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Worldcrunch

Why Mexico's So-Called Liberalization Is Bound To Fail Again

Current privatization proposals for the telecom and energy sectors suggest Mexico has learned little from the partial, and failed, liberalization processes of the past.

Article illustrative image Partner logo The Central Bank of Mexico

MEXICO CITY — Insanity, Einstein once said, is doing the same thing over and over again and expecting different results.

Thirty years ago, during a deep recession Mexico chose the path of liberalization and privatization to try to finally achieve the economic growth that had been eluding the country during the final period of rule of the center-left Institutional Revolutionary Party (PRI).

In that first period of reforms in the 1980s, the country privatized an ample range of firms (telecommunications, banking, broadcasting, steel and agriculture). A significant sector of the population was not happy. While certain privatized firms prospered, others, especially banks, went bankrupt and generated enormous costs, which the public had to pay through taxes.

More importantly for our purposes here, many of the privatized firms evolved into oligopolies — with a few suppliers controlling the market — obstructing the population's creative capabilities and curbing the potential for economic growth.

Unfortunately many of the reforms being discussed today in Mexico seem to be heading in that direction.

The countries that have had success opening up their economies, liberating protected markets and especially those dominated by state-affiliated firms, share one key characteristic: They've built competitive models that allow the market to function. That happened in the United Kingdom and Chile, two successful cases by any measure.

Things went differently in Mexico. What was owned by the former monopolistic state firms went into private hands, but there was no truly free market wherein transparency and competitiveness determine results.

Two models

I remember a debate in the late 1980s involving a prominent member of Mexico's privatizing entity and another official whom Chile had entrusted with privatizations some years before.

The Mexican official explained his logic in the privatizations process, saying firstly that the most important criterion was that the highest bidder should win, to assure the transparency of the process. He said the lesson of past privatizations was that despite experts' advice to start by selling small firms to win experience, in Mexico they had decided to privatize large firms first, to send investors a strong signal.

The Chilean official, who had prepared a long presentation, understood these comments to mean that privatization had not actually even begun in Mexico. He refrained from making his presentation in order not to seem to be contradicting the Mexican official's statements. Instead, he spoke for barely two minutes, simply stating that the aim of privatization in Chile had not been to make money, but to restructure markets and develop industries.

The criticism was brief but withering, and the subsequent years have proven him right, both in Mexico and Chile.

A quarter-century later, debates here show that Mexico has learned nothing. Instead of discussing how the energy market would be after the current opening up, all that seems to matter is how much will stay in state hands. Instead of trying to find a vibrant and competitive energy market, discussions are all about keeping a Sovereign Fund as an unending source of unaudited monies for all-too-familiar goals.

The same goes for the recent electoral reform, where power was the only thing on legislators' minds. Who would control the electoral process and the business opportunities affiliated with it. With telecoms, the rumor mill (the only, really buzzing market in this country) has it that the reforms are being tweaked and fine-tuned. But discreetly, in the backrooms. Which means we are sticking to our usual logic of clientele politics, influence-peddling, control and corruption. Einstein would remind us not to expect different results this time around either.

The experience in both historical moments suggests there is something in the DNA of Mexican politics that impedes the country from doing things in an open and transparent manner, through market competition. Political leaders seem to reject relying on the creative capacity of Mexicans, and above all abandoning the tradition of using the public sector for personal enrichment or to purchase the intentions that help you win or keep power.

We all know the learning curve is costly, and in that sense, such hiccups would be explicable if we lacked experience. The problem of course is that experience isn't lacking, and in contrast with previous decades, we now also have overwhelming evidence and data.

Our experiences of the 1980s and 1990s and those of other countries are more than enough to convince us that only a competitive and transparent market will allow us to achieve the stated goals of constitutional reforms and economic growth.

As we speak, the case of telecoms and broadcasting is showing us that oligopolies hamper growth. Was that the unstated objective?

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About this article source Website: http://www.americaeconomia.com/

America Economi­a is Latin America's leading business magazine, founded in 1986 by Elias Selman and Nils Strandberg. Headquartered in Santiago, Chile, it features a region-wide monthly edition and regularly updated articles online, as well as country-specific editions in Chile, Brazil, Ecuador and Mexico.

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