Economy, Not Drug War, Peña’s Main Challenge

Although some of the votes are being recounted to ensure that there were no irregularities, there is little question that Enrique Peña Nieto won the presidential election in Mexico this weekend. After twelve years, it marks the return to power of the country’s Institutional Revolutionary Party which ruled Mexico for more than seventy years in what was widely regarded as an authoritarian manner.

Peña’s win is hardly a repudiation of Mexican democracy however. It rather signals a desire for change than a reminiscence for the days of single party rule. As the third place finish of the incumbent liberal National Action Party showed, Mexican voters overwhelmingly desire a different economic and a different security policy.

Drug related violence in Mexico has increased dramatically during the last twelve years while economic growth has been lackluster. During the worst of the 2008-2009 financial crisis, the Mexican economy contracted by almost 10 percent.

Of the two issues, security and the economy, the former has captivated the attention of international news media. Much has been made of the potential consequences of a PRI government for the war on drugs and Mexico’s relations with the United States. American officials worry that Peña will turn a blind eye to the cartels due to public pressure. This is unlikely. He faces several constraints to his actions. Read more “Economy, Not Drug War, Peña’s Main Challenge”

Oil Dependence Puts Mexico’s Energy Security at Risk

Despite having been favored with considerable hydrocarbon resources, Mexico’s energy security is in a dire state. Years of a corporatist and clientelist regime under the Institutional Revolutionary Party consolidated various structural flaws, preventing state-owned company Petróleos Mexicanos or Pemex from being able to adapt to changes in the energy market and the difficulties in upstream activities.

Four main challenges characterize Mexico’s current energy security situation. Read more “Oil Dependence Puts Mexico’s Energy Security at Risk”

BRICS Expansion Could Produce G20 Minus Seven

In the last two decades, the linkages among nation states have deepened to an unprecedented level. In terms of commerce and finance, the world has recovered and surpassed the degree of interconnectedness that was achieved before the Great Depression. Moreover, new issues have emerged, creating new linkages, deepening the web that connects the international community and giving a much wider sense to the notion of globalization.

This has come at a price. As the 2008-2009 financial crisis demonstrated, the consequences of the actions of one state or one nonstate actor can resonate across the globe. The countries which are more likely to have a wider impact are, obviously, the most powerful ones.

It is in this context that the rise of a number of nations has caused both interest and alarm. Among them, Brazil, Russia, India and China are regarded as the emerging powers. Their growing power has enabled them to present the most credible challenge to the hegemony and legitimacy to run world affairs which the United States and their Western allies enjoyed after the Cold War.

The BRICs know it. Their leaders regularly meet to announce their agreement on certain issues and to let the world know that they can act in unison. By doing so, they increase their own power as well as the legitimacy of the group, helping them to provide an alternative forum to all states, including, if not especially, those that are not well regarded in the West.

One thing to note is that the BRICs are all developing countries when comparing their gross domestic product per capita levels with those of the Western powers. This characteristic and their growing international legitimacy has led them to become representatives of the interests of the developing world in certain negotiations with developed nations.

As a group, the BRICs have advanced the notion of reforming the current international system to give more say to the developing world. Among the most important demands are expansion of the United Nations Security Council and an increased voting shares for developing nations in the World Bank.

In the area of global commerce, the BRICs have demanded a decrease of trade barriers. With respect to climate change and efforts by the West to reduce green emissions, the BRICs argue that the current environmental problems are the largely consequence of the industrialized world’s actions and that they have no right to stop others from developing.

But the BRICs are not a coherent group. China and Russia are authoritarian states and sit on the UN Security Council while Brazil and india are democracies and looking to become permanent members. Would China and Russia still endorse the claim of expanding Security Council permanent membership if there was a strong possibility of doing so? Not likely.

Furthermore, China and India are very suspicious of one another and have territorial disputes. India also fears a Chinese monopoly of the Indian Ocean and has recently increased its investment in maritime capabilities. Energy relations among China, India and Russia are very complex. China and India need Russian oil and gas, allowing Moscow to trade energy concessions for strategic gains elsewhere at the detriment of the other two BRIC powers.

