Pirates of the Caribbean

Cuban, Venezuelan and Mexican

In explaining the surge of productivity in the American economy in the early 19th century, Professor Tim Kehoe of the University of Minnesota, speaking in Houston at a seminar organized by the Federal Reserve Bank of Dallas, observed that there were two reasons: 1) increases in management skills, and 2) eliminating the pirates.

“Today,” he continued, “the ‘pirate’ is the individual who, either within or beyond the law, appropriates a public good for private or institutional use.” Examples of a “public good” include personal safety, democratic rule, property rights, contract enforceability, public oversight, accountability, freedom of speech and assembly, and rule of law.

Carlos Slim was identified as a ‘pirate’ in this modern sense: he appropriates from the budgets of individuals, households and organizations a monopolistic premium that annual amounts to billions of US dollars, an amount equivalent to some 2% of Mexican GDP. It is his vocation as a pirate that has made him the richest individual on the planet.

This sour experience in the 1990s of taking one public monopoly and passing it, intact, into private hands, has given Mexican society yet another reason to distrust the privatizing of the energy sector.

Mexican (and Cuban and Venezuelan) banks act as pirates when they channel loans to the government, bank directors and other insiders. Getting banks to lend to small businesses to spur growth has not happened on the scale that is needed.[1]

As for the privates in Mexico, the public sector trade unions are the best-known pirates in Mexico. By denying its members the right of a secret ballot in the elections of officers, union leaders steal from society’s store of democratic values and government. In refusing to make union finances public, union leaders offer no accountability of the use of union fees and the generous Pemex stipends, loans and grants that the union receives annually from Pemex.

The federal government, in permitting only one brand and retailer of gasoline, deprive the consumer of freedom of economic choice.

Similarly, in prohibiting the successive reelection of public officials, the Congress is stealing from the good will, experience and motivation of office-holders to achieve reform measures that actually deliver tangible benefits to society. When asked about energy reform after his presentation on “Why Do Reforms Not Help Deliver Growth in Mexico” (at a seminar held in Houston on November 2, 2012[2]), CIDE’s Professor Fausto Hernández Trillo speculated that the privatization of the oil sector would bring about an increase in capital formation, but offer few other benefits to the economy.

One wonders if such piracy in the aggregate, is the unexamined phenomenon that explains how Mexico has a negative TFP (Total Factor Productivity), the metric that is said to be indicative of the rate of technological change and innovation in society.

[1] As for the modern pirates in Cuba and Venezuela, we defer to the observations of Mary O’Grady in her weekly “Americas” column in The Wall Street Journal.

[2] www.dallasfed.org/research/events/2012/12mexico.cfm

Written by

Mexico Energy Intelligence

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.