SI, CHANGE: Mexico Transforming

Wednesday, October 25, 2000

In 2000, Vicente Fox became the first opposition candidate ever to win the Mexican presidency. His election was preceded by a decade and a half of economic and political reforms in Mexico. How significant are these changes? What are the prospects for resolving some of Mexico's enduring problems, including political corruption, entrenched poverty and a state-controlled economy? What challenges will Fox have to overcome to bring Mexico into a new era of prosperity and freedom?

Recorded on Wednesday, October 25, 2000

Peter Robinson: Welcome to Uncommon Knowledge. I'm Peter Robinson. Our show today, The New Mexico. Think of Mexico in a couple of images will come to mind. One, of course, is popular culture. The other is problems. Problems for us; illegal immigration and drugs. And problems for them; political corruption and entrenched poverty. Today, however, Mexico is full of surprises.

Over the last decade and a half the country has slowly and painfully privatized its economy, opening to free markets. And in the year 2000, Mexicans elected Vicente Fox as President, making him the first opposition candidate to win election, ever. These changes are deep and lasting. Or so, at least, it would seem. Mexico has promised to make changes before, after all.

With us today, two guests. Stephen Haber is a Fellow at the Hoover Institution. And Denise Dresser is a Professor of Political Science at the Instituto Technologico Autonomo de Mexico.

Are the changes in Mexico indeed deep and lasting? Or just so much bull?

Title: Si, Change

Peter Robinson: This past summer when Vicente Fox was elected President of Mexico ending seven decades of one-party rule, Mexicans gathered throughout Mexico City, presumably throughout cities throughout the country to chant, "Don't fail us." Can Vicente Fox live up to the hopes of the Mexican people? Stephen?

Stephen Haber: I think so. Yes.

Peter Robinson: Denise?

Denise Dresser: They are going to give him a lot of room to maneuver. They're going to cut him a great deal of slack. Even if he fails, in objective terms, to realize some of his goals, Mexicans will still thank him for having ended the rule of the PRI.

Peter Robinson: Are their hopes to high though? At this moment, are their hopes too high?

Denise Dresser: There's a recent pole that suggests that Mexicans are realistic about what he can accomplish. They give him high marks and yet when they're asked, "Can he really accomplish his goals?" most Mexicans think that probably he can't.

Stephen Haber: I think that that's right. And--and I think that they will, to the degree that he does fail, they won't blame it on Vicente Fox. They'll blame it on the PRI.

Peter Robinson: I see. Alright. Well, we'll get--get to all of this. A little bit of background. Actually, the big question - Why is Mexico such a mess? Denise?

Denise Dresser: I don't think it's a mess. I object to that characterization. I think that we were a mess. I think that Mexico has transformed.

Peter Robinson: Why was it a mess?

Denise Dresser: I--I think because…

Peter Robinson: Let's take--let's--let's not--this I do not intend to reflect on Vicente Fox. What I'm trying to do is set the background.

Denise Dresser: Well, we followed the same economic track that many Latin American countries did. We--we closed our borders. We looked inward. We developed state led economies. And we paid the price for that.

Peter Robinson: Why? Why? Why is that the typical Latin pattern?

Stephen Haber: Most Latin American countries had laws, which encouraged monopoly, in which from the very beginning of independence the state controlled entry into all kinds of economic activities, in which laws developed, for example, that--that made small private property holding very difficult, in which, for example, there are patent laws that made it very difficult for small inventors to patent a--an invention and defend those inventions in court.

Peter Robinson: Is it as simple as saying this is the statist Spanish inheritance?

Denise Dresser: I think it's--it's the statist inheritance. But, at--but to suggest that Mexico was a mess, or is a mess is to overlook the dramatic change that has taken place in Mexico, I'd say, over the last decade. Privatization, liberalization, free trade, the retrenchment of the Mexican state, opening up to the world.

Peter Robinson: And all of this was carried out by?

Denise Dresser: By--it initiated by President Miguel de la Madrid, deepened by…

Peter Robinson: You give de la Madrid credit?

Denise Dresser: Oh, of course.

