Thursday, August 01, 2013

fill 'er up

Mexico is remaking itself.  And those of us living in Mexico get a front row seat to history unfolding.

The country has been waiting for President Enrique Peña Nieto to announce his proposed reform of the Mexican petroleum industry.  During his presidential campaign,
Peña Nieto promised to open Mexico's oil industry to the private sector -- including foreign investors.  He won on that platform.

To American and Canadian ears the proposal simply made sense.  Liberal economics recognizes that government-controlled monopolies are inherently inefficient.  A more competitive market and an infusion of  new investment and technology would be a no-brainer up north.

But this is not Canada or The States.  This is Mexico.  What candidate Peña Nieto proposed was as radical as President Obama proposing to repeal the Second Amendment.

A little history may help.  Even though Mexico was a country following its independence from Spain in 1821, it was barely a state.  And it was certainly not a nation.  For almost a hundred years, Mexico struggled to find both.  And it did. 

Out of the revolution of 1910 came a one-party, authoritarian state embodied in the Institutional Revolutionary Party (PRI) and the creation of the mestizo myth.  Mexico was now a nation-state.

The revolution also created a national myth that the natural resources of Mexico were the inalienable patrimony of Mexicans.  Foreigners need not apply. 

In 1938 President Lázaro Cárdenas nationalized the petroleum industry and created Pemex.  That concept of nationalization was made part of the constitution as article 27.

It would be difficult to overstate how deep the nationalization myth runs in the Mexican character.

In Mañana Forever?, Jorge Castañeda pointed out that Mexico will never become an international economic power unless it confronts its myths.  

Millions of new jobs can only be created by thousands of new midsize firms investing for the first time in Mexico for the domestic market and for reexport to the U.S.  Mexican infrastructure—ports, airports, highways, power grids, and so on—and education can only be ramped up to world standards with financing, both public and private, from abroad, meaning largely the United States and, to a lesser extent, Canada.
None of this can happen today, given the obstacles posed by the country’s laws and attitudes.  And they are many: the absence of competition, the monopolistic practices of business, the regulatory agencies’ lack of teeth, the overall crony nature of Mexican capitalism, and the overt protection enjoyed by, among others, the media, oil, and electric power.
This government -- the heirs of Lázaro Cárdenas -- is ready to invest political capital in tackling the Pemex myth. 

On Wednesday, the National Action Party (PAN) announced its proposal to open the oil industry to private interests by amending article 27 to end the prohibition on oil and gas concessions and risk-sharing contracts, and to "guarantee the maximum benefit of oil profits for the nation from the work of the operators who conduct exploration and production activities."

PAN, of course, is acting as a stalking horse for the government.  Peña Nieto effectively stole PAN's energy ideas -- ideas that PRI opposed during the PAN presidency.  But PRI is now marketing itself as a liberal democrat party.  And it needs PAN votes to get a constitutional amendment through Congress.

The next step is for the president to stop talking about ideas and put his proposal on the table.  That will happen during August.  And it will most likely not differ substantively from PAN's.  The Senate will start debating PAN's propsal on 1 September.

The ball is in play.  

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