Unlike its peers, Brazil is not a nuclear power, which severely decreases its leverage on hard power issues. Brazil is also more adamant about trade liberalization while India seeks to protect its rice farmers.

In short, each one of these countries has its own particular interests and will not renounce to them in favor of an alliance.

While Brazil plays the role of model global citizen, Russia is far more focused on its security. China has serious domestic problems in terms of political accountability and sustainable growth. India struggles between its growth prospects and the institutional inefficiencies which prevent it from achieving them.

The BRICs’ sole factor of cohesion is a shared interest to promote change in the international community. This implies that its usefulness as a grouping in the future will depend on the following perception in the member states — will acting as a group benefit their own particular agendas?

Another question is whether these four countries are the only ones that can be qualified as the emerging powers and therefore legitimate representatives of the developing world? They answered that question by including South Africa in the group. Although it doesn’t compare in size and power to the BRICs, South Africa’s inclusion amply demonstrated there are other countries with sufficient assets and capabilities to be considered as rising powers.

Other clear examples are Indonesia and Turkey. The BRICs would do well to include them. After all, the only requirement for joining seem to be power and an opposition to the existing international system.

However, more members means more national interests to consider. Soon enough, an expanded BRICs could resemble a “G20 minus G7” which would hinder the very notion of promoting dialogue between the developing and the developed world.

Peña’s Election No Repudiation of Mexico’s Democracy

Mexico elects its next president in less than three months from now. The Institutional Revolutionary Party is poised to return to power with the popular Enrique Peña Nieto, the former governor of the central state of Mexico.

Among the remaining contenders is the nation’s second woman presidential candidate, Josefina Vázquez Mota, a former education secretary and businesswoman who represents the incumbent National Action Party. Andrés Manuel López Obrador, the former mayor of Mexico City, was nominated for the presidency for the second time by the left-wing Party of the Democratic Revolution. Gabriel Quadri de la Torre represents the New Alliance Party.

Peña maintains a comfortable lead over his competitors. Polls in March showed Peña ahead of his closest contender, Vázquez Mota, by more than 10 percentage points. López Obrador remains in third place and does not appear to be advancing. Quadri, for his part, has almost no support in the surveys.

As Mexican voters appear inclined to return the PRI to power, some argue that the country is losing its faith in democracy. PRI became infamous for its corporatis and clientalist style of government which allowed it to rule Mexico for more than seventy years in what author Jorge Mario Pedro Vargas Llosa, a Nobel laureate, once described the period as one of “perfect dictatorship.” Read more “Peña’s Election No Repudiation of Mexico’s Democracy”

Protectionism Makes Comeback as Recovery Stalls

Almost three years after the bricks of Wall Street crumbled, projections for growth in 2012 are more pessimistic than ever, as noted by the recently published Global Economic Prospects 2012 of the World Bank.

The effects of Europe’s spiraling debt crisis are felt across the developed and the developing world, countering the perception that emerging economies could be the motor of a global recovery. The imminent change of leadership in many countries, including China, France, Mexico and the United States, will make the foreseeable future a highly unstable one. In the upcoming months there will be an increase in populist policies and rising fiscal deficits. Governments may pay more attention to their constituencies which have been suffering the ongoing negative economic panorama.

As a result, protectionism could gain weight in the upcoming months and while it may be vilified by conventional wisdom which rightfully points out the benefits of free trade, there is a “human face” which legitimizes it.

Supporters of protectionism tend to justify their demands through what they regard as the direct negative effects of trade with other countries. Some of these effects are caused by the “unfair” practices of governments as China’s. Others are due to the abundance of cheap labor in countries as Mexico.

Whatever the reason, according to protectionists unchecked trade liberalization causes unemployment and income inequality. America’s disturbing trade deficit with China is one of the favorite arguments of trade critics in the United States. These opinions have a considerable impact in various segments of the population. The 2008 financial crisis only helped enforce the notion that Americans industry ought to be protected from unfair competition overseas.

According to theory, trade liberalization benefits an economy by expanding its production capabilities and diversifying the goods it can consume. Trade dynamics promoted by international competition lead to a decrease in prices, benefiting consumers and producers alike.