Stephen Haber: I would agree with that. Yes.

Peter Robinson: He was a goodie? He was a goodie? I thought he was one more of the--the bad guys.

Denise Dresser: He was--he was a mediocre man with good intentions, politically spineless, I would say. But at least he opened up the economy.

Peter Robinson: Who served--who was President of Mexico from--he's in the '80s.

Stephen Haber: Yeah. '82 to '88.

Peter Robinson: '82 to '88.

Stephen Haber: He inherits an economic disaster the likes of which Mexico had not seen since the Great Depression. In fact, the depression of the '80s is more severe than depression of the '30s in Mexico. He begins to open up the economy. He manages to keep the Mexican economy afloat when, in fact, lots of Latin American countries went through far worse recessions than Mexico did. And he has a huge political problem. In order to op--begin to open up the Mexican economy there are vested interests who have been there for a hundred years who are strongly resistant to that. Overcoming those interests was not a trivial undertaking.

Peter Robinson: Let's take a look at the changes that took place in Mexico before the election of Vicente Fox.

Title: Mexican PRI-mer

Peter Robinson: The election of Vicente Fox got American's attention. But what you want to establish is that dramatic changes had been under way for almost twelve, well, at least fifteen years. And what is interesting about this is that these dramatic changes were begun and very substantially put into effect by PRI, which stands for?

Stephen Haber: Partido Revolucionario Institucional

Denise Dresser: The Party of the Institutionalized Revolution.

Peter Robinson: The oligarchy made a decision fifteen or more years ago to change things, right?

Denise Dresser: The PRI had no choice buy to modernize the economy in the aftermath of the 1982 devaluation. I would continue to characterize the PRI as the bad guys in political terms, because they did all of this without ever stopping to think about liberalizing the political process. On the contrary…

Peter Robinson: An analogy with Beijing, for example, the communists in Beijing want to retain con--political control, yet stimulate the economy. Is that fair?

Stephen Haber: I think that's fair. And, in fact, they paid a cost for it in Mexico. The PRI, because it wanted to retain control of the economy, wouldn't really let economic reform go far enough. One thing they did, which was--it turned out to be a huge mistake, was to control the movement of the exchange rate in order to help Zedillo win the election.

Peter Robinson: Zedillo is?

Stephen Haber: Ex-President Ernesto Zedillo.

Peter Robinson: The immediate predecessor of Vicente Fox and the last in this long line of PRI Presidents. Alright, and what--sorry…

Stephen Haber: So what they basically had done, and this goes back to the '70s, is manipulate the exchange rate in order to make American produced goods look inexpensive in Mexico and artificially raise people's standards of living. The cost of doing that, however, is that you reach a point where you can't export anymore.

Denise Dresser: But I think there's also a political argument to not devaluating in Mexico. And this is what led to the 1994 crash.

Peter Robinson: And what was the political argument?

Denise Dresser: Oh, President Salinas wanted to go down in office--in history as Mexico's great modernizer. And for Mexicans, a devaluation is tantamount to crisis, to chaos. And therefore he postponed the inevitable and left his successor, Ernesto Zedillo, with a political football and that--something that ultimately exploded in Zedillo's face a couple of weeks after he took office.

Peter Robinson: Hold on. We better do--we better do a brief parade of Presidents here. de la Madrid serves…

Denise Dresser: '82 to '88, followed by--by…

Peter Robinson: It is a six-year term, de la Madrid is succeeded by?

Denise Dresser: Carlos Salinas, 1988 to 1994.

Peter Robinson: And an economist?

Denise Dresser: An economist by training.

Peter Robinson: Henry Kissinger said that Salinas and his team were among the most impressive leaders he had met any time in his experience on the world stage.

Denise Dresser: Well, Salinas did a marvelous job of marketing his image abroad as a modernizer. But he was never a Democrat at heart. He had no intention of letting the PRI loose the election. And because of that I think Mexico fell into the crisis of 1994.

Peter Robinson: And the--just describe the outlines of that crisis. What happened?

Stephen Haber: What essentially happens is the peso is about 40% over valued, which--which meant that…yeah…

Peter Robinson: That's a lot.

