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Showdown Coming In Mexico Over Privatization


In the 1930s and 40s, General Lazaro Cardenas made nationalization of economic resources and land reform symbols of Mexican national sovereignty. Nationalist economic development, however, was overthrown as the bedrock of the country’s economic strategy when technocrats took power in the former ruling Party of the Institutionalized Revolution in the 1970s. Today the Mexican economy looks nothing like it did 20 years ago. Well before passage of the North American Free Trade Agreement, the disparity between U.S. and Mexican wages was growing. Mexican salaries were a third of those in the U.S. up to the 1970s. They are now less than an eighth, according to Mexican economist and former Senator Rosa Albina Garabito. In some industries they’ve dropped to a 12th or 15th – even during a period of relative decline in US wages.

In two decades the income of Mexican workers lost 76% of its purchasing power, while the Mexican government ended subsidies on the prices of basic necessities, including gasoline, bus fares, tortillas and milk. The govenment estimates that 40 million people live in poverty, and 25 million in extreme poverty.

These results are the product of the imposition of neoliberal economic reforms. In the last two decades Mexico has become their proving ground, as the International Monetary Fund and World Bank used the leverage of foreign debt to require massive changes in economic priorities designed to encourage foreign investment. The heart of those changes has been privatization of Mexican state enterprises. Those put on the auction block include the airlines, ports, railroads, banks, phone system and whole sections of formerly state-owned industries.

The impact on workers has been devastating. A majority of Mexican industrial workers worked for the government until the transformations started in the 1970s. Its organized labor movement had its greatest strength in the state sector. While three-quarters of the workforce in Mexico belonged to unions three decades ago, less than 30% do so today. In the state-owned oil company, PEMEX, union membership still hovers at 72%. But when the collateral petrochemical industry was privatized over the last decade, the unionization rate fell to 7%. New private owners reduced the membership of the railway workers union from 90,000 workers to 36,000 in the same period.

Resistance to privatization has often been fierce. Soldiers had to occupy the port of Veracruz at gunpoint in order to privatize it and fire its workforce. Mexico City’s bus drivers fought the selloff of the Route-100 company for three years, including one in which their union leaders were imprisoned. Wildcat strikes hit the railfroads when they were sold to Grupo Mexico, and copper miners fought a valiant battle against job reductions when the Cananea mine was bought by the same owners in the late 1990s.

While these resistance efforts were defeated, one of the government’s most important privatization schemes has consistently been held at bay – the selloff of the electrical system.

Controversy over the rapid growth of private power generation in Mexico boiled over this year, as President Vicente Fox introduced legislation to privatize the industry. A former CocaCola executive, Fox is allied with the industrialists of Monterrey and their US energy partners. His proposals carry the blessing of the World Bank and the IMF, who have been mandating the privatization of Mexican industries for over a dozen years. And Fox’s direction is supported by another powerful Texan, who now occupies the White House, US President George Bush.

It is an impressive transnational constellation of political power. In the US, similar corporate forces have steamrolled over ratepayers, unions and regulators, in a successful effort to open power generation to the free market, in state after state. Mexico, however, has something, which the US doesn’t, that so far has been able to stop these proposals in their tracks – the Mexican Electrical Workers Union, the SME. At the end of September, the union and its allies brought 50,000 people into Mexico City’s main square, the Zocalo, in protest over Fox’s privatization plans. The union vowed to distribute 10 million leaflets nationwide urging opposition.

It wasn’t the first confrontation between the union and the forces of neoliberal reform. Fox’s predecessor, Ernesto Zedillo, also proposed privatizing electricity in 1999. The union formed the National Front of Resistance to the Privatization of the Electrical Industry, collected 2.3 million signatures on petitions in three weeks, and brought a million angry capitalinos into the streets. Zedillo was defeated, the first time a privatization initiative in Mexico had not succeeded.

