If there is one country in Latin America where you might have thought the analysis of Why Nations Fail was relevant, it would be Mexico. In the first chapter of our book we traced the economic and political history of Mexico and showed how and why it diverged from that of the United States. We ended the chapter with a discussion of how the difference between how Carlos Slim made his money (monopolies) and Bill Gates made his money (innovation) is telling about the economic problems of Mexico.
This doesn’t come as news to most Mexicans, though it does come as a surprise to Bill Gates apparently since he has recently claimed that Carlos Slim was good for the Mexican economy.
Last year Mexicans elected a new President Enrique Peña Nieto who took office in December. There were quite a few skeptics about whether Mr. Peña Nieto was up to the job (he made several highly publicized gaffes during the campaign). But since getting into power he has turned out to be something quite different from his detractors.
First, he immediately signed a multiparty pact with the opposition parties the PRD and the PAN (the party of outgoing President Felipe Calderon). This “Pact for Mexico” outlined a large number of policy priorities, but one of the ones prioritized by Peña Nieto was educational reform.
Such reform faced a big obstacle in the teachers union headed by Elba Esther Gordillo known as “La Maestra” (the schoolteacher). La Maestra has used the union like a personal fiefdom for two decades, enriching herself and blatantly intervening in elections (the teachers count the votes in Mexico, which turns out to be particularly useful in close elections such as the one in 2006 when La Maestra backed President Calderon and he won a hotly contested election by a narrow margin – 233,000 votes).
Perhaps the most unfortunate aspect of all of this seems to be that the teacher’s union controls the hiring and training of teachers. One result is that Mexico has a terrible education system. Peña Nieto’s response to this obstacle was have La Maestra arrested for charges of embezzlement. Another priority was to completely re-vamp telecommunications regulation with serious attempts to increase competition and challenge Slim’s monopoly. The statements of the Finance Minister Luis Videgaray show clearly that the government understands the connection: less extractive economic institutions, faster economic growth and less inequality in Mexico.
How come there is now seemingly a move towards dismantling extractive economic institutions in Mexico?
Our framework in Why Nations Fail suggests one answer. Since 2000, Mexico has moved towards more inclusive political institutions, and one implications is mounting pressure to make economic institutions less extractive.
But history suggests this is the optimistic interpretation. Carlos Slim acquired his telecom monopoly during the Presidency of Carlos Salinas de Gortari. Salinas was seen at the time as a reformer, just like Peña Nieto, and was of course from the same party, the PRI. He brought a wave of “market reforms” to Mexico, like the telecom privatization. But this didn’t really change Mexican institutions. Rather, these reforms can be interpreted as an attempt by Salinas to develop a new political base by creating a group of wealthy oligarchs, politically beholden to him. In reflecting on this, it is good to ask who actually appointed La Maestra in the first place? (Answer: Salinas.)
So the big question for Mr. Peña Nieto is: a move towards inclusive institutions or the Iron Law of Oligarchy in action? Did he arrest La Maestra because he really wants to reform Mexico’s education system or is it because he’s mad at her for abandoning the PRI and backing Calderon’s PAN in 2006?