Stephen Haber: Yeah, that's right. That's about as high as it ever gets. At that point, when the peso is overvalued, because you are trying to essentially buy votes with--by raising standards of living in the short run, you can't export anymore. Once you can't export any more investors start to perceive that this can't be sustained. Then they start pulling money out. For a while they're able to support the peso, but this never works in the--in the long run. In fact, as soon as the--as soon as the Mexican President says, "We're going to defend the peso," that's the signal for everybody to buy dollars.

Peter Robinson: Right. Right.

Stephen Haber: This has been true since the '70s.

Peter Robinson: And in a period of--what a period of weeks, was it, the peso lost…?

Denise Dresser: A period of weeks. In a period of weeks I saw my income decline by 40%. In a period of weeks my salary became what it had been as a graduate student. And this was true for most Mexicans. Hundreds of thousands of jobs were lost. Many factories closed. The economy was thrown into the worst crisis since the Depression.

Stephen Haber: In fact, it--it gets--there's another piece of this, which gets even worse. Which is that in order then to attract capital back into Mexico, to defend the peso, you've got the raise interest rates. So you've sent interest rates right through the roof.

Peter Robinson: How high did they get?

Denise Dresser: One hundred percent. So people who had bought into the Salinas miracle who had got--gone out and bought themselves a house or a car on credit suddenly were with their backs against the wall.

Stephen Haber: Understand most of this credit is variable--is variable…

Peter Robinson: Right. Nobody gets a thirty-year, fixed rate in those days.

Stephen Haber: It does not exist. In no--in no country Latin American country that I know of does that exist.

Peter Robinson: So if you're making a ho--if you have managed to move into the middle class in Mexico, you've bought your own home, you're making payments on a salary, a couple of things happen in a period of weeks. You salary declines by 40% in purchasing power. And the payments on your mortgage increase--they double!

Denise Dresser: Well this is why Carlos Salinas today, in Mexico, is viewed as a villain. He is not viewed as someone who propelled Mexico into the ranks of the first world as he had promised, but someone who set the economy back for decades. And Zedillo, his successor, had the virtue…

Peter Robinson: Salinas leaves power when?

Denise Dresser: He leaves power in 1994. Zedillo comes in, is faced with this crisis and he slowly puts the economy back on track. And at the same time shows some commitment to opening up the political process.

Peter Robinson: What was it that made possible this peaceful and Democratic transfer of power from Zedillo to Fox?

Title: Standing at the Edge of History

Peter Robinson: The figures who are on the--the transition, the cusp of eras are often difficult to evaluate. How do you rate Zedillo? Was he--did he jump? Or was he pushed?

Denise Dresser: He was pushed, clearly. If you met Ernesto Zedillo you would not associate the word visionary, forward looking…

Peter Robinson: Not even close. Visionary? No public personality likely to arise?

Denise Dresser: No. He--he's--he's a--he's a gray man. He's a--a very intelligent economist, a very stubborn man. And I think Mexicans have to thank him for that stubbornness, particularly regarding the economy. But I think he had no other choice but to open up the political system.

Peter Robinson: You go with that?

Stephen Haber: With one modification and that is Ernesto Zedillo is now viewed, by members of his own party, as public enemy number one. I think it took a tremendous amount of courage and integrity for him to get up very early in the electoral process and say, "I think that Vicente Fox, if current trends continue, the next President will be Fox."

Peter Robinson: There could have been violence that day if he hadn't shut it down. Is that right or not?

Denise Dresser: When he came out it was clear…

Peter Robinson: This is on election night.

Denise Dresser: On election night he came out and had a…

Peter Robinson: Describe that scene. You were the--you were in Mexico.

Denise Dresser: I was at the Federal Electoral Institute, the famous IFE, the organization that runs elections. This is a crucial entity in Mexican politics. It is one of the few respected independent Mexican institutions.

Peter Robinson: They count the votes.

