MAY 1991 - VOLUME 12 - NUMBER 5
L A B O R
From the Many to the Few
Privatization In Mexicoby Laura Carlsen
Mexico City--When the deal finally closed on the sale of Telefonos de Mexico, the administration of President Salinas de Gortari breathed a sigh of relief. Using a complicated financial package, the Mexican government had managed one of the largest and most ambitious privatizations in Latin American history. The formerly state-owned telecommunications monopoly sold for $1.76 billion--$609 million more than its book value--prefiguring the even more lucrative offer to come for Mexico's 18 nationalized commercial banks.
But the privatization program that began in 1982 under president Miguel de la Madrid has not gone smoothly; it has faced labor conflicts, public criticism, administrative errors and a dearth of interested buyers. Perhaps most damaging in the long run, it has been confronted by mounting protests over the scant public participation in a national program that will determine so much about Mexico's future.
Privatization in Mexico began in earnest as part of the conditions set by the International Monetary Fund (IMF) and World Bank to bail Mexico out of its debt conundrum, its worst economic crisis to date. International privatization experts such as the London-based Privatization International characterize Mexico's current privatization plan as "a wide-ranging program propelled mainly by the country's indebtedness." When oil prices dropped and the foreign debt loomed as an insurmountable obstacle to growth, the IMF came to the rescue with its now well-known austerity policies aimed at bringing about profound structural reforms in the Mexican economy. The IMF prescribed a crash diet for what it considered a bloated state: strict budgetary constraints, wage controls and divestiture of state-owned enterprises.
The international origin of the Mexican program of economic reforms is no secret. In a recent article, Jose Cordoba, chief economic adviser to the Salinas administration, states that "The conditionality clauses introduced by the international financial institutions have played, for better or for worse, an important role throughout the process of economic adjustment and renegotiation of the debt." Others are more blunt in their discussion of these external influences. "The possibility of renegotiating the debt was always contingent on the support of the two banking institutions. And this support was always contingent on the IMF's vision of Mexico's internal economic policies. The IMF has been the ideological guide of the Mexican economy," asserts Ricardo Pascoe, a former federal representative and now national spokesperson for the left-of- center opposition Party of the Democratic Revolution (PRD), the party of presidential candidate Cuahtemoc Cardenas.
Since the economic crisis began in 1982, the Institutional Revolutionary Party (PRI), which has held power uninterrupted for more than 60 years, has explicitly formulated its economic reforms to conform with the conditions set by the multilateral lending institutions. Although popular opposition to payment of the foreign debt increased, a new class of U.S. educated "technocrats" assumed power in Mexico and maintained a firm commitment to continue servicing the debt. They held out hopes that a favorable renegotiation of the debt--as a reward for good behavior--would lift the debt burden, free up productive resources and usher in a return of economic growth. If the government deficit was to be reduced and all obligations to foreign commercial and development banks respected, divestiture of state-owned enterprises was essential.
The Salinas administration has changed the face of state intervention in Mexico by extending the program to some of the most important sectors of the economy, including the airlines, telecommunications, banks and mining interests. Even sectors of the oil industry, previously reserved for the politically mighty but economically troubled Petroleos de Mexico, have been reclassified to allow private investment. The message to the world rings loud: Mexico is now willing to privatize nearly all sectors of its economy.
Ironically, the same economic crisis that eventually led the IMF to promote privatization programs had first spurred the nationalization of many of the same companies which were later put on the block. With the devaluation of the peso and the sudden downturn of the economy, the heavily-indebted private sector suffered and industries considered strategic or priority were rescued by the government. The government took many non- strategic companies into its hands as well, in order to try to preserve the productive capacity of the nation. A director in the Office of Privatization states that "over 40 percent of the companies that the government took over from the private sector were bankrupt or had failed." 1982 saw the nationalization of the major airline, mining interests and the banks.
Salinas' modernization plan, heralded as the new Mexican revolution, is based on the hope that the private sector will now do for the government what the government did then for the private sector. With the government maintaining a huge deficit, privatization aims at rationalizing state intervention and attracting desperately needed financial resources to the Mexican economy. Because Mexico is a country whose folklore and history celebrates nationalism, the administration avoids extolling the virtues of privatization, but the program continues full steam ahead, encompassing not only privatization, but also closure, merger and transfer of state-owned companies. As a result, the number of state-owned companies has dropped by more than 75 percent, from 1,155 in 1982 to 269 today.
Since the Salinas administration took office, 12 companies have been sold to the "social sector" (unions and growers' organizations) and 126 to foreign and national investors. Except in legally restricted sectors, foreign buyers may purchase 100 percent of a former state-owned company, as the British food transnational Unilever did when it bought a vegetable oil plant from the National Agricultural Commodities Board.
Only the bank privatization required Congressional approval. It involved a constitutional change which required a two-thirds majority. The PRI had lost its two-thirds majority in Congress in the 1988 elections to the emerging Cardenist coalition, but was able to win the vote with support from the right-wing National Action Party.
