By Steve Kelman

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Political leaders take on ideology and special interests -- in Mexico

Don't be a cog in the machine

I have been spending a few days in Mexico City preparing for an executive education program for Mexican government officials (and others) that will be taught at the Kennedy School next week. I have been asking people here about some of the striking political events that have taken place during the first year of the six-year presidential term (with no re-election allowed) of Mexico's president, Enrique Pena Nieto. Pena has gotten the Mexican legislature to accept a significant number of wide-ranging political changes involving taxes and education. But the most dramatic reform, passed just a few months ago, involves allowing foreign participation in oil exploration and drilling, especially deepwater activities, in the state-owned Mexican oil monopoly Pemex.

A little background will explain why this change is so significant and politically difficult.

The Mexican government nationalized the (largely American-owned) oil industry in 1938. This move had enormous emotional and cultural significance in a country haunted by the specter of U.S. domination. Mexico has never fully recovered from the humiliation of defeat in the Mexican-American War, where, as is noted to this day in Mexican accounts, the country lost half its territory to the United States. (There is an annual holiday in Mexico remembering "the boy heroes," a group of teenage soldiers who died in the defense of the presidential palace against US troops.) The slogan "the oil is ours" resonates deeply as a statement of Mexican pride and self-respect.

Loosening up the Pemex monopoly also required confronting special interest power. Pemex employees are organized in a powerful union, and receive (by Mexican standards) very high wages. Pemex is dramatically overmanned, and many of its employees cannot be accused of having overly demanding jobs.

Add onto all this that the nationalization in 1938 was undertaken by an iconic leader of Mexico's Party of the Institutional Revolution (PRI), Lezaro Cardenas. The oil workers union is closely aligned with the same PRI – and President Pena represents that party.

Yet Pena decided to support allowing foreign participation, through exploration and production contracts that will give oil companies a share of the profits, in the Mexican oil industry (though not ownership). And he got the change through, even though polls showed 60 percent of Mexicans opposed allowing in the foreigners.

Pena had a good substantive argument to make on the merits. Pemex lacks the ability to do complex deepwater exploration and drilling. Allowing foreign participation should significantly increase government revenues, which can be used for social programs to help the poor. Increased production may also lower the prices Mexican consumers pay for oil. So he had a good case.

And that's the point. Pena was willing to do something that would help the country, even though doing so was politically difficult.

And this of course brings us back to the United States. Our political leaders seem utterly unable to do something like what Pena has done – to take on his own supporters' ideology and the power of his own party's interest groups to do something important that makes sense. Just think about the inability of Democrats and Republicans to reach a reasonable compromise on the country's long-term fiscal problems.

Sort of depressing that President Pena can do what our leaders can't.

* * *

On a lighter note, two random observations from Mexico City:

First (and tied in with the problem of U.S. domination of Mexico), I was surprised to see that Tostitos, made by Frito-Lay as an American knockoff on Mexican tortilla chips, are widely sold in Mexico itself (along with Doritos). Talk about bringing coal to Newcastle!

Second, Mexico City is filled with neighborhoods whose streets are named after foreign cities or famous personalities. One section of towns has European street names like Hamburg and Verona, other with names of people such as Czech President Thomas Masaryk and French novelist Anatole France. And there is a neighborhood with streets named for U.S. states – such as Wisconsin, Indiana, Illinois and Carolina!

Posted by Steve Kelman on Jan 10, 2014 at 12:27 PM


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