The Other Side: M’s Future in the Context of Private Wealth

I hope Reforma’s lawyers and Professor Dresser pardon my use of this important column, but I feel it gives the context in which the Ni-Ni’s are drowning, going under.

Mexico: A Plutocratic Country – Denise Dresser
Reforma: Denise Dresser
Translated by Janine Rhyans

Each time that Forbes publishes the list of Mexican multi-millionaires, the country should start thinking. Each time a rich person appears on the list who has made his fortune pillaging Mexico, we should ask questions:

How has this person accumulated so much wealth?
Is it because of their extraordinary business talent, or because of the political connections they were able to build?
Is it because of the innovation they have inspired, or is it because of the rentismo [milking businesses as cash cows, to provide guaranteed income with little investment] that they have made the most of?
Has this person created his or her fortune due to the good products and services offered to the consumer, or did this person rise to the top by exploiting the consumer?

The Economist magazine asks these same questions to understand why there are so many emerging markets with powerful plutocrats and entrepreneurs who are always looking for the best slice of the pie, and not how to grow the pie.

The principal reason is because of the widespread phenomenon of rentismo. A way to charge more for something that should cost less. A form of abuse, exploitation, and fraudulence that occurs in markets that are imperfect, poorly regulated, monopolized, with little or no competition. In Mexico, rentismo occurs through collusion among businesses to maintain elevated prices. It occurs through the lobbying of laws that protect the entrepreneur and not the consumer. It occurs each time Telmex, Telcel, Elektra, Televisa, Compartamos, or whichever bank, or whichever service provider charges us above the price they should. It occurs when the Mexican government gives concessions, awards licenses, and privatizes public goods without imposing rules for their use. It occurs when the government is at the service of those they should regulate.

This creates crony capitalism; a capitalism of accomplices. The type of capitalism that The Economist describes on an index of 23 countries in which rentismo – permitted and supported by the government – is a structural problem. It lists the sectors most susceptible to rentismo, such as casinos, coal, banking, the infrastructure and gas pipelines, petroleum, gas, chemicals and other forms of energy, bridges, airports, real estate and construction, mining, and telecommunications. Industries vulnerable to monopolies, concessions, and government involvement. Sectors prone to corruption, according to Transparency International. These are areas managed by magnates in Mexico.

These are economic environments in which multi-millionaires have grown in a phenomenal way. In the developing world, their wealth has doubled relative to the size of the economy and amounts to 4 percent of GDP compared with 2 percent in 2000. Emerging markets, like Mexico, contribute 42 percent of global production, but 65 percent of wealth via crony capitalism.

Mexico is in seventh place on that index that reflects the corruption, cronyism, favoritism, regulatory protection and poorly executed privatizations. Mexico is behind Hong Kong, Russia, Malaysia, Ukraine, Singapore, and The Philippines. According to the index, Russia is on the list because of how the oligarchs appropriate natural resources. Mexico is on the list because of Carlos Slim and other like him, who are allowed to be the country’s plutocrats.

The index is an imperfect guide, but it illustrates the concentration of wealth in opaque sectors compared with what happens in competitive sectors. The index reveals much that needs to be done and what Mexico – little by little – is already doing with the law of Economic Competency, with the declaration of predominate businesses that the Federal Telecommunications Institute has made, together with efforts to limit the practice of rentismo, and with reforms to the judicial system. What is clearer is that global investors are becoming pickier, more demanding and less willing to invest in countries with opaque markets and bad governance.

This is a rubric where crony capitalism – built on a dysfunctional legal system – continues to limit the country’s potential. According to the World Justice Project, Mexico is number 79 out of 99 countries regarding functioning of the rule of law. Because the corruption continues. Because judicial reforms have not been completely adequate, and their impact needs to be measured. Because the judges are still for sale, and sentences can still be bought. Because the plutocracy prospers in a country that continues to exalt its existence.

2 thoughts on “The Other Side: M’s Future in the Context of Private Wealth

  1. Have read your last three posts and while I knew Mexico was struggling and has always had great inequities in wealth, education, health and opportunity, i did not realize how low it ranks, compared to other countries. While the disparities here are not as great, and there is more of a rule of law, we have a long way to go and it will not happen as long as the 1% control the presidency, congress and the courts.

    1. Yes, I’m afraid in some ways it’s a global phenomenon. Time to re-balance the U.S. Supreme Court and kill Citizens’ United. Otherwise, how are you? Did you go to Cuba? What’s with your book? Saludos!

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