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 Business News | June 2007 
A Mexican Revolution
 Mary Anastasia O'Grady - Wall Street Journal
| | Americas columnist Mary Anastasia O'Grady says a recent Supreme Court decision may be a landslide for Mexican business. |
Mexican tycoon Carlos Slim recently moved up to second place from third on the list of the world's wealthiest individuals. With Bill Gates giving away so much of what he has earned, it is now likely that Mr. Slim - the owner of Telefonos de Mexico - will one day advance to first place.
Yet no matter how good his numbers look, there will always be an asterisk next to the Slim name in the record books. I call it the Barry Bonds problem. Even if Mr. Bonds breaks Hank Aaron's home-run record, he will never be regarded as an equal to Mr. Aaron because most baseball fans don't think he competed on a level playing field. Mr. Slim faces a similar legacy problem when compared with creative entrepreneurs like Mr. Gates. The software billionaire made his fortune as an innovator who added value to his customers' lives. Mr. Slim got rich largely by maximizing his opportunities in an environment where he enjoyed monopoly privileges, snowballing wealth and a commensurate amount of political influence.
Mr. Slim is only the most famous of the Mexicans who have made a killing by way of monopoly privilege. The Mexican economy has opened radically in the past two decades, but a small number of critically important sectors - including fixed line telephony, in which Telmex controls 95% of the market - still enjoy protection from competition. Nowhere in the world are the economic costs of the Slim "business model" better understood than in his own country. There is wide agreement among economists that the pricing power of these dominant players has pushed up the cost of doing business in Mexico and made the economy uncompetitive with its international rivals.
This is why Mexican modernizers are celebrating a Supreme Court ruling last week that struck down key provisions in a 2006 radio and television law designed to protect broadcasting giant Televisa - owned by Emilio Azcarraga - and the smaller TVAzteca - owned by Ricardo Salinas Pliego - from new competition. Critics refer to the legislation as "the Televisa law" because it was drafted by Televisa lawyers.
The high court's ruling doesn't directly speak to Mr. Slim's telecom monopoly or to similar ones in oil, electricity, transportation and cement. But it does instruct Congress on the priority that the constitution places on equal treatment under the law. By doing so, it raises the bar for lawmakers on issues related to fair competition and sets a precedent that is likely to have an impact on other segments of the economy not open to competition, including Mr. Slim's fiefdom.
One of the provisions rejected by the court granted current holders of concessions under analog broadcast - i.e., the existing duopoly - the rights to the new spectrum that will open up under the coming conversion to digital broadcast. This practically ensured that new competitors would not be able to enter. The court also rejected as unconstitutional the provision that made renewal of licenses automatic and grandfathered rights and terms of previous concessions regardless of how laws change. The court further defended competition by ruling that bidders that want to participate in radio and television spectrum auctions must first receive a favorable ruling from Mexico's competition commission.
The Supreme Court decision hasn't gotten a lot of attention outside Mexico but it could be one of the most important economic developments in the country in recent years. That's because it represents a sea change in Mexican jurisprudence, which in turn reflects a change of similar magnitude in Mexican culture.
Only two decades ago, the notion that the Mexican elite might see its privileges cut off by the action of an independent Supreme Court was unthinkable. Back then it would not have been hyperbolic to say that such a ruling would signal the advent of another Mexican revolution. This revolution, thankfully, is peaceful. But for a people who lived under one-party rule for 70 years, it can seem just as radical.
The North American Free Trade Agreement has both pried open Mexico's economy and, by increasing information flows, helped lead a transition to democracy. This political shift is characterized by a national outcry against a system rigged to favor the political and business elite and obstruct economic mobility. The challenge that hard-left ideologue Andrés Manuel López Obrador was able to make to the presidency last year was at least in part a manifestation of this popular frustration. The current debate in civil society may be about the Televisa law, but it is really a broader discussion about what the ground rules for competition ought to be. The high court reflects this cultural change, not only by acting with independence but also by making public its deliberations in favor of competition.
The court's decision opens the way for President Felipe Calderón, who ran on a competition platform less than a year ago, to take a leading role in answering concerns about equality under the law. He will be under tremendous pressure by the media moguls to do otherwise - which is why the issue is an important test for his young presidency.
One easy way for Mr. Calderón to establish his bona fides on this issue is to name Gonzalo Martínez Pous and Rafael del Villar to the federal telecommunications commission (Cofetel). Both men carry strong pro-competition credentials and were named to Cofetel by former President Vicente Fox. But the Senate nixed their nominations as part of its work on the Televisa law, even though it acknowledged both were qualified. Now that the court has ruled that Congress has no power to vet the executive's choices for Cofetel, Mr. Calderón can renominate them and show that he wants a serious, pro-competition regulator.
The president can also take a proactive role in redrafting the provisions the court struck down and sending them to Congress. This should include an accelerated schedule for the country's conversion to digital broadcast. To be sure, it will mean a fight. The dinosaurs will be waiting for him and working the Senate as they did last year. He will have to take his case to the public and that won't be easy since his adversaries still control the airwaves.
Yet on his side will be plenty of modernizers who understand that failure to deliver equality under the law will mean the failure of Mexico's struggle for liberal democracy. The stakes are that high and history will judge Mr. Calderón accordingly.
Write to O'Grady@wsj.com |
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