Denise Dresser: They count the votes. Mexican elections are the most expensive in the world. Precisely because we've spent so much to keep the PRI at bay, to monitor the PRI behaves in a--an above board fashion. Anyway, that night that afternoon independent poles began to show that the margin is very wide between Vicente Fox and the PRI, that it's not a close race the way the poles, all the poles, except for one, had suggested. And with a 10-point margin of difference, Ernesto Zedillo cannot conceivably, at eleven o'clock come out and say, and waffle. He has to accept the results. The--this unprecedented margin of success for Vicente Fox…

Peter Robinson: Was there any--was in your mind, or the minds of Mexicans, was there ever any question that it might turn into a situation like the one we just saw in Belgrade where Slobodan Milosevic said, "Eh, it was a close election." And refused to accept the results. Or was it, by that afternoon, did you know that the change had taken place, and it was just a question whether with good or ill grace the PRI was going to go?

Stephen Haber: I think…

Peter Robinson: Was there a danger of violence, or--or a crisis?

Stephen Haber: I think that's--I think there was a danger. Most of my fr--friends in Mexico, as well as myself, were actually stunned the next morning.

Denise Dresser: Yes. I would agree. This election took Mexicans by surprise; the results of this election. None of us ever predicted that Vicente Fox--some of us thought, "He could win," but if he wins it'll be by one point. The PRI won't let him govern. But…

Peter Robinson: So the margin really was astonishing.

Denise Dresser: The margin really was determinant to this peaceful outcome. And if you look back at Mexico's history this is astonishing for a country that has never had a peaceful transition of power.

Peter Robinson: The--the one thing that is to be said to be laid to PRI's credit is that that seventy-year oligarchic rule was peaceful.

Stephen Haber: If your counterfactuals are Argentina or Chile or Brazil, Mexico is much more stable.

Peter Robinson: At least Mexico is spared that.

Stephen Haber: Yes.

Denise Dresser: It was a Dictadura Blanda. It was what Mario Vargas Llosa, the novelist, called The Perfect Dictatorship. Because there was a curious mixture of consensus and coercion.

Peter Robinson: This brings us to Vicente Fox, himself.

Title: Fox Populi

Peter Robinson: How do you describe to Americans where Vicente Fox stands?

Denise Dresser: I would say that Vicente Fox is the first North American President to be born in Mexico. He's a very American style politician. He's executive, he's forceful, he's very dynamic. He's a northerner. He thinks in business-like terms. He's a very good communicator.

Peter Robinson: Where--where is his home in Mexico? What part of Mexico is he from?

Denise Dresser: He's from Guanajuato, a cent--it--it…

Peter Robinson: In the north, middle north?

Denise Dresser: It's middle north, exactly. And it's a state that has a very strong entrepreneurial, independent streak.

Peter Robinson: And he is a determined reformer, a visionary, a conser--what--what--what animates him; free markets? What--what--what…?

Stephen Haber: Now this is an interesting issue, because the question is, "What will Vicente Fox do that is different from what the PRI has done over the last fifteen years." And the answer is, "Not a lot, with one im--Important exception." He's clearly going to continue the free trade policies of his predecessors. He's clearly going to continue the opening up to U.S. capital of his predecessors. He's clearly going to continue the reform of the agrarian reform, where they're privatizing formerly communally held land, started by his predecessors. All that's going to stay the same.

The one thing I think he will do different is to invest more in education. At least this is one his--one of his announced goals. And I think that, if he does make good on that promise, it's going to have two consequences. One is it'll be very, very expensive. And the second is, it'll have a huge payoff for Mexico.

Americans cannot appreciate how low the educational stan--how low educational standards are in Mexico. I'll give you a hard figure.

Peter Robinson: Good ahead. Um hum.

Stephen Haber: The average number of years of formal schooling in Mexico is 5 ½.

Denise Dresser: Yes.

Peter Robinson: Okay.

Denise Dresser: Now, I think there's something else that Vicente Fox will do differently. And that is he will try to accelerate integration with the U.S. If you look at what he did after the election, he came to the United States and put a series of proposals on the table; some of them which are very bold. This is not something that the PRI would have done. Which is to say, "Let's think about north American integration in thirty years patterned along the lines of the European Union." In other words open borders, not only to trade, to investment and goods, but to people. He also said, "In order to achieve that convergence, I want the U.S. to invest in immigrant sending communities south of the border."

