Mexico's President Moves Against Monopolies

President Felipe Calderon sends in police to shut down a massively inefficient electricity distributor. Could the teachers' union be next?

By Geri Smith

For the past three years, Mexican President Felipe Calderón has waged an all-out war against powerful drug trafficking cartels, sending army troops on sweeps through major cities along the U.S.-Mexico border. Now he's starting another kind of war, this one against public monopolies that prevent the country from being internationally competitive.

In a surprise move on Oct. 11, Calderón sent federal riot police to take over the installations of state-run electricity distribution company Luz y Fuerza del Centro, or LyFC, and announced that he was closing the company down and laying off all 40,000 of its employees. Distribution is being taken over by the Federal Electricity Commission, or CFE, a much more efficient state-run company.

In a nationally televised speech announcing the takeover, Calderón said the company had been "losing one-third of the electricity it distributed because of theft, technical failures, corruption, or inefficiency." There was no other option but to liquidate the company, he said, "because time and resources were running out."

Not Much Movement on Promises

Calderón's bold action came just days after the government refused to recognize the validity of elections in the company's powerful labor union, the Mexican Electricity Workers Union. The government alleged possible vote-rigging.

Several Mexican presidents, dating back to Carlos Salinas de Gortari in the early 1990s, had considered cracking down on the union so that they could turn around the money-losing company, which supplies energy to around one-fifth of the country, including the capital, Mexico City. But they all feared confronting the politically powerful union, which routinely threatened strikes and raised the specter of massive power outages if wage demands weren't met. And previous presidents balked at spending the estimated $1.5 billion that Calderón is planning to pay in severance—nearly twice the amount required by law—in order to encourage the electricity workers to walk away without a fight.

"Apart from cracking down on the drug traffickers, Calderón hasn't had much luck delivering on the promises he made while running for president," says Roderic Ai Camp, a professor of government at Claremont McKenna College in Claremont, Calif., and author of more than 20 books on Mexican politics and business. "By doing something dramatic like this on a substantive policy issue, he may reinforce his image as someone who is forceful and can lead," Camp says.

Annual Subsidies of $3 Billion

The Business Coordinating Council, a major Mexican industrial association, applauded Calderón's decision, saying the electricity company's "exorbitant costs and constant losses…damaged the national economy and the public's best interests." But several opposition politicians, some with traditional ties to the electricity workers' union, said the government should have tried to negotiate a solution rather than eliminate the company altogether. "The solution should have been to reach an agreement—persuade, convince, and avoid a big conflict," said Mexico City Mayor Marcelo Ebrard, from the left-leaning Party of the Democratic Revolution.

In announcing the electricity company's closure, Mexican interior politics minister Fernando Gómez Mont said the government had been subsidizing it to the tune of $3 billion a year. That's nearly the same amount the government spends on its main anti-poverty program, which provides relief for 25 million families, and it's double the annual budget of Mexico's huge National Autonomous University, which has 270,000 students.

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