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What Keeps Holding the Mexican Economy Back? A Discussion on Competition and Consumers

April 08, 2008 // 12:30pm6:00pm
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On April 8, 2008 the Woodrow Wilson Center's Mexico Institute and ITAM hosted a public seminar with experts and business leaders to discuss the conditions for competitiveness within Mexico's economy. Rossana Fuentes-Berain, Professor at ITAM, stated that a discussion about the Mexican economy should focus closely on individual aspects of the market such as competition and consumers. A sector such as telecommunications, she commented, with passive consumers and low levels of competition, is a very important 21st century issue that is directly correlated with Mexico's growing economy.

Mexico's Undersecretary of Communications, Rafael Del Villar, remarked that telecommunications is an issue that binds all aspects of society together. He said that information and communication technologies (ICTs) have become a key pillar for competitiveness as well as economic and social development because they have the capabilities to enhance productivity, reduce enterprise costs, foster innovation and lead to the general improvement of the quality of life. While he affirmed that that Mexico's telecommunications industry had expanded significantly, he also stated that the overall success and benefits of this growth have been limited due to high levels of concentration and the absence of a strong regulatory framework. He argued that President Calderón's administration is aware of the negative effects of high levels of concentration in the telecommunications industry and has set forth to expand access to telecommunications services and increase competition in the industry.

Francisco Gil, President for Mexico and Central America at Telefónica, pointed to the harms posed by large monopolies such as Telmex, Mexico's telephone conglomerate. He discussed an array of statistics that demonstrate Mexico's above average levels of concentration in the telecommunications sector when compared to other Latin American countries. These levels of concentration, he noted, render high prices for Mexico's poorest citizens and place Mexico in the lowest rankings among other Latin America countries for access to telecommunications services. He criticized the government concessions that were given to Telmex in the past without competitive bidding and advocated effective regulatory reforms and competitive conditions for Mexico's economy to be able to continue growing.

Denise Dresser, Professor at ITAM, emphasized that the widespread presence of oligopolies in Mexico has led to a concentrated and inefficient economy. She stated that Mexico needs dynamic capitalism, where the state does not protect privileges nor permits the perpetuation of a small group of businessmen, but instead one where authorities create the conditions for open markets that produce lower prices for all consumers. Dresser argued that the monopolies that emerged in Mexico after the privatizations of the 1990s prevented a level playing field from existing in telecommunications sectors including television, telephones, internet and cellular phones. She noted that Mexico's traditional elites have succeeded in blocking effective regulatory reforms in order to continue protecting their private interests. Congress's approval of the contentious media and telecommunications legislation, Ley Televisa, in 2006 and President Fox's inability to veto it reinforced the notion that Mexico's democratic institutions are still protecting private interests and the ambitions of entrenched businessmen. Dresser stipulated that if Calderón wants to govern more successfully than his predecessors, he would have to recreate the state's capacity to regulate and reform. Dresser stated that Calderón will have to use the power of the state to prevent crony capitalism from prevailing and continuing to make Mexico a chronic economic underperformer.

Janet Rogozinski, Co-director of the Partnership for Progress, underscored the importance of looking past Mexico's monopolies when discussing the country's economic troubles. She argued that access to credit and educational opportunities are critical factors for the country's economic future that must also be considered. While she recognized that Mexico's largest telecommunications firms should do more to invest in Mexican social and economic development, she also said that Mexicans have a lot to learn from the entrepreneurial abilities of the country's leading businessmen.

José Luis Guasch, Regional Counselor at the World Bank, attributed Mexico's inability to produce an economic growth rate larger than three percent to an absence of innovation and the lack of productivity gains. However, he also stated that the pervasiveness of powerful, entrenched interest groups that have formed longstanding alliances with policymakers is hindering further advances in the Mexican economy. He pointed out that effective governance and political bargaining would be vital tools in moving past the political and economic impasse that prevents feasible reform programs from emerging.

