Eye on the Empire
by Alan Bock

August 23, 2000

Chiapas and Mexican Prospects

The victory this week in the southern Mexican state of Chiapas by Pablo Salazar, head of a coalition opposed to the long-ruling Institutional Revolutionary Party (PRI), is an important step in what appears to be the ongoing meltdown of PRI power in Mexico. It will certainly strengthen the hand of Mexican president-elect Vicente Fox, who is on a trip this week to Washington, Canada and Dallas (to talk with GOP presidential candidate George W. Bush).

Whether the Salazar victory will mean big changes in economic policy or significant progress toward ending the long-standing guerrilla conflict in Chiapas may be another question. As Ian Vasquez, director of the Cato Institute's Project on Global Economic Liberty, told me, ending PRI dominance in Chiapas "may be a necessary but is certainly not a sufficient condition for peace in Chiapas."

A bigger question is whether the anti-PRI coalition will be able (or perhaps inclined) to end the endemic corruption in Mexico that has retarded the country's economic and political progress. An even bigger question is whether Vicente Fox has an appropriate vision for Mexican and international development.


It would be a mistake, even as one is entertaining second thoughts, to downplay the significance of Mr. Fox's victory over the PRI on July 2. The PRI had ruled Mexico as virtually a one-party dictatorship for 71 years. When Mr. Fox, a former Coca Cola executive and member of the National Action Party (PAN), generally viewed as a more pro-business and even modestly pro-free-market party, won, it ended the longest-running one-party dominance of any country in the world.

But Mr. Fox didn't run as strictly a PAN candidate. He headed a coalition that included the generally business-wary Ecological Green Party (PVEM), and while he won a comfortable plurality of presidential votes, his coalition failed to win a working majority in the Chamber of Deputies. That means he will have to spend a considerable amount of time building on his coalition, and probably making compromises in his program in the process, both before and after he actually assumes office on December 1.


The election in Chiapas was widely viewed as a test of whether, in the wake of Mr. Fox's victory in the presidential election; the PRI would be able to mount a comeback. Although the PAN had elected governors in some of Mexico's northern states in recent years, setting the stage for the emergence of something resembling a bona fide multiparty political system, the PRI had held the governorships of all the southern states, including Chiapas, pretty much forever.

The defeat of the PRI candidate for governor of the impoverished and sometimes chaotic state of Chiapas, Sami David, suggests that PRI power continues to crumble. But PRI bureaucrats are still lodged deeply at all levels of Mexico's overgrown government and will be loath to give up power easily.

Mr. Salazar headed a coalition of eight parties that seemed united mainly on the desire to oust the PRI. Whether it has a cohesive economic plan – or even a cohesive plan to negotiate with the Zapatista Liberation Front Guerillas who have waged mostly low-key but sometimes intense war against the PRI government – is doubtful.


The best approach for a poor state like Chiapas would be a clear turn to a reasonably free market. Establish secure property rights as a basis for economic freedom, establish an independent judiciary system untainted (all right, minimally tainted) by corruption and favoritism. Then let the people, perhaps with a jump-start from foreign investment, produce wealth, freedom and development. It wouldn't happen overnight and it wouldn't come with an ironclad guarantee. But it would happen eventually.

But Ian Vasquez told me that he has not heard of a single influential figure or party in Chiapas suggesting the single most constructive step Chiapas could take: giving Chiapas peasants clear and secure property rights in land they have farmed for decades or even for generations.

It is even possible the Salazar coalition could go for a version of "land reform" involving seizing land from some people, putting ownership into the hands of the government (temporarily, of course) and then working out some arrangement whereby peasants could gain title. That has been the usual pattern in underdeveloped countries, and it has mostly been a horror.


Giving government control over property could easily set up a situation where political power and influence are more important in determining economic outcomes than economic performance producing products and services consumers want to buy. The result in a state like Chiapas could be a new form of burgeoning corruption. The state might be administered by officials and bureaucrats who are not controlled by the PRI anymore, but are otherwise indistinguishable from the bad old PRI bosses.

Despite widespread optimism about the future of Mexico in the wake of the end of PRI dominance, a similar process could face Vicente Fox's national government. Not only will it be difficult for him to assemble an effective ruling coalition, but some members of the coalition will be motivated not so much by a desire to eliminate the corrupt and powerful institutions the PRI dominated for so long, but to take control of the institutions and get some of the gravy for their guys.


