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Feature 110512 Baker

Monday, November 5, 2012

'It is a Glorious Thing to be a Pirate King'* (a la Mexicana)

By George Baker

In explaining the surge of productivity in the American economy in the early 19th century, Professor Tim Kehoe of the University of Minnesota, speaking in Houston at a seminar organized by the Federal Reserve Bank of Dallas, observed that there were two reasons: 1) increases in management skills, and 2) eliminating the pirates.

"Today," he continued, "the ‘pirate' is the individual who, either within or beyond the law, appropriates a public good for private or institutional use." Examples of a "public good" include personal safety, democratic rule, property rights, contract enforceability, public oversight, accountability, freedom of speech and assembly, and rule of law.

Mexican tycoon Carlos Slim was identified as a ‘pirate' in this modern sense: he appropriates from the budgets of individuals, households and organizations a monopolistic premium that annually amounts to billions of US dollars, an amount equivalent to some 2% of Mexican GDP.  It is his vocation as a pirate that has made him the richest individual on the planet.

This sour experience in the 1990s of taking one public monopoly and passing it, intact, into private hands, has given Mexican society yet another reason to distrust the privatizing of the energy sector.  It happened not only in telephony but in banking and other areas of the economy.

Mexican (and Cuban and Venezuelan) banks act as pirates when they channel loans to the government, bank directors and other insiders. Getting banks to lend to small businesses to spur growth has not happened on the scale that is needed.[1]

As a group, the public sector trade unions are the best-known pirates in Mexico. By denying their members the right of a secret ballot in the elections of officers, union leaders steal from society's store of democratic values and government.  With respect to Pemex, in refusing to make union finances public, union leaders offer no accountability of the use of union fees and the generous Pemex stipends, loans and grants that the union receives annually from Pemex.

The court system, by focusing primarily on criminal matters, acts as a pirate in stealing from the confidence of the general public and private investors in the rule of law as a factor of economic development. It took the Supreme Court over a decade to take notice of the abuse of the judicial system, with its easy-to-file injunction (amparo), to affirm the right of the investor in natural gas distribution to proceed with the requirements of his CRE franchise without the threat of judicial harassment by local and state jurisdictions.[2]

The federal government, in permitting only one brand and retailer of gasoline, deprives the consumer freedom of economic choice.

Similarly, in prohibiting the successive reelection of public officials the Congress is stealing from the goodwill, experience and motivation of office holders to achieve reform measures that actually deliver tangible benefits to society. When asked about energy reform after his presentation on "Why Do Reforms Not Help Deliver Growth in Mexico" (at a seminar held in Houston on November 2, 2012[3]), CIDE's Professor Fausto Hernández Trillo speculated that the privatization of the oil sector would bring about an increase in capital formation, but offer few other benefits to the economy.

One wonders if such piracy in the aggregate is the unexamined phenomenon that explains how Mexico has, according to Professor Hernández, negative TFP (Total Factor Productivity), the metric that is said to be indicative of the rate of technological change and innovation in society.


* From The Pirates of Penzance. Ed.

[1] As for the modern pirates in Cuba and Venezuela, we defer to the observations of Mary O'Grady in her weekly "Americas" column in The Wall Street Journal.

[2] Actually, the court decided only on a matter of the conflicting rulings of two appellate courts; the underlying economic issues were ignored. See our report "Tésis 193/2011: Jurisprudence by Contradiction (MEI 143), October 3, 2012.

[3] http://www.dallasfed.org/research/events/2012/12mexico.cfm

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George Baker is the director of Energia.com, a publishing and consulting firm based in Houston.  He can be reached via e-mail at g.baker@energia.com.  Mexico Energy Intelligence, Baker & Associates, Energy Consultants, Houston, TX.


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