Mexico

Political and Economic Lessons From Democratic Transitions

Author: Shannon K. O'Neil, Senior Fellow for Latin America Studies
June 18, 2013

This preview highlights the main points of the Mexico chapter from Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, a publication of the Civil Society, Markets, and Democracy Initiative. For previews of other chapters, please see the Table of Contents.

Overview

Though better known for its struggles with corruption and violence, Mexico has also undergone significant political and economic transitions. Controlled for decades by the Institutional Revolutionary Party (PRI) through an authoritarian political system, the country is now a democracy. Its economy, once largely closed and dominated by oil, has become one of the world's most open, and is increasingly a global manufacturing powerhouse. Finally, years of economic change and macroeconomic stability have enabled a growing middle class.

The PRI consolidated its rule in the wake of the Mexican Revolution (1910–20) and maintained this control until the turn of the twenty-first century through the savvy use of an expansive revolutionary ideology, a patronage system, and a willingness to use repression when necessary. Economically, the party pursued an import substitution industrialization (ISI) framework of high tariffs, subsidies, economic favoritism, and widespread state ownership and management. These policies fueled strong growth and development for nearly four decades.

During the 1970s, this economic model began to founder, plagued by deficits, debt, falling oil prices, and inflation. In 1982, Mexico stopped payments on its $80 billion in foreign debt, setting off the Latin American debt crisis. This crisis crippled the economy and threw millions into poverty, but it also pressured the government to implement serious economic changes. President Miguel de la Madrid began lowering tariffs, downsizing the government's expenditures, and reducing subsidies. His successor, Carlos Salinas, built on these steps toward economic opening, privatizing hundreds of companies, changing land ownership laws, and negotiating the North American Free Trade Agreement (NAFTA) with the United States. These reforms—combined with the 1994 peso crisis—opened Mexico's economy further, bringing substantial foreign direct investment and an exponential expansion of trade.

PRI leaders believed they could open the economy while maintaining political control, but found it difficult to do so. Although nondemocratic, the PRI had long maintained the trappings of electoral legitimacy. It held regular elections and even reformed laws to make it easier for the opposition to gain a few token seats. With fewer patronage resources to hand out in the wake of the economic crisis and subsequent reforms, the country's democratic institutions slowly began to take on real meaning.

The political opposition gained momentum in the 1980s, using the economic crisis to rally support and win their first local and state-level elections. And in 1988, former PRI politician turned opposition candidate Cuauhtemoc Cardenas made his historic bid for the presidency. While Cardenas officially lost, widely reported fraud led many to believe that he had actually bested his PRI opponent, Carlos Salinas de Gortari. The ensuing outpouring of frustration energized the political opposition and budding civil-society organizations to demand greater electoral transparency, and pushed Salinas to make electoral reforms.

In 1990, Salinas created the Federal Electoral Institute. Although initially designed to maintain PRI control, it became a fairly powerful tool for political opening. Salinas's successor, Ernesto Zedillo, further reformed the electoral system. Zedillo also reorganized the Supreme Court, believing that the court's independence would be in the PRI's best interest if and when the party was voted out of power.

The combination of economic opening, declining state resources, institutional reforms, stronger opposition parties, and an increasingly vibrant and independent press and civil society all came together, accelerating the move toward democracy. When the PRI lost its majority in Congress in 1997 and the presidency in 2000, democracy had arrived in Mexico. Still, strengthening this democracy is a challenge that continues today.

Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, a new book from the Council on Foreign Relations, explores Mexico's progress and challenges in six areas of economic, political, and social development:

Socioeconomic Exclusion and Inclusion

Among Mexico's chief economic concerns is inclusiveness. Public policies during the transition years did little to alleviate longstanding economic and social disparities. After the 1995 peso crisis, an estimated 70 percent of the population lived in poverty.

Although Mexico remains very unequal, there are some signs of change. Over the last fifteen years, macroeconomic stability, real wage improvements, and targeted social spending have helped to reduce poverty and inequality and to foster a rising middle class. Programs such as Oportunidades (begun as Progresa) give monthly stipends to low-income households that keep their children healthy and in school. From three hundred thousand recipients in 1997, the program now reaches nearly six million families, about a quarter of the population. In 2002, the government started Seguro Popular, a national health insurance program designed to reach informal and unemployed workers. Citizens who enjoy these benefits tend to reward the politicians who provide them, suggesting evidence of an important democratic feedback loop.

