WORLD BANK BLAMES MEXICAN UNIONS AND PRIVATE

UNCLAS SECTION 01 OF 04 MEXICO 002752

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E.O. 12958: N/A
TAGS: ECON ELAB IO PGOV PINR MX
SUBJECT: WORLD BANK BLAMES MEXICAN UNIONS AND PRIVATE
MONOPOLIES FOR HINDERING ECONOMIC REFORMS


1. SUMMARY: World Bank (WB) officials recently visited
Mexico City to formally release a report on Mexico,s efforts
to enact economic reforms. The report entitled, &Mexico
Beyond State Capture and Social Polarization8, concluded
that the country,s endeavors to carry out meaningful reforms
are being stymied by entrenched labor unions and empire-like
monopolies (both private and public). The WB report received
wide coverage in the Mexican media, which, like the document
itself, laid a larger share of the blame on unions
(particularly public unions) than on large (private)
monopolies. In making its case, the WB report indicated that
the monopolies and the unions have been able to successfully
resist change under Mexico,s current pluralistic democracy
as well as they did when a single political party ruled the
country. The WB urged greater transparency as the best way to
compel Mexican labor unions and monopolistic businesses to
act more in the national than in their own parochial
interests. A knowledgeable American observer of both the US
and Mexican organized labor movements agreed with the WB
report on the areas where urgent reform was needed and, to
some extent, on the actors responsible for hindering these
reforms, but questioned the relative influence of even the
most powerful unions in comparison with that of Mexico,s
large private monopolies. END SUMMARY.


WORLD BANK DIAGNOSES MEXICO,S ECONOMY
--------------


2. In mid-May World Bank (WB) officials traveled to Mexico
City to formally release a report, entitled &Mexico Beyond
State Capture and Social Polarization8, that laid out its
diagnosis of what ails the Mexican economy. The report
listed 11 problems that impede economic development in
Mexico: Competitiveness, Tax Laws, Regulatory and Investment
Environment, Education, Transport, Corruption, Innovation,
Finance, Energy, Labor, and the Macroeconomic Environment.
Of the 11 problems listed in the WB the two items that
received the most disparagement were the areas of
Competitiveness, or more specifically the lack thereof
because of (public and private) monopolies, and Labor.


3. None of the problems listed in the WB report are new to
knowledgeable observers. Many of them are interconnected and
topics of frequent public analysis by academics, journalists
and others. For instance, the report said there is little
innovation in Mexico because monopolies ensure that there is
there is little competition. Another example was the
observation that corruption exists in Mexico as a way of
dealing with a burdensome regulatory and investment
environment. (Comment: Post notes that the WB report made no
mention of what effects the public security or corruption
problem generated by narcotics trafficking might be having on
Mexico,s economy.) The report itself received wide coverage
in the Mexican media, which, like the document itself, laid a
larger share of the blame for Mexico,s economic problems on
the country,s national labor unions than it did on its large
private and public monopolies.


EMPIRE-LIKE MONOPOLIES
--------------


4. As noted above, the WB report singled out labor unions
and monopolies as two of the most intractable elements
negatively affecting the Mexican economy but for the most
part the country,s monopolies came out as the lesser of the
two evils. This is not to say that the report implied that
if a choice had to be made monopolies were less bad than
labor unions. Both were given near equal billing in
preventing needed structural reforms. However, as reported in
the national press, the greater villains preventing economic
development in Mexico were labor unions and not monopolies.


5. The report made clear the WB view that monopolies both
private (like Telmex, the de facto national telephone
company) and public (like Pemex, the state-owned national
petroleum company or the two companies who generate and
distribute 100 percent of the country,s electricity) are

MEXICO 00002752 002 OF 004


significant factors preventing greater economic development
in Mexico. These monopolies, the WB report said, was one of
the main elements responsible for Mexico,s lack of
competitiveness and was perhaps the single most important
factor impacting the poor distribution of wealth in Mexico.


6. The report averred that the massive concentration of
wealth in relatively few hands is then used by the privileged
few to ensure that Mexican politicians protect the
empire-like status of these nearly untouchable monopolies.
Relatively speaking, the WB report devoted considerable
detail to explaining how Mexico,s telecommunications
monopoly prevents competition and then translates its
financial wealth into political power. The power of
monopolies like Telmex, the WB report stated, operates
outside of Mexico,s formal electoral processes and mitigates
accountability in the legislative arena. As a result, the
report said, Mexican voters grow (increasingly) skeptical of
their politicians and of anyone,s ability to obtain
effective economic reform through the formal political
system. One reporter told post,s Labor Counselor that, in
general, the Mexican public is against privatization (and the
politician who advocate for it) because so far in Mexico it
has only served to make the rich richer.


