Three phrases sum up the disagreement characterizing Mexico’s economy at present and that explain its paralysis (stagnation with a strong propensity toward recession), lack of progress and bad prospects. President Andrés Manuel López Obrador’s rhetoric will camouflage the problematics with grandiose phrases such as “This is not a change of government, this is a change of regime,” “The Fourth Transformation” or “The poor come first”. In reality, what is taking place is a swift deterioration.
Some of the phrases that have become archetypes of the AMLO government are revealing of its world vision, but especially of its clinging to a specific era: “Hugs not bullets” and “I have other data” reflect a way of conducting politics and confronting the issues that the country is facing. But none is more indicative than the one the President has expressed numerous times: “The economy should be subordinated to political decisions”. I do not know of, nor have I observed, any politician who throughout time does not desire the latter. Not so many decades ago, governments effectively controlled and managed the principal variables that make the economy function. But that scenario disappeared in the last third of the 20th century not because of the will of someone in particular, but due to technological change and the sudden emergence of instant communications that has overtaken the world. It is not by chance that since then there is virtually no country on the planet –including Cuba, North Korea and Vietnam- that is not geared to attracting private investment. Doing this not for pleasure but because there is no choice.
I see three key issues that explain the paralysis Mexico is experiencing in economic matters. First, the nature of the economic world in the 21st century and why it clashes with the governmental strategy; second, the importance of procedures and, more so than anything else, of trust; and, third, the cesspool laid bare by the President himself.
In terms of the economic world, the 21st century reality bears no similarity to that of the mid-20th century in that the government maintained a closed and protected economy. In that era, the government subordinated economic decisions to politics. However that disappeared because of the way in which the world’s ways of production evolved (the so-called globalization and supply chains) and, particularly, due to the ubiquity and availability of information outside of governmental control. Once the economic world was liberalized, it was no longer under the control of governments and there’s no going back, unless there’s a disposition to generate a depression.
From the latter derives another fundamental change in political relations surrounding the economy. The moment that controls on investment, exports and imports disappeared, government -all governments- had no greater alternative than that of dedicating itself to convincing their citizens as well as the community of investors, businesses and financiers (both domestic as well as international) of the good of their projects. Once the world became the prime space of economic action, all governments compete for the same investment and the only way to capture it is to create conditions that would make their countries attractive. This, together with sources of certainty to generate trust in them. The decision to save and invest was transferred from governments to citizens and investors. There is nothing in this world (and even less so the pretension of “change in regime”) that will change that. The same exact transformation took place in Mexico’s political arena with the National Electoral Institute (INE), the Electoral Tribunal and the Supreme Court.
Finally, President AMLO opened a sewer of which he is not yet aware but that radically affects the present moment. For many years, one Mexican government after another constructed institutional mechanisms designed to generate certainty among economic agents and among society in general. Thus were born Mexico’s autonomous institutions, each in pursuit of a specific objective: access to information (National Transparency Institute, INAI); regulation of the energy market (CRE), and the National Hydrocarbon Commission, (CNH); the Human Rights Commission (CNDH); trust in the electoral process and regulation of political parties (INE and the Electoral Tribunal); and the resolution of disputes among branches of government (Supreme Court).
Today we know, in retrospect, that the validity and transcendence of these institutions was due not to the legitimacy that they enjoyed, but instead to the respect that successive presidents and administrations allocated to them. The easiness with which President AMLO has neutralized or eliminated these institutions illustrates their intrinsic weakness. What the President does not recognize is that, on implicitly declaring Tthe king has no clothes on,” he did away with key wellsprings of certainty for the citizenry and for investors and savers. Once exposed, that sewer has become Pandora’s Box.
The problem now is to regain the trust that those autonomous entities engendered, a complex task in itself, but impossible for a government whose ‘raison d’être’ is to deny the problem exists or that it is a valid one. The economic-growth crisis, and the way in which the COVID-19 outbreak will likely deepen it, will force the AMLO government to act. The question is whether it will act in a constructive or in an authoritarian mode.