The Office of Privatization representative explains the government's privatization logic. "It's a win situation for the government in all aspects. First, we receive scarce resources from the sale. Second, we stop bleeding the scarce resources we have, and we are now using those resources for social needs. And finally, every company that we have sold, we believe that the new owner will make it profitable, so we are going to collect through taxes." In addition to direct resource gains, the government hopes to create a better climate for investment and to stem capital flight.
Undergirding the government's plans is a belief that privatization will reinvigorate market forces and create a competitive economy. To strengthen the economy, the government has tried to implement a procedure that will allow it to determine the best qualified buyer for the facilities that it is selling. The Privatization official notes that many factors are taken into account in settling on a bid. "Usually we look at the price. However, the administration is also important. It's also what they're planning to do with the company.... We take all those considerations into the final bid. This is a little bit subjective at the moment, but usually has not been a problem."
Some would disagree. Critics ranging from the U.S.-based Heritage Foundation to the PRD to international business consultants have complained about an informal decision-making process which runs parallel to the official one and have criticized the secrecy which surrounds the implementation of the privatization program. Critics on the left especially charge that the result has been the concentration of economic power in the hands of foreign interests and a small domestic elite.
The privatizations, along with other reforms, have succeeded to some extent in attracting foreign investment and luring flight capital back to the country. But they have run up against a stumbling block; few nationals have the money or international contacts to buy government-owned companies. This constrains the number of eligible bidders, weakens bids and means that the few who are able to purchase previously state-owned enterprises can extend their economic reach, an unwelcome prospect given the extreme concentration of wealth and power in Mexican society.
The highest expression of this concentration is the Mexican Businessmen's Council, an organization made up of only 37 businessmen, many of whom have close ties to the government. The numerous interlocking interests of these men represent 22 percent of Mexico's gross domestic product.
A cross-checking of the five largest privatizations under the Salinas administration (which account for 79.5 percent of the sales value of all privatizations under Salinas) with a partial list of the Council members' holdings shows that members of the 37 were major buyers in all but one, Mexicana Airlines. Many who have not yet bought state-owned enterprises are mustering resources to purchase the banks.
When asked if the privatization program included mechanisms to avoid concentrating wealth, the official from the Office of Privatization replies, "There haven't been any real monopolies.... When we sell Telefonos, it's a natural monopoly, but it's a controlled monopoly. There's a franchising agreement that governs this company. When we sold Cananea to Mr. Larrea [who in 1986 bought another copper mine from the government and is now estimated to control 95 percent of the nation's copper production] people said that we were creating a monopoly. But that is untrue because there is a free exchange of copper, and copper is a commodity that's traded worldwide."
But even the pro-privatization right recognizes a potential danger. Roberto Salinas, in a Heritage Foundation paper titled "Privatization in Mexico: Good but not Enough," warns against Mexico's narrow capital base, dubbing it "crony capitalism." To remedy the situation the Heritage Foundation favors freer foreign investment and the privatization of the land reform program.
On the other side of the political spectrum, the PRD's Pascoe suggests that the concentration of wealth is actually one of the Salinas administration's unstated objectives. "The elite that currently governs, which isn't the PRI but rather a small group within the PRI, is trying to create a new political-economic bureaucracy through privatization," he says. "This group in power seeks to not only maintain hegemony in the government but also through privatization to constitute a new business sector, capable of prolonging its political and economic power for decades to come.. So they are not only selling businesses because they are convinced of the good of free trade, but to buy them themselves."
One mechanism designed to distribute the wealth more evenly--the sale of state-owned enterprises to the social sector--has proved particularly disappointing. Only 5 percent of the 138 companies sold by the Salinas administration went to workers' or farmers' organizations. Of those, only a few stayed in the hands of collective organizations for any length of time. The PRI- affiliated Campesino Confederation immediately turned around and sold its three sugar mills to a private interest, and the Confederation of Small Property Owners agreed to sell its four mills to a cookie manufacturer even before the deal with the government had gone through.
Workers on the defensive
Before putting a company up for sale, the government strives to make it as attractive as possible. In addition to paying off debt and restructuring taxes, the government attempts to resolve labor problems--sometimes with force.
In July 1989, the government declared the Cananea copper mine bankrupt, and fired its over 2,000 workers. To back up its declaration, it sent in 3,400 federal troops to close down and occupy the mine.
The move came on the heels of two failed attempts to return the mine to private hands. An historically militant union was counted among the supposed liabilities of the company. So the government sought, through the bankruptcy, to invalidate the union's contract, wiping the slate clean for workforce reductions, changes in job descriptions and benefit cutbacks.
The government first used the bankruptcy tactic when it sold the national airline, Aeromexico. Three years since the sale, displaced workers continue to insist that the tactic is illegal and that the government undersold the company and violated the rights of 13,000 ground workers and flight attendants. Union leaders were temporarily imprisoned at the height of the conflict.