LABOR UNIONS ) THE TRUE EVIL EMPIRES (?)
--------------


7. The WB report, at least in the local media coverage of
it, portrayed Mexico,s labor unions as the true evil empires
in the national economy. The worst actors in this scenario
were the National Teachers Union (SNTE),the Pemex Workers
Union (STPRM),the two Electrical Workers Unions (SME in
Mexico City and the surrounding states and SUTERM in the rest
of the country) and the Telephone Workers Union (STRM).
Although the report itself (on the World Bank Website) did
not go too far out of its way to single out any of these
unions as being worst than the others, the local media
coverage of the report highlighted the Teachers Union and the
two Electrical Workers Unions as the typical examples of how
unions prevent economic reforms.


8. According to the WB report and the local media coverage
of it Mexican labor unions are able to (negatively) influence
the country,s efforts to implement economic reform through
their ability to strike or otherwise disrupt key state
functions (like education or the provision of electricity) or
important sources of state revenue (oil sector income).
Also, depending on the circumstances, the unions are every
bit as willing as the large monopolies to use financial
inducements to influence Mexican politicians. The local
media,s coverage of the report faulted the SNTE for its
excessive political influence and the poor state of Mexican
education. The media cites STRM for the fact that Mexico has
some of the highest telephone rates in the world.


9. All of the above mentioned unions were cited for
excessive labor costs. The WB reportedly compared the
salaries in Mexico of employees with similar education levels
and work experiences. Using that standard, the media
reported, Pemex Union members workers receive salaries 71
percent higher that similar Mexican workers. The telephone
workers of STRM receive salaries 30 percent higher. In the
case of the SME and SUTERM, their salaries were compared to
an international average and not to similar workers in
Mexico. By that standard their salaries were reportedly a
minimum of 50 percent higher than the international average
for similar workers.


WB REPORT RECOMMENDS GREATER TRANPARENCY
--------------


10. In the case of both the unions and the monopolies, the
WB report recommended greater transparency as the key to
reducing the influence these two groups have on Mexico,s
economy. As in other parts of its report the WB devoted more
time to the unions than it did to the monopolies. In

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fairness to the WB, the organized labor movement in Mexico
does seem particularly resistant to almost any type of
openness or transparency. For example, union workers have no
legal right to know what the union leadership does with
organization resources. Workers are often enrolled in unions
as a condition of employment and without their knowledge but
once in the union they are not informed of their rights as
union member, they are not entitled to know the terms of
their union negotiated contact nor can they easily find out
such basic information as the names and business contact
phone numbers of the leaders of their unions.


11. That said, such practices, while very wide spread,
normally occur only in cases where the unions are not real
organizations formed to collectively bargain but rather paper
unions that are actually operated by persons or offices
controlled by an employer. However, this abuse of workers is
made possible by the resistance of genuine labor unions to
being held openly accountable for many of their internal
procedures or for any of the financial transactions they
conduct on behalf of the union. Any and all attempts to
promote this type of transparency are met with cries of
interference in union autonomy; a right guaranteed under
Mexican federal labor law.


12. In the case of both the unions and the monopolies the WB
report asserted that greater transparency would make it
increasingly difficult for privileged actors to put their
special interests above the greater interests of the Mexican
public. The WB report firmly stated that the lack of
transparency has enable these special interest groups to
defend their privileges as well now, when Mexico is a more
democratic and pluralistic society, as they did when the
country was essentially ruled by a single party.


ANOTHER PERSPECTIVE
--------------


13. A knowledgeable American labor observer with long
experience I the US and Mexican organized labor movements
agreed with the WB report on the areas where urgent reform
was needed and, to some extent, on the actors responsible for
hindering these reforms. That said, he questioned the
relative influence of even the most powerful unions en
comparison with that of Mexico,s large private monopolies.
For example, the teachers union, which is undoubtedly one of
the more powerful in the country, received some of the
report,s harsher criticism. Its influence in education,
teachers, salaries (as opposed to SNTE union leadership
salaries),and public civil servants pension and health care
is considerable. However, the observer stressed, outside of
these important but nevertheless finite areas, the Teachers
union,s influence is extremely limited. The American
observer noted that there is no area of Mexican society and
even many of its foreign commercial activities that are
outside the influence of the owners of Mexico,s telephone
monopoly. Consequently, he seriously doubted whether the WB
report could really be called a fair and balanced document.

COMMENT
--------------


14. The extensive local media coverage of the release of the
WB report on Mexico,s efforts at economic reform are a clear
indication of how many in the country are keenly aware of how
Mexico is perceived by the outside world. The heavy local
media emphasis on the negative role played by the country,s
organized labor movement feeds into the perception reported
in a recent national poll that cited national unions as one
of the least respected institutional groups in Mexico. Given
their resistance to almost any type of change that would
foster openness and transparency, the unions have perhaps
unwittingly contributed to the negative image of them held by
many in the Mexican public. The damage that the unions have
done to their own image notwithstanding, the size of
organized labor unions has markedly decreased in the past
10-20 years. With this reduction in size has come a growth in
internal divisions and, according to many officials, a

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corresponding reduction in economic and political influence.
The same cannot be said of the country,s largest national
monopolies.





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