In Mexico, two state-owned power companies provide electricity. The Federal Electrical Commission (CFE) brings power to all of the country except Mexico City and part of central Mexico, which is supplied by the Power and Light Company. Each entity has a separate union as well. The SME at the Power and Light Company is one of the country’s oldest and most democratic labor organizations. Under then-general secretary Rafael Galvan, the union for workers at the CFE, the Sole Union for Electrical Workers of the Mexican Republic (SUTERM), led the movement to democratize the country’s unions two decades ago. The government seized control of it, however, and its latest leader now also heads the main government-affiliated labor federation, the Congreso de Trabajo.

The SME warned that the Fox plan would bring about the immediate bankruptcy of both companies (another hauntingly familiar prediction to Californians). Small users would have to shoulder all of the expenses of maintaining the transmission grid and the distribution system, while the existing companies would lose most of their revenue. The leftwing Party of the Democratic Revolution predicted the CFE would lose 60 billion of its current 100-billion-peso income.

Adding fuel to the fire, Fox proposed to provide incentives to private companies to build generating plants, financing them by using the national pension fund (the equivalent to Social Security.)

Mexico’s electrical rates are quite low by comparison with other countries, although much of its population is so poor that they still can’t afford them. In 1999, then-President Zedillo cut much of the rate subsidy that benefited the poor, and rates shot up 30%. The CFE runs in the black, and is widely considered both honest and efficient. The Power and Light Company, which has to contend with Mexico City’s old infrastructure, is more strapped for cash. But the SME argues that the government subsidizes large users, while cuts in the Power and Light Company’s budget have undermined modernization of equipment. The SME also accuses the government of draining its resources by forcing it to buy power from the Federal Electricity Commission, whose prices have increased 298%.

The most predictable result of privatization, opponents claim, is that both national companies would be sold off once they were broke, or would be replaced in the market by foreign-owned ones. New owners would increase profits by raising rates for small customers, while cutting wages, laying off workers, tearing up union contracts and holding down expenses on maintenance. These are not just doomsday predictions — they describe the bitter experience at Mexico’s railroads, copper mines, airlines and other state-owned businesses.

If the proposals for privatizing Mexico’s electrical system bear an eeiry resemblance to California’s disastrous experiment in deregulation, it should come as no surprise. They share some of the same authors. In fact, as Jeffrey Skilling and Ken Lay were setting up shadow corporations to hide Enron’s huge US losses in 2001, other Enron executives found time to hobnob with Mexican politicians and design projects in cooperation with that country’s industrial elite.

Enron created 64 subsidiaries to operate in the Mexican power market, headquartering most of them in Caribbean tax havens. The company already operates water systems in Quintana Roo state, and its executives advised Fox on energy policy in his transition to the presidency. Following the election, the power axis connecting the big industrialists of Monterrey, some of Mexico’s most powerful private businessmen, with their counterparts across the Rio Grande in Texas, paid off for the Texans. On April 4, 2002, Enron Energia Industrial de Mexico received a license from Mexico’s Electricity Regulatory Commission to build a 245 megawatt plant in partnership with Vidreria Monterrey and Vidriera Guadalajara (two big glassmakers), Grupo IMSA (a steel and autoparts giant), Industrias Whirlpool and other big Mexican companies.

Other familiar players in the California debacle are also building plants. Bechtel Enterprises, the multinational construction giant based in San Francisco, partnered with Shell Generating Ltd. to set up a company, Intergen Aztec Energy, to build a plant near Mexicali, generating 750 megawatts. Two thirds of the power will be sold in Mexico, and a third exported to California. Sempra Energy Resources, a San Diego generator that figured in the state’s power meltdown last year, is building another power station near Mexicali. Its 600 megawatts will all be sent to the US, and the gas for its boilers will come from the US in a Sempra-built pipeline, making the plant the first true energy maquiladora.

The proposal for privatizing electricity brings back bad memories to older Mexicans of the era before nationalization. According to President Cardenas, independence from the colossus of the north meant prying the hands of US owners from the main levers of the country’s economic life. In 1936, he defied the US government and bought out the US owners of the oil industry. School children all over the country contributed pennies to the national fund he established to compensate them. Just a few decades after the cataclysmic revolution of 1910-20, Article 27 and 28 of the Constitution made the oil industry state property.