Presumably Vicente Fox is aware of the problems he will face in building a coalition and putting new policies into place, so as to redeem the sometimes contradictory (and sometimes virtually messianic) promises he made to get himself elected. That hasn't stopped him from articulating an ambitious international agenda that could involve virtually overturning the "normal" relationship with the powerful Yanqui neighbor to the north.

In early August Fox toured Latin America, with stops in Chile, Argentina, Brazil and Uruguay, which together with Paraguay make up the Mercosur "free-trade" bloc. During his trip he argued that while Mexico is and will remain close to the United States, "our closeness to the world's biggest market should be useful to every nation in Latin America." Indeed, since the 1994 passage of the dubiously dubbed North American Free Trade Agreement (NAFTA), Mexico has served as a platform for trade by other Latin American countries with the United States, very much to Mexico's benefit.

Fox also pleaded for an end to the annual charade whereby the United States unilaterally certifies whether Mexico and other countries are really cooperating in the misbegotten War on Drugs. Anti-drug efforts instead "should be a multilateral mechanism where we all participate with clearly established obligations and goals."

Obligations and goals determined by whom and on whose behalf? Well, those are details to be worked out later. And would a "multilateral" goal-setting and target-determining effort end up diffusing responsibility so that nobody could determine who had done what or failed to accomplish goals? Don't ask. Don't tell.


Unfortunately, Mr. Fox didn't suggest the one action that would be most likely to undermine the power of the drug cartels – ending the drug war. Instead, he trotted out the weary and essentially meaningless rhetoric of which drug warriors are so fond.

A multilateral approach "would allow us to face in an internationally coordinated manner a crime that is internationally organized," said Fox. "It is not possible for individual countries to fight this scum, this cancer."



As for refreshing relations with the United States and Canada – a topic Fox is expected to broach on his get-acquainted trip without going into details until the U.S. election is over and he himself actually assumes power – Fox has big ideas as well. He thinks the economic policies and the economies of the three NAFTA countries should be more closely coordinated, eventually converging, much like those of the nations of the European Union.

It is unclear whether that would mean the kind of bureaucratic micro-management imposed by bureaucrats in Brussels that is the downside of the European experiment. Few modern politicians (in any country) have anything like an appreciation of the differences between free trade and managed trade.

Free trade permits and encourages all to benefit from the differences between countries, perhaps even encouraging localities to remain unique, through voluntary interactions. The European model eliminates or reduces tariffs, but also seeks to establish central control and uniformity imposed by bureaucrats (most of whom know little about trade and essentially hold commerce in contempt) in a central planning office.

NAFTA has reduced tariffs and increased overall trade to the benefit of the three countries involved. But it is more like managed trade than free trade, involving all kinds of uniform standards and bureaucracies to adjudicate whether countries are upholding those often arbitrary standards. This attempt to manage trade is more likely to engender disputes with heavy political overtones – see the current dispute over whether the US has violated NAFTA by not allowing (at the behest of Teamsters and truckers) as many Mexican trucks to operate in the United States as would like to do so – than simply eliminating tariffs and ceasing to interfere with capitalist acts between consenting adults.

If anything, North America would be better off moving toward genuine free trade than using the European mess as a model – and soon, before the NAFTA bureaucracies become irrevocably entrenched. Mr. Fox is really off base here – though he is hardly alone.


It is also more than possible that Mr. Fox will be seeking government foreign aid from the United States and Canada. He has already pointed to subsidies given by European Union bureaucrats to less-developed countries like Spain and Portugal as those countries came into the European Union.

Under NAFTA an institution already exists, the North American Development Bank, which was supposed to improve infrastructure – waste treatment plants and the like – in border areas. But Mr. Fox has hinted strongly that the bank, which now has "only" $305 million in capital (provided in equal shares by the US and Mexico) might be expanded and used as a mechanism to provide massive aid from the United States Mexico.

This betrays a fundamental misunderstanding (though one that is widely shared) of the ineffectiveness and inefficiency of foreign aid as a tool for economic development. Foreign aid has, however, been a lovely tool for enriching rulers and their cronies in recipient countries and bolstering their political power.


The ouster of the PRI as a monopoly party in Mexico has been an exciting and potentially beneficial development. Before we celebrate Vicente Fox as a savior, however, we should see if he can evolve from being pro-business to being genuinely pro-market. The evidence – he has already stated that he plans to keep petroleum and electricity in the hands of the state – is that he is a long way from being there.

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