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Privatizing Mexico

In Mexico and elsewhere, neoliberalism isn’t a retreat of the state. It’s using the state to enrich the wealthy.

PEMEX, Mexico’s state oil company. Philo Nordlund / Flickr.

We live in a neoliberal era. Colloquially, this means governments adopt policies meant to put into practice the idea that the economy operates best when the role of the state is minimal.

But this conventional understanding is incorrect, positing a retreat of the state that hasn’t happened and, more fundamentally, misreading the market-state relationship under capitalism. As Karl Polanyi, Neil Fligstein, and Alejandro Portes tell us, markets are embedded in frameworks built by states. Capitalism wouldn’t have emerged without the active hand of the state. And the private is birthed through its co-optation of the public, not vice-versa.

In the fifteenth and sixteenth century enclosures of the commons in Britain, communal lands were taken away from peasants — in part to force them into the factories and urban centers — thus creating a rentier class that profited off the land. India’s textile industry in the eighteenth and nineteenth centuries was turned inside-out for the benefit of British industrialists. More recently, in the late 1960s, Indonesian public assets were divvied up and sold off under the Suharto dictatorship, which was in cahoots with international capitalists and high-level functionaries from Western governments, such as the United States.

The standard free-market narrative whitewashes this history, framing the development process as solely driven by market processes. Obscured is the state’s role in protecting infant industries — an economic strategy pushed by people like Alexander Hamilton, practiced by every powerful country during its development period, and then, in what economist Ha-Joon Chang has called “kicking away the ladder,” prohibited for poorer nations.

The issue, then, isn’t more or less state involvement, but rather which classes and groups benefit from that involvement. History shows that economic development occurs when the public takes on the risks of investment and builds the infrastructure for industry, and industry itself. Neoliberalism entails the selling off of these assets to continue the cycle of capital accumulation, especially in times of stagnation.

A clear example of this private expropriation of public property is Mexico, a country whose assets were built during decades of state-heavy economic nationalism. After the Mexican Revolution, which spanned the 1910s, the state nationalized large swaths of the economy, including the fossil-fuel industry. Redistribution of land created the ejido system, a collective form of land ownership.

In many ways, the one-party state implemented the Communist Manifesto without its rhetoric or politics, under the centralized, authoritarian leadership of generals, the remaining Porfiriato elites, and nouveaux-riches. Historian Stuart Easterling points out that these elites saw the state as able to produce peace and stability through concessions to campesinos and workers, creating benefits while fracturing solidarity.

As a result of these policies, Mexico was in a semi-peripheral position in the world system and at the core of the Central American economies. For much of the twentieth century, Mexico could resist full-blown exploitation of its resources. That era has come to an end.

The left wing of the Institutional Revolutionary Party (PRI), a party that ruled for decades and whose ideological positions depended on the candidate, split to form the Democratic Revolutionary Party (PRD) in 1989. The PRD, a member of the Socialist International, has since been bitten by the neoliberal bug and now accepts most “Pacto por México” structural reforms. Elites seem to have given up on the single-party state, content with widespread support for the neoliberal policies begun in the 1980s under Miguel de la Madrid.

During the 1980s, with a collapsing currency, an oil bubble burst, and a debt crisis, the state was ripe for predation by the capitalist class. Public money and import-substitution policies had built up quite an array of state assets. And the elites who had fought in the revolution and who, facing popular pressure, had to craft policies that at least to some degree benefited non-elites, were gone. Also central to the neoliberalization process were academics trained at elite US universities in the practices of technocratic control and instrumental reason. It was a direct rebuff to the revolutionary 1910s.

Under Carlos Salinas de Gortari, president from 1988 to 1994, fully 85 percent of state-owned businesses were privatized. The Salinas counter-revolution amounts to a neoliberal Christmas list of deals, enriching private business at the expense of workers and farmers.

Take, for instance, food distribution. For most of the twentieth century, food distribution was handled by vendors in public and street markets in large metropolitan areas like Mexico City, Guadalajara, and Monterrey through their link to Central Supply Centers. They were part of a large-scale urban development policy implemented during Miguel Alemán’s sexenio (six-year presidential term), which began in 1946.

By the 1950s and 1960s, 90-plus percent of food distribution was handled by these community-based public and informal organizations. This has now been slowly privatized, with subsidies in real terms declining for the public market system. Transnational corporations such as Walmart are taking over the market and redirecting money away from the domestic economy.

Here the argument that the efficient organizational form won out might be credible if not for events such as the Walmart bribery scandal. In exchange for $24 million, the company got preferential treatment in locating its stores — a crucial matter, since commerce is in part about proximity.

One measure of the impact of transnational corporate power is that the traditional community system that once distributed nearly all of the country’s food now has just 22 percent of that market. Self-sustaining capital flows that once supported community social cohesion are now redirected toward the United States — and into the pockets of the corporation that exemplifies contemporary wage slavery.

Corporate reorganization of the food system coincided with the undermining of the ejido system of publicly owned but individually farmed plots. Salinas changed the ejido regulations to permit the sale of the communal land. Meanwhile, NAFTA destroyed small-scale agriculture in Mexico by allowing US agribusiness to dump subsidized corn in Mexico. That Salinas equated his reforms with the revolutionary principle of agrarian redistribution only showed how cynical the country’s elite could be about using nationalist myths to pander to the public.

Then there was Telmex, which, according to a 2006 article, still controls “94% of land lines, 78% of cell phone service and 70% of the internet market.” When the country’s telephone company became a private monopoly, rather than a public utility, it may not have solved the system’s technical problems. But it did make the new owner, Carlos Slim, one of the richest men in the world. His brother, Julian Slim, served the elite’s power structure as a police officer in Mexico City, beating and torturing communists. Neoliberal Mexico: a Mafioso political economy at its finest.

Finally, and most recently, the string of neoliberal reforms reached their culmination this summer with the partial privatization of PEMEX, the country’s nationalized petroleum company. The National Action Party (PAN), a conservative party with historical links to fascism, has long had this goal, but settled for creating legal loopholes to give the private sector, domestic and foreign, access to contracts with PEMEX. As a sign of how things will go now, we have the recent news that Fox’s stepchildren are under investigation for corrupt practices in business dealings with the petroleum-services company, Oceanografía.

Throughout this process of massive private expropriation of public wealth, no effort was made to democratize ownership; communities did not have any opportunity to buy and operate the state-owned companies. When Enrique Peña Nieto, the current president, tells the people it is all about making Mexico go forward, we should ask what he means by progress, and whether it includes anyone not already wealthy.

Billed as a way to end corruption, neoliberal reforms have been touted by governments as a panacea. But the problem has never been limited to the public sector. Corruption has involved networks of elites in both government and corporate positions of power, domestically and internationally. And so when privatization schemes go into effect they are handled as should be expected — corruptly.

The ultimate result is an arrangement not that different from colonialism: an extractive practice that benefits a few elite groups, in this case, technocrats and corporate interests. Mexico proves an exemplary case. Elites sell off everything, drive down wages, and generally hand the country and its people over to autocratic private tyrannies.

The road to serfdom, indeed.