Peña Nieto is off to a good start

I wrote here a while back when Mexican President Enrique Peña Nieto was elected that we should give him a chance. I said this for several reasons, among them: 1) he and a majority of his party are of a new generation that has turned its back on the old patron-client system that characterizes so much of the developing world, and 2) he knows that to lift the half of the population that still lives in poverty and suffers from massive economic inequality he must increase economic growth, which is possible only if monopolies are smashed and foreign investment welcomed. He’s off to a good start, bringing his party with him and building coalitions with the center-right PAN and others.

Three of his administration’s actions demonstrate my optimism.

First, like the last PRI president before him, Carlos Salinas, Peña Nieto has shown his resolve and ability to put reform and the public above his cronies by having the head of the national teachers’ union arrested on corruption charges (see here and here). No matter that she helped him get elected — she opposed his reform to strengthen the hand of the state to hire and fire teachers at the expense of the union’s overweening power. It is easy to be cynical and say that she was arrested for being a political opponent. Maybe that is exactly what happened. But maybe the president doesn’t care who was or was not a supporter of his campaign for the presidency — corruption is in his sights. In the end, if she is truly corrupt and found guilty, Mexico is better for it no matter what motivated the arrest. With his act he wins respect and not a little fear from the caciques of other sectors who might oppose his reforms and try to take Mexico backwards. We should remember that Mexico is not yet Switzerland or Sweden and is still an evolving democracy. Think Chicago, or Louisiana before Gov. Bobby Jindal.

Second, he is taking on the richest man in the world — Carlos Slim, who has for decades controlled telecoms in Mexico. Slim controls 80 percent of the country’s fixed lines and 70 percent of its mobile phones. The reform the president has put forward (see here and here) would give the government the right to break up monopolies that constitute 50 percent of a market and to make it easier for foreigners to invest.

And finally, the really big prize: reform of the nationalized oil sector. This is the third rail of Mexican politics after Salinas in the late 1980s reformed the communal land system. Peña Nieto leads a party that for decades led with the cry "the oil is ours!" as it nationalized and ran the industry. While the state hasn’t run the industry into the ground as Chavez did, it has never lived up to its potential as a key funder of the government and for the last eight years has seen its production capacity drop. The problems stem largely from keeping significant foreign investment and technology out of the industry. The president means to change all that and got a good start at it by getting his party to vote in favor of the reform that now moves to Congress.

While it is unlikely that the leftist parties will support Peña Nieto’s reforms — and certainly not the oil industry reform — the center-right PAN should and supporters of Mexico, free trade and the free market definitely should. U.S. policy should be to congratulate Peña Nieto and his party and to encourage Mexico to open itself further by these reforms. These are hopeful days for Mexico.