Mexico Needs Independence From the Cronies Who Hold Its Economy Back

The aristocrats who rebelled against Spain to maintain their high standing in Mexican society never really went away.



Marking the occasion of Mexican Independence Day (which is not Cinco de Mayo but is actually celebrated today, September 16), David Frum of The Atlantic has an interesting look at the successes and problems plaguing the Mexican people and their government as the country enters its 207th year as an independent state.

Frum has a point to make here—which I'll get to in a moment—but libertarians and anyone who takes an interest in comparative analyses of government will find that the most interesting part of the piece has to do with how Mexico and the United States took divergent courses in the two-ish centuries since their respective tossing-offs of European powers.

The Mexican Revolution was nothing like the American one. It failed, at least as a populist movement. The agitators of the revolution—Mexico's equivalent of Sam Adams, Thomas Jefferson and the rest—were captured and executed shortly after the September 16, 1810, uprisings that are celebrated today. Mexico actually achieved its independence from Spain more than a decade later after a long process of colonial reforms were approved by the imperial government in Madrid.

Suppose there had never been a Declaration of Independence drafted in the summer of 1776, but that the 13 colonies had gained independence by an act of Parliament sometime in the late 1780s—perhaps our national myth would be built around the armed uprisings in Concord and Lexington and we'd celebrate our Independence Day on each April 19. That's basically what Mexico does.

In Mexico, ties with Spain were finally severed because Mexican aristocrats—think the bad guys in any Zorro flick—decided to rebel against the Spanish throne rather than risk losing their high economic and social status as liberalizing reforms spread across the Atlantic from a post-French-Revolution era Europe. A decade after putting down a populist revolution, they became the revolutionaries—not for high-minded ideals like many of the revolutionaries of that era, but rather to preserve their system of cronyism built atop an imperial edifice that subjugated native Mexicans (and many of their fellow settlers too)—and then constructed a founding myth that eulogized the failed 1810 rebellion.

As Frum puts it: "Imagine that it had been Benedict Arnold who achieved American independence, pronouncing himself Emperor Benedict I, banning all religions except the Church of England, and concentrating land ownership in the hands of a few grand Tory families."

The differences in the two nations' origins are reflected in the last two centuries, during which Mexico has struggled to shake-off the control of crony elites. Frum takes note of how that dynamic has prevented Mexico from taking the same path towards freedom and prosperity followed by the United State and Canada.

Even after the last 50 years, when Mexico began to loosen state controls over the economy, it's still burdened by disincentives to competition that benefit a handful of ultra-rich at the expense of the rest of the country.

"Overcharges by the country's telecommunications monopoly are estimated to cost 2 percent of Mexico's total economic output. That monopoly earns profits almost double those of its U.S. and Canadian counterparts," Frum writes. "Unsurprisingly, the monopoly's owner, Carlos Slim, ranks among the world's richest men. The Mexican state-dominated energy industry also remains staggeringly inefficient, paralyzed by privileged labor unions and starved of investment by a Mexican government that demanded the energy monopoly Pemex pay its profits into the national treasury, rather than use them to maintain fields and modernize equipment."

Those aristocrats who rebelled against Spain to maintain their high standing in Mexican society never really went away. Instead of owning vast stretches of land worked by poor peasants, today they run the country's telecommunications companies, energy monopolies and government contractors.

There's plenty of other examples, like Elba Esther Gordillo. She's the "president for life" of Mexico's national teachers' union who was busted in 2013 for spending the equivalent of $2.1 million in public funds at a Neiman Marcus store in San Diego, Calif., and using other union funds on plastic surgery. (To be fair to Mexico, union bosses do that sort of thing in this country too.)

Infrastructure projects are notoriously ripe for abuse by the country's elites. A Mexico City subway line built in 2012 went 70 percent over-budget, but the director of the project was later accused of paying more than 1 million pesos (about $54,000) to a private company for construction work that was never done. Irrigation and water treatment projects have been a staple of Mexico City's government for decades—you try building a city of 21 million people in the middle of a high mountain desert without it—but those projects are often beset by cost overruns and other inefficiencies.

It's no surprise that Transparency International ranks Mexico 95th out of 167 countries for corruption—23 spots behind El Salvador and 39 spots behind Cuba.

Frum ultimately chalks the country's problems up to a "weakness of Mexican institutions." Weak public institutions that tend towards corruption and self-dealing are a well-documented problem across Latin America, and they don't have an easy solution. Once lost, public trust can be remarkably hard to rebuild. Things like court systems, police and elections really only work if the people trust in them.

In Mexico, though, they were never really built to be trusted. Like the false narrative about the country's revolution that was created as a pleasing alternative the true story of aristocrats determined to maintain their grip on Mexico's people and its resources, the country's modern institutions too often work for the upper crust of Mexican society and against everyone else. That's why the wife of Mexico's current president can spend her time living in a condo owned by a company that contracts with her husband's government, while the reporter who broke that story loses a job and has to fight a lawsuit.

America generally has enjoyed strong civic institutions, but trust in them is declining. Mexico's political history should be a warning about what happens when the levers of government are controlled by aristocratic elites—not that we'd ever have a presidential election in this country between two candidates who could be described like that, right?

Frum's whole piece is worth reading—though libertarians might take issue with the subtext of his article, which has more to do with American immigration policy than comparative politics. He's previously defended Donald Trump's hardline immigration policies—in today's article, he says Trump "touched upon an important truth" last year when Trump first thrust himself into the Republican nomination circus by saying many Mexican immigrants were criminals, rapists and drug dealers ("and some, I assume, are good people," Trump infamously concluded).

In a round-about way, I suspect Frum is engaging in a bit of signaling here. He seems to be making a point about the extent to which Mexican immigrants can fit into American society and whether they possibly weaken its less-corrupt institutions. You'll have to draw your own conclusions about that.

Regardless, Mexico and the United States offer a useful comparative illustration about the influence of cronyism and corruption on the long-term economic prospects of a nation.