In 1960, the electrical industry was added as well. The then-private, foreign owners of Mexico’s power system wanted a big rate hike. They threatened to stop investing in bringing lines into rural areas and in building new generating capacity to pressure the government. But President Gustavo Diaz Ordaz nationalized them instead. Diaz’ action was very popular, and in a line with the nationalization of oil.

National ownership of electricity is therefore not just a matter of rates and jobs, but a symbol of Mexico’s independence from the US, especially economic independence. “We don’t just look at this as workers, but as Mexicans,” says the electrical union’s secretary for external relations, Ramon Pacheco. “Yes, we’d lose our contract and jobs, and the company would go bankrupt. But this is about more than that — it’s about the direction our country is taking.”

The first crack in the nationalization of electricity came in 1979, when the technocrats bent on bringing market reforms to the Mexican economy began to become the dominant force in the federal government. In cooperation with Dow Chemical President John Connally, they envisioned a “North American Energy Project,” that would connect the electrical grids of Mexico, the US and Canada. George Bush Sr later supported the idea.

Popular opposition prevented the inclusion of the electrical and oil industries in the NAFTA negotiations, but in 1992, President Carlos Salinas de Gortari opened the door further. He announced that private companies, including foreign ones, could build and operate plants in Mexico so long as they consumed or exported all the energy they produced, or sold it to the Federal Electricity Commission. According to Jesus Navarrete, had of the movement opposing privatization in Mexico’s other electrical workers union, SUTERM, almost all new construction of power plants by the Federal Electricity Commission and the Power and Light Company was halted after 1992. Meanwhile, private plant construction surged ahead. In addition to Enron, Sempra and Intergen, 23 other foreign companies have been granted licenses for plant construction.

One of Fox’s principal arguments, therefore, for his privatization plan is that the Constitution needs to be changed to legalize what already exists on the ground. Energy Secretary Luis Tellez says Mexico needs to add 22,000 megawatts to its present 35,000 watt capacity, and that only foreign investors will come up with the necessary $50 billion. Navarrete and others, however, point out that cogeneration between the CFE and the oil monopoly PEMEX alone could generate 9,000 new megawatts.

“The industry could be self-financing if it weren’t for the government’s policy of disinvestment,” says José Luis Hernandez of the SME. “What they really want to do is enrich some of their favorites by selling it off at deflated prices.” And further down that road is the other crown jewel, heretofore untouchable because nationalist feelings remain high. Most observers believe it’s only a matter of time before Mexico’s national oil company, PEMEX, itself is sold off.

A knowledgeable authority on the US side of the border agrees. Carl Wood, member of the California Public Utilities Commission, says “it’s crazy for Mexico to be doing this. Mexico is blessed with lots or energy resources. But this proposal accomodates the needs of the large consumers without meeting those of the public, and sticking the cost of old technology with consumers. That was always the root of California’s deregulation problems.”

Nevertheless, Fox’s arguments swayed not only his own party, the conservative National Action Party, but also the leaders of the Party of the Institutionalized Revolution (PRI), which governed Mexico for 71 years before Fox’ election. Both Diaz and Cardenas, who nationalized electricity and oil, were PRI stalwarts. The aboutface by the party’s present leaders not only stood that history on its head, but also defied positions it defended earlier this year.

In May, the Mexican congress passed a resolution opposing any changes in the Constitution to make privatization possible, and the PRI itself took a similar position in its own national meeting. But after Fox invited PRI leaders Roberto Madrazo and Elba Esther Gordillo to the presidential residence of Los Pinos for a late night snack and talk, they were only too happy to announce they’d give his proposal serious consideration. The PRI has 40% of the votes in the Chamber of Deputies and the Senate, and Fox’ National Action Party another 40%. If Madrazo and Gordillo can hold their members, Fox’ scheme has more than the required two-thirds majority.

But that’s a big if. Some of the PRI’s most conservative, but nationalist leaders, including its former chair Manuel Bartlett, have organized vocal opposition. “Look at the energy chaos in California,” he declared. “Do they want to sell the American failure to us?” Bartlett introduced an alternative bill to Fox’s, that would ban any increase in the 10% of current generation that is presently done by private companies.

