responding to public concerns about corruption. The incoming administration, as noted, has proposed creating an autonomous anticorruption commission; it has also proposed establishing another autonomous agency to transparently administer the use of public funds in the media and expanding the authority of the Federal Institute for Access to Public Information so that it can investigate state and municipal finances.
Despite the fertile political environment, mistrust left over from the campaign trail could reduce the chances of success in the planned fall session of Congress. It is difficult to conceive of how a divided government could suddenly deliver a cascade of agreements and reforms after more than a decade of virtual paralysis. But regardless of whether PRI and PAN politicians collaborate this fall, they have at least tacitly agreed on the terms of the tradeoff on which Mexico's new agenda will rest.
A NEW NARRATIVE
The more important question is not necessarily how many reforms are approved and when but rather what signals politicians send about where they want Mexico to go. One vital message they should send is that the country plans to invest in its infrastructure. Mexico needs to connect its regions and strengthen its ties to the rest of the world. It needs more ports, bridges, highways, airports, industrial clusters, preclearance zones for trade with the United States, and broadband Internet connections.
Another promising message concerns tax reform. Mexico needs to expand its tax revenues to fund a new social safety net. Without a base of consumers protected by universal health care, unemployment insurance, and social security, Mexico's domestic market and productivity will not grow fast enough to sustain a cycle of socially equitable economic expansion. The result would be more of the same: a First World exporting platform sitting on top of a Third World domestic economy.
To become prosperous, developing countries have to show that they want it badly enough; nothing would demonstrate this more than liberating the oil industry, especially the newly discovered deep-water reserves in the Gulf of Mexico. Yet Mexico has not yet made this commitment to growth. Although the country has achieved a degree of the macroeconomic stability it lacked during the last decades of the twentieth century, it has not yet attained the economic growth needed to properly support its population. The most important evil that the country must eradicate is not poverty but the mediocre creation of wealth.
More than anything else, what Mexico needs now is a credible narrative about its future. Fortunately, 12 years of democracy have finally planted a new paradigm in Mexican minds and culture. One by one, the myths that once dominated -- about the need for an omnipotent president, about the wisdom of nationalizing oil reserves, about a government that gives and a society that receives -- have fallen by the wayside. Mexicans' clamor for prosperity is no longer negotiable, and today, the country is less than a generation away from becoming the full-fledged middle-class society it aspires to be. But only if it gets to work now.