It also expands the labor pool, thereby reducing costs. Trade leads to specialization. Every country has a comparative advantage in producing certain type of goods due to its factor endowment. An economy will specialize in the production of goods which uses intensively its relative abundant factor. Thus, Germany, which is relatively abundant in high skill labor, specializes in the production of high end goods (computers, pharmaceuticals, etc.), while Vietnam, which is relatively abundant in low skill labor, specializes in the production of basic goods (agricultural products, clothes).

Through specialization, countries are able to increase their respective national income because they produce what they are more efficient in producing and trade it to the world. But then, what happens to those industries in which a nation is inefficient? Herein lays the main dilemma of trade which can fuel protectionism — specialization leads to the disappearance of inefficient industries. Theoretically, this should not be a problem, since workers in these industries will gravitate to other industries which are succeeding. Reality is more complex.

Skill biased technological change has made it very difficult for job displacement to occur. All types of jobs have modified their requirements in line with technological chance. A laid off worker will struggle to find another job because he doesn’t have the required set of skills. Retraining could take years. The protectionists argue that this is exactly why the state must design and implement policies to offset those effects of liberalization.

It’s easy for Americans to blame the Chinese for their trade deficit, to propose to punish China by turning its currency manipulation into an illegal subsidy and disregard recommendations to change domestic consumption patterns which, in fact, makes American society the main actor responsible for their current situation.

A more effective way to enable economic growth than either raise or reduce trade tariffs may be the implementation of an industrial policy. This refers to measures introduced by governments to channel resources into sectors which they view as critical to future economic growth. It implies benefiting some by hurting others (the financial resources have to come from somewhere else). Consequently, industrial policy should only be deployed to counter market failures and externalities which prevent the industries in which a country has comparative advantage from naturally becoming as efficient as they should be.

The successful examples of Japan, South Korea and the Southeast Asian “tiger” economies encourage governments around the world to intervene in their industries through subsidies, tariffs, taxes, etc. so as to increase their profitability. The idea is to benefit those sectors that the state believes have a comparative advantage over those of other countries and create national champions

There are problems with this analysis. Japan and South Korea both had the overt support of the United States which, due to Cold War dynamics, prevented their experiments from failing. For their part, the tigers, except Hong Kong, had authoritarian governments that facilitated the implementation of policies and they, too, enjoyed American support.

There are examples that demonstrate both successes and failures but, to be fair, the outcomes were contingent upon other variables which require closer analysis. China’s is the most recent case of an industrial policy, and, so far, it seems it has been successful.

This has caused alarm in the United States where China’s success is increasingly perceived as coming at the expense of American workers. The politicization of industrial policy that aims to “correct” market imbalances unfortunately often leads democratic governments to privilege certain interest groups, whether they’re corporations or unions, at the expense of their economy’s competitiveness as a whole. Perhaps, in this sense, China’s comparative advantage is its very authoritarianism?

Both supporters and detractors of protectionism tend to frame their arguments so as to cause the largest possible impact on public opinion. This is because protectionism has a “human face” embedded within it. For many sectors within society, protectionist policies are regarded as a solution to their grievances. With little regard for theory and the long-term negative effects of poorly planned protectionist policies, they suffer from what political analysts call “shortsightedness.”

Governments should always bear in mind how to increase efficiency and productivity when intervening and implementing protectionist policies. Industrial policy demonstrates that this is very difficult and that many other variables are at play. By politicizing trade, protectionism becomes the vilified entity that economists so hate — short-term solutions with long-term negative consequences.

This article would not have been possible without the insights received when attending Georgetown University’s course imparted by Professor Theodore H. Moran, “Globalization: Challenge for Developed Countries.”

Mexico’s Peña Looks Certain to Win Presidency

Polls suggest that Mexico’s once dominant Institutional Revolutionary Party will again claim the presidency in July. The party’s candidate, Enrique Peña Nieto, has a comfortable lead of roughly 20 percent over his closest competitors. Several hiccups and gaffs haven’t significantly damaged his reputation. A possible scandal involving his family could have a negative impact on his popularity yet however.