But the tactic was strongly opposed from the beginning by the people of Cananea, a small mining community just south of the Arizona border. Women's groups organized opposition throughout the country and the state government, the church, other unions and the national Congress all offered their support to the workers. Over 40 Chicano groups in the United States sent messages of support or delegations to Cananea.
When the mine was finally sold, a reduced number of 425 workers had been laid off, and the contract remained in place. The miners considered it a triumph, but now they are not so sure. "An atmosphere of uncertainty, tension and worry has prevailed," says Alejandro Covarrubias, a researcher at the College of Sonora who has worked closely with the union. The new management now insists that the union contract is not valid. The points of contention include sub-contracting, redefining jobs from union to non-union categories and benefits. The community already says it is prepared to support a strike for two months.
Despite the Cananea workers' limited success, workers and their unions have clearly been put on the defensive by the privatization trend. Labor's biggest and most immediate worry in the privatizations are lay-offs. A recent study by the National Institute of Statistics reports that 200,000 jobs have been lost as a direct result of the government's divesting of state-owned enterprises. Fear of unemployment further weakens the workers' position. The telephone company privatization, for example, lauded as an example of a negotiated transfer, involved the telephone workers union's agreement to numerous pre-privatization changes, including work flexibility and benefit cutbacks, in exchange for assurance that the sale would not entail massive layoffs.
Although labor has resisted heavy-handed state measures, few unions argue that privatization itself is the problem. At the soon-to-be privatized Las Truchas steel mill, for example, Rone Mercado, a former member of the steel mill union's executive committee, says, "We believe we shouldn't confront the changes head on but seek the best possible arrangement for labor." The Las Truchas steel complex has been divided into four separate entities for its sale, expected sometime this year. Workers demand that their union, which represents 5,000 workers, not be broken up. Mercado says the union is trying to oppose union- weakening measures such as sub-contracting and lay-offs by proving that they can improve productivity. "What really weakens the union is if it's not capable of proposing productive alternatives. We're starting to think of the competitiveness of the company, but with the organization and participation of workers."
Similarly, at Cananea, Covarrubias emphasizes the need for "worker participation in industrial modernization." He says, "We are not opposed to reprivatization.... The union has been very prudent, and has purposely not taken a position of confrontation. Workers want to be more productive, want the mine to be more productive. They are not worried about who the owner is."
Other workers are more critical of Salinas' privatization agenda. Daniel Lopez, of the independent Labor Front, notes three major problems with the privatization program. "Privatization doesn't necessarily assure a successful business. In some cases, privatization has caused a solid company to go under.... Second, in some cases privatization implies an irrational increase in the workload. Third, often these companies try to operate with a minimum of personnel and this increases unemployment. There's a tendency to mechanize excessively, causing more unemployment and lower wages." Lopez says that a private owner does not have to be bad for the workers, but that it depends on the individual. "A responsible owner," he says, "is willing to deal with the unions on an equal level."
While many unions are looking for new ways to protect workers' rights in a new social and economic context, some PRI-affiliated unions are simply trying to get a piece of the action. In the process, they are compromising many worker rights. Although under Mexican laws bank workers would regain the right to strike if the banks are reprivatized, the National Federation of Unions of Banking Institutions is developing a collective contract that will prohibit strikes, to present along with the sale package. The union hopes to use this concession to negotiate union shares in the new businesses.
Whither the state
The Cardenist opposition maintains that the fundamental problem with the privatization program is that it has taken place in response to outside pressures and has not, therefore, been designed to advance an overall national development program. "The government does not have a national project, and this seems to be the gravest defect of the program," says the PRD's Pascoe. The government "can reprivatize and privatize the economy, can sell Mexico's best companies, but this doesn't assure us of anything because they are getting rid of the instruments that the state has traditionally had to channel national development programs." The PRD argues that the nationalized banks, for example, could have been very effective in promoting national development, but they continued to operate with private-sector objectives, which made it impossible to lend to peasants for rural production. As a result, Mexico's rural sector is decapitalized and unproductive.
The PRD also asserts that the government's inability to define "strategic and priority" sectors, and its consequent inability to dedicate adequate resources to those sectors, reflects its lack of a broader social plan. Pascoe says, "The current project is economically exclusive, it's a project that tilts the balance in favor of a sector of the society that can take advantage of economic opening, that has relations with international finance, that can form new capital associations. This marginalizes the vast majority of the population. That's why we say there is no national project."
With privatization at the heart of the government economic program, conditions for the majority of Mexicans have deteriorated drastically. Most tellingly, real wages have fallen more than 60 percent since 1982. Now, as the government seeks to permanently immerse the country in the international market through the proposed Mexico-United States-Canada free trade agreement, it may find that in selling off government-owned enterprises it has lost a powerful tool to alleviate some of the inevitable impending shocks.
Larua Carlsen is a freelance writer working in Mexico City.