The SME charges that Fox plan is a giveaway to the 1% of Mexican users, almost all big private companies, who consume 70% of the nation’s energy. That should be familiar to Californians. In 1995, the original plan drafted by Pacific Gas and Electric and some of the state’s largest corporations (grouped together in the Californians for Competitive Electricity) proposed to allow the largest power consumers to opt out of the system, leaving residential users and small businesses holding the bag.

The bitter California experience prompted San Diego Congressman Bob Filner to travel to Mexico City in July to denounce the deal. Filner was especially critical of the Sempra and InterGen border plants, which are expected to produce 3000 tons of air pollution annually. Although US air quality controls won’t apply to them, Imperial Valley residents a few miles north will wind up breathing the plants’ effluents.

“These are the same companies that robbed and defrauded people in the US,” he told the daily La Jornada. “The question, therefore, is why should Mexicans trust them not to do the same here?” Wood also warned of another danger — that the swings of the market could bring about manipulated shortages and periods of extremely high prices, as they did in California. “Mexican industry might not be able to absorb those price increases, nor raise prices on its own products in the world market,” he explained. “Price spikes in electricity might therefore cause industrial activity to stall.” He called the US companies behind the proposal “the same old gang of thieves.”

Whether Mexicans find the political strength to reject the proposal is a question bound up with the changes in the country’s labor movement. The labor landscape began to change when former President Ernesto Zedillo announced plans to put the electrical system up for sale after his election eight years ago. The slow disintegration of the old union structure, which refused to mount any defense against neoliberal government policies, created a political opening for currents of resistance. As an alternative, a new union federation, the National Union of Workers, was formed and declared open opposition to the economic reforms.

One of the most important structural and political changes implemented by the new federation was scrapping the old requirement that workers belong to the governing party in order to hold their jobs and maintain their union membership. While the SME, which never had such a rule, didn’t join this new federation, the formation of the UNT helped to create an atmosphere in which opposition gained strength and legitimacy.

In 1999, splits began to develop in the other electrical union, SUTERM. On May 22, 3000 of its members defied their national leaders and marched in the capitol, openly allying themselves with the SME. Another demonstration on August 28 brought out 5,000, and a national coordinating committee was set up, representing 15,000 workers.

Meanwhile, the SME set up its National Front of Resistance. The battle over privatization was internationalized when it hosted a conference in Mexico City which featured delegations from many Latin American countries. Further conferences brought together the Worker’s University of Mexico (UOM), the National Association of Democratic Lawyers (ANAD), the leftwing Party of the Democratic Revolution, along with union representatives, academics, NGO’s, and other political parties.

To defeat Fox, an alliance of the SME, Mexico’s new independent union confederation, the National Union of Workers, the leftwing Party of the Democratic Revolution, and nationalist elements in the PRI have all vowed to cooperate in mass protest. The political temperature will get very hot before the vote is taken in 2003, since it has become a referendum on the direction for Mexico’s economic development.

Two separate and very different ideas about economic development and workers rights have emerged in Mexico. The differences are deep, over whose priorities will prevail – those of workers or those of investors with a stake in the free-trade based economy. According to Harley Shaiken, director of the Center for Latin American Studies at UC Berkeley, “the Mexican government has created an investment climate which depends on a vast number of low wage-earners. This climate gets all the government’s attention, while the consumer climate – the ability of people to buy what they produce – is sacrificed.” Rosendo Flores, SME secretary general, emphasizes that privatization can’t be defeated without seeing its integral connection with the rest of the neoliberal economic development program, and without proposing an alternative. He believes that genuine national economic development requires strong internal markets, with well-paid workers capable of consuming the goods they produce.

“We have seen the consequences of deregulation in the electrical sector in the state of California which has been detrimental to the interests of the electrical workers and of the population,” says a statement signed by leaders of both Mexican electrical unions. “In Mexico, the people rightly think that the electrical industry and the petroleum industry should be public property and that such public property is the fundamental basis for their nation’s existence and of their national sovereignty.”

For people on both sides of the border, privatizing electricity and oil is a watershed decision. Either the Fox government will succeed in finally burying the last and biggest remnants of Mexico’s old nationalist development policy, or he will suffer a defeat which may make it possible to recover a road toward national economic independence.

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