Last month, the candidate’s daughter took to Twitter to denounce her father’s critics as “a bunch of morons from the proletariat.” He had been made fun of on social media when he apparently failed to remember any books beyond the Bible that had shaped his thinking and couldn’t mention the prices of basic commodities like tortillas nor the country’s minimum wage.

If there is a drop in Peña’s approval rating, it will likely recover in the upcoming months as the incidents are forgotten and the elections move closer. Mass online criticism of the candidate has already winded down. So long as Peña and his family refrain from committing more public mistakes, the next polls, which will be conducted in February, could be encouraging for him.

The media exposure that Peña and his family enjoy, and have helped him propel to frontrunner status, could ultimately work against him if the people grow weary of what the French call the peoplisation of politics. President Nicolas Sarkozy and his celebrity wife Carla Bruni have avoided the spotlights in more recent years after French voters came to perceive their leader’s presence in the headlines and tabloids as unpresidential.

Peña could suffer the same fate before there are even elections, especially if Mexico’s other political parties exploit this vulnerability and manage to portray him as an unserious candidate who may seem glamorous but lacks the intellectual depth to lead.

For the conservative National Action Party to mount an effective campaign against Peña, it will soon have to nominate a candidate to succeed incumbent president Felipe Calderón. Former businesswoman Josefina Vázquez Mota is the party’s best option according the polls but it is losing precious time to challenge Peña as long as it fails to nominate her.

Another potential obstacle to PAN winning the presidency again is the socialist Party of the Democratic Revolution which may be tempted to focus its attacks on the incumbent party, thus splitting the non-PRI vote. If rather they prioritize undermining Peña’s popularity, they may regain competitiveness in the polls ahead of the vote this summer but given PDR’s history of battling the right, a coordinated anti-Peña campaign seems unlikely.

Challenges to American-Mexican Security Cooperation

Texas’ governor Rick Perry recently suggested that Mexico and the United States should cooperate militarily to solve the drug conflict along their border. The comment irked the political leadership in Mexico. Mexico’s ambassador to the United States was very clear when he stated that the possibility was not on the table.

Although violence is rising and corruption among the Mexican armed forces increasing, there are historical and political reasons for limiting military cooperation between the two North American countries.

Throughout Latin America, sovereignty has been traditionally been a highly regarded principle. Its countries were forged from independence struggles with European powers. Once independent, arguments which emphasized the protection of territorial integrity and of sovereignty against foreign aggression became factors of social cohesion in these states and helped shape their national identities. They quickly became sacrosanct principles for the young nations. The second wave of colonialism, in Africa and Asia, and the subsequent interventionist policies of the United States during the Cold War only helped to accentuate their importance.

For Mexicans, speaking of territorial integrity and the United States at the same time is especially contentious. The 1846-1848 Mexican-American War ended in Washington annexing nearly half of Mexican territory. It is an event that every Mexican is taught well in school.

Friction endured in the twentieth century. Under Institutional Revolutionary Party (PRI) rule, the bilateral relationship has had more downs than ups. Factions within the party did not bother to hide their discomfort with American foreign policy and publicly supported leftist guerrillas in Central America.

Improvements in the relationship were rapidly seen when the most technocratic faction within PRI arrived to power and even more when the incumbent National Action Party (PAN) defeated the PRI in 2000. However, security policy and cooperation of both countries is still restrained by arguments of sovereignty.

Recognizing that drug trafficking is a transnational problem that Mexico cannot confront by itself, the current government has demonstrated a willingness to improve bilateral cooperation in the security area. It agreed to unmanned American drone aircraft patrolling the border and let American agents operate in Mexican airports. These measures were widely criticized by Mexican society however which, by majority, regards American actions within its national territory as tantamount to intervention. Consequently, PAN’s opposition may use their concessions as political weapons. American politicians should bear this in mind, especially as Mexico prepares for presidential elections in 2012.

Governor Perry may have won some (potential) votes by portraying himself as a hardliner on border issues but he may have also contributed to what appears is a deterioration in the bilateral relationship. The consequences of the secretive and badly planned operation “Fast and Furious,” as well as other ones which the United States Congress has just found about, have already strained interagency ties between both countries, affecting the trust and progress that had been achieved.

