Off the Grid

Mexico's Free Market Extremism, and Labor's Challenge to Privatization

by David Bacon


MEXICO CITY- In the 1930s and 1940s, General Lazaro Cardenas made nationalization of economic resources and land reform symbols of Mexican national sovereignty. Independence from the colossus of the north, Cardenas said, meant prying the hands of U.S. owners from the main levers of the country's economic life. Just a few decades after the cataclysmic revolution of 1910-20, Mexico wrote public ownership of the two keys to its economic future- oil and electricity-into the constitution itself. Today, however, that bedrock commitment to public ownership is severely eroding.

Nationalist economic development was overthrown as the basis of the country's economic strategy when technocrats took power in the former ruling Party of the Institutionalized Revolution in the 1970s. Today the Mexican economy looks nothing like it did 20 years ago. Well before passage of the North American Free Trade Agreement, the disparity between U.S. and Mexican wages was growing. Mexican salaries were a third of those in the United States up to the 1970s. They are now less than an eighth, according to Mexican economist and former Senator Rosa Albina Garabito. In some industries they've dropped to a twelfth or fifteenth- even during a period of relative decline in U.S. wages.

In two decades, the income of Mexican workers lost 76 percent of its purchasing power, while the Mexican government ended subsidies on the prices of basic necessities, including gasoline, bus fares, tortillas and milk. The government estimates that 40 million people live in poverty and 25 million in extreme poverty.

These results are the product of the imposition of "neoliberal" economic reforms. In the last two decades, Mexico has become their proving ground, as the International Monetary Fund and World Bank used the leverage of foreign debt to require massive changes in economic priorities designed to encourage foreign investment. The heart of those changes has been privatization of Mexican state enterprises. Those put on the auction block include the airlines, ports, railroads, banks, phone system and whole sections of other formerly state-owned industries [see "Mexico's Privatization Pinata," Multinational Monitor, October 1996].

The impact on workers has been devastating. A majority of Mexican industrial workers worked for the government, and the organized labor movement had its greatest strength in the state sector until the transformations started in the 1970s. While three-quarters of the workforce in Mexico belonged to unions three decades ago, less than 30 percent do so today. In the state-owned oil company, PEMEX, union membership still hovers at 72 percent. But when the collateral petrochemical industry was privatized over the last decade, the unionization rate fell to 7 percent. New private owners reduced the membership of the railway workers union from 90,000 workers to 36,000 in the same period.

Workers have fiercely resisted privatization. Soldiers had to occupy the port of Veracruz at gunpoint in order to privatize it and fire its workforce. Mexico City's bus drivers fought the selloff of the Route-100 company for three years, including one in which their union leaders were imprisoned. Wildcat strikes hit the railroads when they were sold to Grupo Mexico, and copper miners fought a valiant battle against job reductions when the Cananea mine was bought by the same owners in the late 1990s.

While the government and privatizers defeated these resistance efforts, workers have consistently held at bay one of the government's most important privatization schemes -the selloff of the electrical system.


Mexico's grid for generating and distributing power has two parts. The Power and Light Company handles distribution for Mexico City and central Mexico. Electricity is generated and distributed in the rest of the country by the Federal Electricity Commission. Each entity has a separate union as well. The Mexican Electrical Workers Union (SME) at the Power and Light Company is one of the country's oldest and most democratic labor organizations. Under then general secretary Rafael Galvan, the union for workers at the FEC, the Sole Union for Electrical Workers of the Mexican Republic (SUTERM), led the movement to democratize the country's unions two decades ago. The government seized control of it, however, with the head of the main government-affiliated labor federation, the Congreso de Trabajo, now also leading SUTERM.

The labor landscape began to change, however, when, seven years ago, former President Ernesto Zedillo announced plans to put the electrical system up for sale. Those plans have outlived his administration. Current President Vicente Fox, a former CocaCola executive who became the first candidate to defeat the ruling PRI in 70 years, announced during his campaign that he would continue the privatization plan.

The government argues that it has no money to invest in modernizing the apparatus, especially the generating stations that would be the first object of privatization. In addition, it argues that private owners could provide service at cheaper prices-defying the experience of previous Mexican privatization schemes.

George Bush's assumption of the U.S. presidency has given those plans further impetus. His energy plan also envisions much more regional integration, tying Mexican generation to the power grid and market in the U.S. Southwest. Deregulation of U.S. utilities-the political direction of the U.S. Federal Energy Regulatory Commission even under former President Bill Clinton-has acquired yet greater emphasis under Bush. Integrating the electrical systems of the United States and Mexico is not only a technical goal, but a political one, designed to create greater profit-making opportunities for the newly deregulated subsidiaries of U.S. utilities.

In 1998, however, Zedillo's privatization scheme was met with a wave of popular resistance led by the SME. Under the banner of stopping the selloff of both electricity and oil, more than a million people demonstrated in Mexico City's central plaza, the Zocalo, on the traditional May Day holiday.