Economic Structure and Policies

After decades of booms and busts, Mexico is now known for its strong macroeconomic and fiscal fundamentals, its independent central bank, and its stable privately managed banking system. The country's public sector is smaller than that of Brazil or the United States. Oil, once the major source of trade revenue, makes up less than 20 percent of total exports (though roughly a third of the federal budget). The manufacturing sector accounts for some 80 percent of exports and 20 percent of the overall economy, spurred on by deep North American supply chains.

However, powerful monopolies, thin credit markets, and a large informal economy have slowed growth and overall development. In the late 1980s and 1990s the PRI quickly privatized many national industries, leaving many sectors of the economy in the hands of a few well-connected business leaders. One example is Telmex, whose economic monopoly status has made its owner, Carlos Slim, a billionaire many times over, and perhaps more importantly held back the overall economy through limited investment and high telecommunications prices in comparison to similar emerging markets. The Mexican government has begun working to strengthen regulatory agencies to take on such concentrated economic powers, but lawmakers face an uphill battle against many of these entrenched economic interests.

Civil Society and Media

Mexico's civil society has grown substantially and has been critical in pushing for greater political opening. Some of its first successes came during the country's political transition as hundreds of organizations rallied behind the goal of free and fair elections. With democratization, other issues ranging from good governance to the environment to women's rights rose in prominence. The media, too, has made great strides. Once virtually a propaganda arm for the ruling party, today Mexico's newspapers, radio stations, and television networks routinely question the official line, investigating and exposing corruption and helping to hold the government accountable.

However, Mexico's civil society arguably remains a work in progress. It is fairly weak by regional standards, largely because of the PRI's legacy of incorporating popular organizations into the party structure and discouraging autonomous groups. Television coverage also continues to be an effective "duopoly." In fact, some worry that the media now controls politicians—who are afraid of bad press—rather than the reverse.

Legal System and Rule of Law

Security is perhaps the greatest challenge to Mexico's democracy and economy. Under Calderon's presidency, some seventy thousand Mexicans were murdered in drug-related violence. This reflects not only U.S. demand for drugs (and its supply of money and weapons to the cartels), but also Mexico's weak rule of law. According to reports, only 20 percent of homicides in 2010 resulted in a conviction. This widespread impunity stems in part from the weakness of the Attorney General's office. For decades, the judiciary and law enforcement were virtual arms of the PRI. Today, the culture of lawlessness and rampant corruption erodes popular trust in the authorities and complicates the government's fight against bigger threats.

Recent efforts have enlarged Mexico's federal police force and improved recruiting, vetting, training, and salaries. However, this force amounts to just 10 percent of Mexico's total police, with mostly unreformed state and local forces making up the rest. In the judicial system, constitutional changes passed by Mexico's Congress in 2008 will fundamentally transform the courts, bolstering due process and transparency when implemented. But with a 2016 deadline set for enactment, many of Mexico's individual states are lagging behind, leaving many to question whether Mexico will be able to create a more open and effective legal system.

Government Structure and Division of Power

More than a decade after the PRI's presidential defeat, Mexico routinely holds competitive elections that almost all see as free and fair. The legislative and judicial branches provide effective checks on presidential power. Democratization has also devolved more power to the states, increasing the autonomy and importance of Mexico's thirty-two governors. Roughly half of Mexico's federal revenue is sent to the states through automatic transfers, fiscally empowering local politicians vis-à-vis their national counterparts.

Mexico's democratic consolidation, though, remains incomplete. Many feel the decentralization of power actually limits democratic deepening, with less electorally competitive states becoming the last bastions of authoritarianism. Moreover, Mexico's unusual no-reelection laws also hinder democratic accountability, encouraging politicians to cater to party bosses, who will nominate them for the next post, rather than to voters.

Education and Demography

The opportunities for the average Mexican child have improved. Smaller family sizes and rising incomes allow parents to invest more in their children's futures through education, and today primary-school attendance is almost universal. The increase in the number of Mexico's private schools at all economic levels also attests to parents' ambitions and desires for their children. But real challenges remain. Mexico continues to fall behind its peers at the secondary and high-school levels and ranks poorly on international test scores. Part of the problem is the teachers' union. Built up by the PRI, it has proven better at protecting teachers' benefits than at providing quality education. The current government is working to reform the system, but it will take significant time and effort to improve dramatically.

Conclusion

Mexico's experience shows that transitions to democracy and open economies are not over when the government changes hands or when tariffs fall. Much more is needed to ensure that what Mexico has achieved does not erode, and that future changes further consolidate the country's institutions and expand on the democratic and economic gains of the past three decades.

Additional Material

Mexico: Full Chapter Preview
Mexico Timeline
Further Reading


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