Trust is essential when it comes to security policy and military cooperation between two nation. Mexico won’t end cross-border efforts but isn’t eager to accept more “help” either. Innovative approaches may not be adopted because of Mexico’s reluctance. Yet a return to a more backward thinking may be on the horizon. Opinion polls for next year’s election suggest a victory to the PRI. The party has upheld much more traditionalist views regarding international relations than the PAN.

This is not to say that the PRI will suddenly retreat the military from the north and pact with the cartels. But it may not be as willing as the PAN to improve security cooperation with the United States

Presidential elections are still far from now and anything can happen in the meantime. Success on the security front could boost the PAN’s chances of retaining the presidency. If the PRI holds on to high approval rates however, American politicians may want to consider what they say or do to keep from further straining bilateral ties.

Rousseff’s Foreign Policy Follows in Lula’s Footsteps

Dilma Rousseff Barack Obama
Brazilian president Dilma Rousseff welcomes American president Barack Obama and his family in Brasília, March 19 (White House/Pete Souza)

When President Dilma Rousseff addressed the United Nations General Assembly this month, she confirmed what many analysts of Brazilian foreign policy had expected since she assumed office in January of this year — that she would soldier on in the pragmatic fashion of her predecessor to see to it that Brazil is recognized as a world power.

Although recent actions on the part of her government, including UN votes regarding Iran and Libya, may suggest that Rousseff is more assertive abroad than Lula da Silva was, in fact, Brazil’s foreign policy is likely to remain the same.

Like Lula, the extremely popular Workers’ Party president who propelled Rousseff to national prominence, the incumbent Brazilian leader stresses the need for the international community to change the way in which it runs its affairs.

As the world becomes more globalized the need for international organizations will continue to grow. This is the most effective and secure way for governments to manage their relationships, express their concerns and manifest their interests. Lula recognized this and so does Rousseff. The problem is that the institutional structure does not reflect today’s reality. In the same way as governments have demonstrated to be unable to keep in pace with the developments in the free market, changes in states’ power relations have outpaced the evolution of international institutions.

Rousseff’s personal experience of fighting Brazil’s right-wing dictatorship in the 1980s could impact some of her policy choices. The best example may be her harsh criticism of Brazil’s abstentions on human rights resolutions at the UN during Lula’s tenure. Rousseff could emerge as a champion of human rights, at least whenever there is an opportunity for her to assert herself on the international stage without undermining Brazil’s number one foreign policy objective which is to be recognized as a legitimate global power as soon as possible.

It is critical to understand the meaning of “legitimate” and “as soon as possible” in this context. The former implies that Brazil will have to have the support of several countries which recognize its leadership. The latter implies that, in looking for this support, the Itamaraty will not be particularly demanding regarding the quality of the governments it has relationships with.

In a world that is ruled by norms and organizations that were based on Western principles, the way to gain attractiveness vis-à-vis a great part of the international community is to be different. Brazil’s legitimacy will come from strengthening its relationships with as many nations as possible, notwithstanding what the United States think of them. This way, Brazil will be able to legitimately behave like a world power.

Problem is, the rules that were made by Western nations have become the rules of the game. Many countries may criticize them and demand a change but even China and Russia recognize the benefit of having them to structure the interactions between states. Hence Brazil demands an expansion, not the disappearance of the Security Council.

Last year’s controversial nuclear fuel exchange agreement with Iran and Turkey should be understood in this light. By providing a parallel international forum to solve the Iranian nuclear issue, Brazil sent the unmistakable message that it still aspires to be an agenda setter in the world. Rousseff’s decisions to oppose the bombing of Libya and support the creation of a Palestinian state were inspired by a similar motive.

Along with Brazil, India and South Africa, two other major emerging economies and large, multiethnic democracies, voted the same way. China and Russia, the more conservative parts of the “BRICS,” are already part of the international system. Nations like Brazil, which demand not only economic but political reform as well, could increasingly shape the world’s decisionmaking process.