Slim Chance Mexico Will Change

In the wake of massive protests in Mexico City over the ousting of a corrupt mayor by the Mexican Congress, one has to wonder why it is that so many countries in Latin America are perpetually poverty-stricken.

Lopez Obrador, former mayor of Mexico City and member of the far left PRD, was widely believed to be the front runner for President of Mexico in 2006. Obrador is a favorite of the poor as well as elderly widows because his city government hands out small monthly stipends to them. But, evidence of the level of corruption in his administration was in clear view for all Mexicans when one of his cabinet members was caught on video tape taking bribes from a construction company. Like the mafia, it was impossible to make the obvious link of this corruption directly to Obrabor's Swiss bank account.

Hoping to prevent yet another episode of massive corruption from a false prophet, Mexican prosecutors indicted Obrador for ignoring a federal court order that the city abstain from constructing a road. (Mexican officials are immune from prosecution unless the Congress votes to remove their immunity.) The Mexican Congress, of which the PRD is a small minority, did just that. Shortly thereafter, nearly a million protestors crowded the Zocalo, the main square of the seat of the Mexican government, for days of protest.

It is easy to see why such large numbers of poor people would show up to protest on behalf of someone they see as their savior. They are stuck in hopeless circumstances and believe that Obrador, who promised to bring up trade barriers and vastly expand government welfare, would make their lives a little easier. What is harder to understand is why a country such as Mexico, with such immense resources, has been mired in perpetual poverty since the Spanish conquest almost 500 years ago.

When asking a Mexican scholar about how this could be, one is usually given complicated answers about the psychology of a defeated people. A large portion of the Mexican population derives from the indigenous peoples that Hernando Cortez encountered and conquered 1519. As the story usually goes, the defeated Mexican people were never able to fully regain confidence. Somehow, though, these sorts of explanations seem more obfuscation than answer. A more satisfying explanation comes from looking at a single individual - telecommunications magnate Carlos Slim.

Slim is the wealthiest person in Latin America. His business career paralleled and then surpassed the political career of Carlos Salinas, former President of Mexico, who now lives in exile. Working with Salinas in a corrupted process, Slim gained control of Telefonos de Mexico (Telmex) when it was privatized in the early 1990s. He also owns major companies in practically ever segment of industry in Mexico, and the public shares of his companies constitute more than half of the total value of the Mexican Bolsa.

Slim is widely recognized in Mexico as having enormous influence over the government. Slim was a major sponsor of the PRI during its rule and was left somewhat devoid of his previous influence when Vicente Fox and his PAN party won a surprising victory. But, this did not last long and Slim quickly managed to get Fox into his camp. But, Slim’s modus operandi is to have Presidents that are completely beholden to him. So, he has been grooming and financially supporting Lopez Obrador during his reign as Mayor of Mexico City.

To see such an ardent and successful capitalist (albeit a protect capitalist) supporting a far left politician like Obrador may seem a contradiction in terms, but Slim did not gain his vast wealth by playing the game according to the rules that we are used to in the US. Mexico has a history of granting virtually exclusive monopolies to private companies in each sector of its economy. The alliance that held the PRI in power for 71 years was actually a triad of power shared between wealthy Mexican families, corrupt politicians, and labor bosses from primarily government operations, such as Pemex. Obrador promises a return to the old days when these companies did not have to compete. (Of course, Obrador never bothers to explain how this will help poor people).

The stranglehold Slim and the rest of the Mexican oligarchy have held over the country is the reason Mexico has been and continues to be poor. They operate behind closed doors like the mafia - unfortunately, a mafia that runs a country. Examining the way that Telmex under Slim has literally held the technological advance of the entire country at bay provides an example of his selfish and destructive power.

For example, competition was belatedly introduced into the Mexico telecom market in the mid-1990s. Such US companies as AT&T and MCI (in their heyday) promptly set up companies in Mexico in the hope of competing in the long distance market there. But, what they found was that the industry regulator called COFETEL (the equivalent of the FCC in Mexico) made every decision with the objective of protecting Telmex from competition. In the complicated world of telecom regulation, there are myriad methods for a regulator to abuse authority and favor one company over another.

As a result of this regulatory abuse in favor of Carlos Slim and his Telmex, practically every telecommunications carrier that was established in the mid-1990s in Mexico has gone bankrupt, some more than once. At the same time, however, Telmex has been the most profitable telecommunications company on the globe.

Technology continues to advance, of course, and Carlos Slim and his Telmex have experienced new threats that are not as easily stemmed through asymmetrical regulatory protection. The latest is Voice Over Internet Protocol, or VoIP in industry jargon. Examples of this type of service are Vonage and Skype. VoIP sends voice calls over the Internet, thereby bypassing the traditional communications infrastructure.

But, to use VoIP, you need a broadband Internet connection. As the only provider in Mexico able to offer DSL broadband to homes, Telmex has a monopoly in the residential broadband Internet market. These same customers are also tired of paying high rates for voice calls and have begun using VoIP. VoIP is great for individuals and businesses in Mexico, who need to lower their costs in order to compete in the global market. It also extends unhindered and low cost calling to people that might not otherwise be able to afford it. But, the sin of this technology is that reduces Telmex’s revenues as people increasingly utilize VoIP at low rates instead of Telmex’s over priced network.

So, what does Carlos Slim and his Telmex do? They implement restrictions on their Internet service that literally block the flow of voice packets. This sort of activity has been deemed illegal by the FCC in the US. But, the Mexican regulator COFETEL actually encouraged Telmex to do this, or at least that is what they say publically. Behind the scenes, few people in Mexico doubt that the leadership of COFETEL is on the payroll of Carlos Slim.

The end result is that Mexico continues being behind technologically, with higher cost telephone service, all for the benefit of one extremely wealthy man – Carlos Slim. It is a modern form of feudalism. This is why Mexico is a poor country.

For those of you that are interested in stemming the tide of illegal immigrants, the best strategy to acheive your goal is to reform the Mexican economy. If jobs are available in Mexico, Mexicans will stay in Mexico. But, for those jobs to be in Mexico, the feudalistic economy that Mexico maintains for the benefit of a small oligarchy of protected capitalists, such as Slim, must change.

This means real competition in every industry and pressure applied on people like Carlos Slim to change their business practices. But, with Lopez Obrador now back in his office as Mayor, having attained an even more vaulted status as a hero after fighting off the Fox administration, he is back on track to gain the Presidency. Of course, he will do so with the financial backing of Carlos Slim.

It seems that for every step forward Mexico makes, it needs to take three backwards.