Slim pickings

MEXICO CITYS “historic” centre has been transformed from the romantic wreck it was in the late 1990s, when Schumpeter got married there. Some of its denizens are the same—out-of-tune organ grinders, peddlers of cow’s-brain tacos and the like. But many cobbled streets have since been pedestrianised and baroque buildings restored. It made a haunting backdrop to the Day of the Dead parade in the James Bond film “Spectre”.

Credit for the refurbishment early in the millennium goes to two men who have always made an unlikely pair. They are Andrés Manuel López Obrador, a messianic left-winger who is Mexico’s new president, and Carlos Slim, a gruff telecommunications magnate and one of the world’s richest men. They barely talk these days, but their paths have crossed enough to reveal a lot about Mr López Obrador’s approach to business. As the former partnership suggests, he is not militantly anti-capitalist. However there is plenty for the private sector to worry about.

In less than 100 days in office, Mr López Obrador, known by his initials as AMLO, already cuts a confident presidential figure. His popularity is sky high, consumer confidence is up, and financial markets have settled since late last year when his decision to cancel a $13bn airport in Mexico City sent the peso swooning. He has seen through a sensible budget. His attacks on graft and campaign against poverty strike a chord, even with Mr Slim. Foreign investors are staying—though they are taking care of their cash.

Yet on a daily basis, AMLO shows an antipathy to economic modernisation like no other Mexican leader in 30 years. The threats are heard at daybreak in the city centre when Mr López Obrador holds a two-hour press conference above a buried palace where the Aztec emperors once held court. He keeps journalists awake with jocular sarcasm against the “neoliberals” and upper-class “fifís” who were the main beneficiaries of decades of free-market reforms. In recent days he has moved things up a gear by attacking Mexico’s independent regulatory structures. It seems to have escaped him that the reason for their painstaking creation in recent years was to counterbalance Mr Slim and other moguls.

To understand what is at stake, consider the economic concentration almost endemic to Mexico. More than 30 years ago, when this columnist first visited the country, it was a one-party, big-company state. Pemex, the government-owned oil firm, was an absolute monopoly, as was Telmex, the state phone company. The main private firms that flourished had close ruling-party ties. Supermarket shelves contained only one or two brands of anything. This was the tail-end of the era depicted in the film “Roma”; for shoppers, it was still only black and white.

Then in the 1990s things went technicolour. The North American Free Trade Agreement produced a flood of consumer goods. Many state-owned firms were privatised, most lucratively Telmex, which was sold to Mr Slim. Yet economic power remained concentrated in a few hands, especially in telecoms, television and banking. In 2012, the high-water mark of the business-mogul era, Telmex controlled 80% of the fixed-line market and 70% of mobile. But eventually politicians mustered courage to stand up to Mr Slim. In recent years, regulators have imposed curbs on his mobile firm for its dominance, showing a clout they never had before.

Until Mr López Obrador came to power, that is, with a business agenda that can at best be described as labyrinthine. Take his relationship with Mr Slim. After AMLO became governor of Mexico City in 2000, the two men made common cause over the city centre, which had shaped both their lives. For AMLO, the Zócalo, or main square, had been where he staged his biggest protests against electoral fraud. For Mr Slim, it was a business training ground. His father, a Lebanese-born trader, bought land there during the revolution of 1910-17. Mr Slim’s first notable purchase was of Sanborns, a retail chain whose blue-tiled restaurant is a gateway to the centre.

Their plan to embellish the heart of Mexico City involved Mr Slim putting up most of the cash, in return for being able to buy many of the buildings that would benefit from the facelift. It showed Mr López Obrador’s taste for cutting deals with businessmen who could help him politically. Their relationship has since turned frosty, especially after the cancellation of the Mexico City airport, of which Mr Slim was a big backer. But AMLO has other billionaires to turn to, such as Ricardo Salinas Pliego, whose empire spans TV, banking and retail. He is a long-standing rival of Mr Slim.

Sending off the referees

Recently Mr López Obrador has deepened the sense of unease in the private sector. He has cancelled auctions for private oil contracts that were part of a reform of Mexican energy, and put his full weight behind Pemex, which is still state-owned. On February 11th he announced that his government would seek revision of problematic natural-gas pipeline contracts that firms, including Mr Slim’s Grupo Carso, had signed with the state electricity utility.

Perhaps most insidiously, he is attacking the two main energy regulators, accusing them of operating on behalf of the private sector against state firms (which was part of their remit), and vowing to “renew” them. They are also suffering big budget cuts. Moreover, he appears to be picking winners in business. Last month Alejandra Palacios, Mexico’s trustbuster-in-chief, criticised the government for awarding stewardship of anti-poverty projects to Banco Azteca, a bank, without holding a competitive auction. Her target was the government, not the bank, but Azteca, which is owned by Mr Salinas Pliego, has launched a formal complaint against her. It may feel emboldened by AMLO’s rhetoric.

For the time being, the rest of the private sector is keeping its head down, and trying to look good in the president’s eyes with charitable work on behalf of the poor. But where once Mr Slim’s economic power smothered Mexico, Mr López Obrador’s political power does now. That is just as troubling for the free market.

This post was originally posted at https://www.economist.com/business/2019/02/16/slim-pickings.

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