Mexico’s Moment of Truth

Mexico’s Moment of Truth

by Alvaro Vargas Llosa

WASHINGTON — It could be said that Latin America will come of age politically the day that Pemex, Mexico’s oil behemoth, ceases to be a state monopoly. Until that happens, the psyche of many Latin Americans will be beholden to the mythical notion that government-owned natural resources are the custodians of national identity. That is why President Felipe Calderon’s efforts to open up the oil sector to private investment in Mexico have profound cultural implications.

Legislation that would allow foreign investors to sign contracts with Pemex in order to explore, distribute and refine oil falls short of what is needed. But given the taboo that surrounds anything related to Pemex and the fact that the president’s party is in the minority, Calderon’s move deserves ample credit.

Predictably, the interests that benefit from the government monopoly—providers who charge Pemex above-market prices, employees who earn ever-rising salaries even as production declines, and politicians who routinely place their cronies on the payroll—are fighting to keep their privileges. The phrase “if I hire my daughter they call it nepotism, if I hire my niece they call it solidarity,” coined by a former Panamanian president to explain Latin American patronage, fits them like a glove.

There are, of course, obvious economic arguments for allowing private capital into the oil industry. The United States’ third-largest source of imported oil has seen its production fall by 20 percent in three years; barring a last-minute intervention by the Virgin of Guadalupe, Mexican oil exports will stop seven years from now. Latin America’s biggest company is so undercapitalized that it has ceased deep-sea exploration, its only potential source of new crude. The government that Mexican statists love so much depends on Pemex for almost 40 percent of its revenue, which means that by the time the populists get back into power they will not have funds left for their populist extravaganzas.

But the argument is not economic. It is essentially cultural: Mexicans need to move away from the notion that oil nationalization, which took place in 1938 under President Lazaro Cardenas, was an act of independence. Time has proved that it was an act of civil capitulation in the face of authoritarian power. Had Mexico followed a different course in the 20th century, its citizens probably would not be risking their lives or negotiating their dignity with “coyote” mafias in order to sneak into the United States—the very country from which the 1938 nationalization was supposed to have made them independent.

I asked Calderon about privatizing Pemex soon after he was elected. Although he said he would respect the constitutional mandate to keep Pemex in government hands, he made clear that he would try his best to open up the sector to private investment. But the first year of his presidency was so consumed with law-and-order issues that I thought he had given up on the idea.

Perhaps he should have started sooner. And once the decision was taken to let the tiger out of the cage, he should have heeded what many of his followers were urging him to do—distribute most of Pemex’s stock to the public at large.

Even those Mexicans who are denouncing the bill would have behaved responsibly once they realized that stock ownership gave them an opportunity to prosper. Making ordinary citizens partners in the transition to the new system would have made the populists’ case very costly. Now, because Mexicans equate private enterprise with private monopolies, corruption and high prices of the kind practiced by many companies linked to the Mexican state, they anticipate little personal benefit from ending the government monopoly.

There was a time when collective ownership of the communal land was seen as an expression of Mexican identity—and Mexico got rid of that law. There was a time when the Institutional Revolutionary Party, the child of the Mexican Revolution, was indistinguishable from national identity—and Mexicans got rid of the PRI at the polls. One day, they will get rid of state oil as an expression of national identity too.

Calderon’s initiative makes him a key figure among Latin America’s modernizers. While he was promoting the changes in the oil industry, President Evo Morales, an ally of Venezuela’s Hugo Chavez, was busy nationalizing two oil companies in Bolivia. What is at stake in Mexico is the clash between two social paradigms fighting for the soul of Latin America.

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Alvaro Vargas Llosa
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Alvaro Vargas Llosa is Senior Fellow and Director of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. He is widely published and has lectured on world economic and political issues including at the Mont Pelerin Society, Naumann Foundation (Germany), FAES Foundation (Spain), Brazilian Institute of Business Studies, Fundación Libertad (Argentina), CEDICE Foundation (Venezuela), Florida International University, and the Ecuadorian Chamber of Commerce. He is the author of the Independent Institute books The Che Guevara Myth and Liberty for Latin America.

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© 2008, The Washington Post Writers Group

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