Peter Robinson: Immigrant sending communities, which means what?

Denise Dresser: Which means what the European Union did with lesser-developed partners such as Spain, Greece…

Peter Robinson: Right. Right.

Denise Dresser: The wealthier countries invested in those countries in order to keep migrants at home. And in return Fox has said he would do his part. He will try to promote Mexican economic growth at the fullest. He will protect the southern border to--to stop the influx of Central Americans using Mexico as a crossway point into the U.S.

Peter Robinson: That's an interesting point that never, ever crossed my mind that Mexico has in immigration problem of it's own at it's southern border.

Denise Dresser: Oh it does. It does.

Stephen Haber: When Mexico refers to the immigration problem they often mean Hondurans and Guatemalans.

Peter Robinson: And how big is that--that immigration problem?

Denise Dresser: Mexico has the same problem at its southern border that the U.S. has.

Peter Robinson: Is it hundreds of thousands of people streaming across?

Denise Dresser: Hundreds of thousands of people streaming across.

Peter Robinson: Let's look at the way Vicente Fox will handle the government's very considerable involvement in the economy.

Title: The Era of Big Government is Over?

Peter Robinson: Here in the United States absorbs, by way of taxes, and then spends about a fifth of the GDP. If you add in state and federal--state and local governments, it gets pretty close to half of the GDP. How big is it in Mexico, the state sector?

Stephen Haber: It--If it's half in the United States, it's actually now smaller than that in Mexico.

Peter Robinson: Smaller than that in Mexico?

Stephen Haber: At its peak--at its peak, circa 1982, it was over half, maybe 55%.

Peter Robinson: But it's--but it's below that…

Stephen Haber: It's--it's shrunk. It's now below that.

Peter Robinson: Okay. Under Fox, bigger or smaller?

Denise Dresser: Oh smaller, clearly. I mean one of his…

Peter Robinson: Not withstanding lots of money on education.

Denise Dresser: Not withstanding that. I think that he wants to privatize some key sectors of the Mexican economy.

Peter Robinson: Alright. One third of the revenues of the federal government come not from taxes but from oil revenues. Pemex, the Mexican oil com--nationalized industry. Does he want to keep it nationalized or does he want to sell that off?

Denise Dresser: I don't think he would agree to the phrase, "Sell it off." But he does want to turn it into a more competitive industry that competes world wide, that is managed on efficiency criteria versus how much it can be…

Peter Robinson: But, in the short term, he wants those revenues, at least?

Denise Dresser: No, he--he's thinking about a profound fiscal reform. The problem with the state sector in Mexico is that it's poorly funded. He wants to raise taxes. He wants to expand the tax base. I think this will be politically difficult for him to do. But it's one of his top priorities.

Peter Robinson: Okay. The Economist Magazine. "Those who voted for Mr. Fox…" I move now from Mr. Fox to the country itself, that's what I--the point of getting here--this quotation. "Those who voted for Mr. Fox were disproportionately young, urban and better education. In a real sense, therefore, his victory personifies the dynamic emerging Mexico being molded by the North American Free Trade Agreement. A Mexico which is now less suspicious of the free market and of the United States than it has been in the recent past." True? Is that the Mexico that elected Fox?

Stephen Haber: It's clearly true that the Mexico that elected Fox is urban, is middle class and is well educated.

Peter Robinson: Is it in favor of the free markets?

Stephen Haber: I think, by and large, yes. I think there's been a big shift in Mexico, particularly amongst younger Mexicans in terms of how they view free trade, in terms of how they view free markets. I mean it wasn't that long ago that the--going back even to the '80s, where what was taught at Mexican universities was that the purpose of the government was to make up for market failure, because markets, by definition, were sort of--sort of evil, inefficient and bad.

Peter Robinson: And no longer animated by resentment, envy, disapproval of the United States? Is that going?