According to Alejandro Puente, President of Canitec, any changes in Mexico's telecommunications sector should keep consumer benefits at the forefront of the discussion. He said that Mexico's economy still remains significantly closed and that advances by telecommunications industries have rarely produced results for consumers, as prices in this sector have doubled in the last 15 years. Puente remarked that Mexico ranks third among OECD countries for the most expensive telecommunications. Furthermore, the domination of certain firms and the inefficiency of the market have inhibited better prices from being offered to consumers.

Gustavo Cantú, Vice President of Nextel, asserted that Mexico's deep-rooted system of privileges and concessions has prevented a series of new firms from entering the telecommunications industry over the past 17 years. He further stated that this was not the fault of one large dominant group, but rather the fault of a lot of inefficient political and economic actors as well as weak regulatory agencies. He urged the Mexican government to begin acting independent of private and oligopolistic interests and to endorse effective regulatory reforms.

Adriana Labardini, Executive Director of Al Consumidor, argued that growth and development are the essential drivers of competitiveness, but also noted that Mexico's 105 million consumers need to evolve into empowered actors with incentives. In advocating consumer rights, Labardini commented that social surplus, consumer satisfaction and quality provisions should be at the center of any discussion about competition in Mexico. Labardini emphasized that market failures are abundant in the telecommunications industry. Efforts to regulate the industry and prevent further market failures should benefit consumers, promote fair competition, endorse lower prices, and encourage better quality and variety of goods. She noted that public interests are rarely protected as the regulatory provisions that exist are seldom enforced.

Eduardo Pérez Motta, President of the Federal Competition Commission, stated that Mexico's regulated sectors also often show significant inefficiencies. These sectors, such as transportation, telecommunications, financial services, and energy all show a decline in competitive standards and exorbitant prices as a result of low use. The inefficiencies present in these sectors have a negative impact on the rest of the economy and result in low growth. Pérez Motta emphasized that effective competition policies are an essential instrument for closing the competitiveness gap. Consequently, he argued, consumer welfare increases as the policies provide incentives for a more efficient allocation of resources. Pérez Motta asserted that this is a crucial time for the telecommunications sector in Mexico, stating that Mexico could begin to see favorable steps toward increased competition in television.

Marko Cortés, a senator from Mexico's National Action Party (PAN), argued that the laws fostering competition in Mexico do exist, but that they are not implemented effectively. He noted that Mexico lacks the constitutional and judicial foundation to sustain those laws. It is also important, he stated, to generate laws that protect those who will continue to invest in Mexico's economy. He mentioned that Mexican senators are proposing laws against that prevent the consolidation of monopolistic powers.

Eduardo Sánchez, a congressman from Mexico's Institutional Revolutionary Party (PRI), discussed Mexico's path toward sustainable development as resting on clear rules for competition, authorities who enforce the laws and effective means to resolve disputes. Sánchez specifically remarked about "triple play," referring to the ability of telephone and cable companies to provide multiple broadband services such as high-speed internet access and cable, and telephone services in a single broadband connection. He noted that regulative measures should consider the technological advances of the industry and expand upon pre-existing competitive structures.

Manuel Camacho Solís, a former congressman from Mexico's Party of the Democratic Revolution (PRD), argued that Mexicans still live in a culture of privilege where a select few are reaping the benefits. Noting that competitiveness cannot be increased in the short run, he recommended the abandonment of any radical neoliberal reforms. He also mentioned that the state should play a more active role in regulating business interests and should prevent the concentration of wealth.

René Villarreal, President of El Centro de Capital Intelectual y Competitividadadded, added that the Mexico under Calderón needs to take steps to improve telecommunications infrastructure and consider the country's waning regional and global competition strategies.

Juan Pardinas, Consultant at the Mexican Institute for Competitiveness, stated that access to internet, cell phones, or telephones can have an enduring and significant effect on developing or marginalized populations, particularly in a globalized society that needs technology for enhanced productivity. He noted that affordable prices in the telecommunications industry, only made possible by a free and competitive market, can provide Mexican citizens with economic opportunities and small firms with a level playing field, two factors that can considerably improve Mexico's potential for economic growth.

 

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