The resistance was helped by the slow disintegration of the old union structure, which refused to mount any defense against neoliberal government policies. In its place has emerged a new union federation, the National Union of Workers (UNT), which has declared open opposition to the economic reforms. One of the most important reforms implemented by the new federation was scrapping the old requirement that workers belong to the governing party in order to hold their jobs and maintain their union membership. While the SME, which never had such a rule, did not join the federation, the formation of the UNT helped to create a new political space in which opposition gained strength and legitimacy.

I n 1999, splits began to develop in the other electrical union SUTERM. On May 22, 3,000 of its members defied their national leaders and marched in the capital, openly allying themselves with the SME. Another demonstration on August 28 brought out 5,000, and a national coordinating committee was set up, representing 15,000 workers.

Meanwhile, the SME established the National Front of Resistance Against the Privatization of the Electrical Industry (FNRCPIE), and collected over a million signatures on petitions in just three weeks. The battle over privatization was internationalized when the SME hosted a conference in Mexico City, which featured delegations from Brazil, Argentina and other Latin American countries. Further conferences also brought together the Worker's University of Mexico, the National Association of Democratic Lawyers, the left-of-center Party of the Democratic Revolution, along with union representatives, academics, nongovernmental organizations and other political parties.

The union argues that the government subsidizes large users, even though Mexican power prices are already very low. In addition, government budget cuts continue to undermine any modernization of equipment or facilities. The SME accuses the government of draining the resources of the Power and Light Company by forcing it to buy power from the Federal Electricity Commission, whose prices have increased 298 percent, while the company's rates to consumers have only gone up by 176 percent.

Confrontation with Fox was narrowly averted when a new collective bargaining agreement was reached between the SME and the Power and Light Company last March. It was widely rumored that police and soldiers had been prepared to occupy electrical installations in the event of a strike.


Last May, the World Bank added to the controversy surrounding Mexico's low-wage development policy in a series of recommendations it made to the new Fox administration, "An Integral Agenda of Development for the New Era." The bank recommended rewriting Mexico's Constitution and federal labor law, eliminating protections in place since the 1920s. Those recommendations include giving up requirements that companies pay severance pay when they lay off workers, negotiate over the closure of factories, give workers permanent status after 90 days and limit part-time work and abide by the 40-hour work week. The Bank also recommended other changes, which would weaken the ability of unions to represent workers and bargain, including eliminating the historical ban on strikebreaking. And Mexico's guarantees of job training, healthcare and housing, paid by employers, would be scrapped as well.

The recommendations were so extreme that even a leading employers' association condemned it. Claudio X. Gonzales, head of the Managerial Coordinating Council, called the report "over the top," arguing the Bank does not make such proposals in developed countries. "Why are they then being recommended for the emerging countries?" he asked. But Fox embraced the report, calling it "very much in line with what we have contemplated," and necessary to "really enter into a process | of sustainable development."

Among those who disagreed was I Jesus Campos Linas, the new PRD| appointed head of the labor board. He | saw the World Bank proposal as a stalking horse for Mexico's largest employers and their allies among foreign corporations and financial institutions. The proposals were too drastic for the government to make itself, he said, but they provided an extreme pole against which its own proposals might seem more acceptable.

Campos Linas rejected Fox's argument that gutting legal protections would make the economy more competitive, attract greater investment and create more jobs. "Mexico already has one of the lowest wage levels in the world," he said, "yet there's still this cry for more flexibility. The minimum wage in Mexico City is 40.35 pesos a day- no one can live on this. And now we've lost 400,000 jobs since January alone."


Two separate and very different ideas about economic development and workers' rights have emerged in Mexico. The differences are deep over whose priorities will prevail-those of workers or those of investors with a stake in the free-trade based economy.

According to Harley Shaiken, director of the Center for Latin American Studies at the University of California, Berkeley, "The Mexican government has created an investment climate which depends on a vast number of low-wage earners. This climate gets all the government's attention, while the consumer climate-the ability of people to buy what they produce-is sacrificed."

Rosendo Flores, SME secretary general, emphasizes that privatization cannot be defeated without seeing its integral connection with the rest of the neoliberal economic development program and without proposing an alternative. Industrialized countries developed through strong internal markets, he points out, with well-paid workers capable of consuming the goods they produce.

"We have seen the consequences of deregulation in the electrical sector in the state of California, which has been detrimental to the interests of the electrical workers and of the population," says a statement signed by leaders of both Mexican electrical unions. "In Mexico, the people rightly think that the electrical industry and the petroleum industry should be public property and that such public property is the fundamental basis for their nation's existence and of their national sovereignty."


David Bacon, who writes on immigration and labor issues, is an associate editor for Pacific News Service.

Mexico watch

Index of Website

Home Page