Denise Dresser: I would agree with The Economist statement with one caveat. Vicente Fox's victory was the product of a heterogeneous coalition. He was able to bring in voters not only from the young, urban educated Mexico, but also from the left, the--the people who, in the past, had voted for Cuauhtemoc Cárdenas, the icon of the Mexican left. And he told them, don't vote for Cardenas. It would be like a--a--a--comparable to voting for Nader when you're a political liberal in the U.S. And that vote would go to George Bush's coffers ultimately.

Peter Robinson: Last topic, what role will the former ruling party, the PRI, play now?

Title: Patronage Saints

Peter Robinson: Has PRI bre--been so discredited that Mexico will now be left, even now, without a functioning two party system? Or will you have PAN, which is Fox's party and PRI? Or will it be splintered more way--how--how will that work?

Denise Dresser: No. The--I think the problem for Fox is that what enabled him to win may make it difficult for him to govern. He won the election with 8-point difference. But, non-the-less, the PRI still garnered 30 million votes. It--it is still a strong party in many states. It controls the majority of local legislatures. They will no longer control the Presidency, the Priistas, but they still have the power to veto Vicente Fox and set up obstacles for him at every turn.

Stephen Haber: Now, here's where I would--I would disagree with you somewhat. I do think that they--they do have the capacity to veto him in the short run. I think, in the long run, the PRI is in some serious trouble. And it's future as a party is very much in doubt. This is an amazing patronage machine, which essentially could buy votes through strategic spending. Sitting of the center of that patronage machine was the President who controls most of the revenues. States and local government do not, as opposed to the United States, have much in the way of independent sources of revenues. That means all patronage had to come from Mexico City. If you take the President out of the equation, all of the sudden it becomes very, very hard to distribute largess in order to buy loyalty. And I think that's going to be a real problem for the PRI in the next decade.

Denise Dresser: I think the big question marked for Mexican politics today is the future of the PRI. Does it splinter? Does it unify under the leadership of Roberto Madraso, the former Governor of Tabasco who has said, "The PRI should go back to its origins. It should retreat its nationalist, populist roots…"

Peter Robinson: Which means leftist as well. Leftist. Statist.

Denise Dresser: Exactly. The--the problem is that political space in Mexico is very--is becoming crowded. There already is a party of the center left there.

Peter Robinson: It's television. So, this has to be the last question. Ten years from now Vicente Fox had six years to run as President. Ten years from now or twelve years from now, after he has left office, will we--if we were able to reconvene this very show, will we be--look back on the Presidency of Vicente Fox and say, "That was a decisive moment. Mexico moved decisively, permanently in the direction of genuine, stable Democracy and in embrace of free markets."? Or will we say, "It was a lovely moment, but the backlash, of course, took place."? Stephen?

Stephen Haber: I think there's no doubt that people will look at this election, this election as a watershed in Mexican history, if only because this is the first time there's been a peaceful transition of power between governments. I think that the ruling party is going to have a ver--the PRI, is going to have a very, very hard time reviving itself.

On top of that, there are a series of reforms, which took place in anticipation of the election. It took them fifteen or twenty years to move them all through. The IFE is one of them.

Peter Robinson: The IFE is the election bureau.

Stephen Haber: The electoral, right. I mean you(?) un--understand that the PRI used to essentially count the votes.

Peter Robinson: Right.

Stephen Haber: As well as fund the elections out of the federal treasury. So, all these institutional reforms which took place, which allowed Fox to win the election, are going to be long lasting and decisive.

Peter Robinson: There's no going back. Denise, how will--how will we look back on it ten years hence.

Denise Dresser: The bottom line is the election of Vicente Fox means, for Mexico, that Mexico is now a Democracy. There are no qualifiers attached to that. In the past Mexicans debated whether or no Democracy had arrived, whether Mexico was a soft Dictatorship. Now it's a Democracy. It may be fledgling, it may be weak, it may be unconsolidated, but it's here to stay.

Peter Robinson: Denise, Stephen, thank you very much.

Denise Dresser: Thank you.

Peter Robinson: Democracy? A stable currency. Quality manufacturing. Who knows all the surprises Mexico may have in store for us in the coming few years. I'm Peter Robinson. Thanks for joining us.

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