Learning the limits of power: Privatization and state-labor interactions in Mexico

Latin American Politics and Society, Winter 2001 by Williams, Mark Eric

ABSTRACT

Despite repeated conflict with organized labor, the government of Carlos Salinas de Gortari (1988-94) pushed an aggressive divestment agenda that transformed Mexico into Latin America's leading privatizer. Explanations of Salinas's achievements typically emphasize centralized presidential power (including control over the ruling party) and autonomy; technocratic and political savvy; and weak labor opposition. This article questions such a pure "capacity-- outcome" approach. Of equal importance are the learning effects of repeated interaction between the state and labor, which changed the course of divestment struggles and thereby influenced their outcomes. Lessons learned in successive confrontations led to patterns of interaction conducive to widescale privatization. The article develops this argument through comparative analysis of major divestment episodes in the aviation, mining, steel, and telecommunications sectors.

Struggles over economic policy have colored much of Mexico's recent history, as the sustained pursuit of structural adjustment and liberalization has pitted government reformers against status quo defenders. Perhaps none of these contests have been greater than the battles over privatization, which saw conflict erupt repeatedly between the government and important segments of one of its traditional pillars of support, organized labor. Largely anticipating labor opposition, few analysts expected extensive divestment drives to succeed in developing countries such as Mexico; indeed, as late as 1990, Gayle and Goodrich concluded that with few exceptions, large-scale privatization was "essentially an advanced industrial country phenomenon" (1990, 12). The government of Carlos Salinas de Gortari (1988-94), however, privatized hundreds of public enterprises, including large, politically important, and highly unionized firms in the mining, steel, and telecommunications sectors.

Most scholarship attributes the scope, pace, and success of Salinas's divestment program to three influences: centralized presidential power (including the president's control over the ruling party) and autonomy; the administration's technocratic and political savvy; and weak opposition (Centeno 1994; Middlebrook 1995; Teichman 1995, 1996; Vanderbush 1996; Waterbury 1993). The impact of these factors on privatization outcomes cannot be ignored. Especially under Salinas, Mexico's presidency was extraordinarily powerful, and studies confirm a strong correlation between presidential power and successful privatizations (Teichman 1995, especially chapter 5). The divestment of major firms like the national steelworks, moreover, required a high degree of economic, administrative, and analytical competence, a task for which the Salinas administration was particularly well suited. Finally, while not all unions opposed privatization, those that did-particularly union locals-proved ill equipped to halt the march of divestiture.

Based on its accomplishments, the Salinas administration earned a reputation as a political juggernaut, advancing divestment through superior power, political adroitness, uncommon foresight, and a near-errorfree control of events. This image gained currency in academe, financial circles, and print media. It was advanced by admirers and detractors alike; and it has remained a durable vision of the Salinas era despite Mexico's 1994 peso crisis and Salinas's subsequent fall from grace.

This essay reevaluates the collective "Salinas image" and the weight accorded to presumed causal factors behind the administration's divestment achievements. To be sure, the vision of a powerful administration vested with uncommon political acumen and technical expertise carries weight. But this image, and the explanation of successful privatization it implies, paint only a partial picture, one that oversimplifies reality, favors deterministic accounts of Mexico's accomplishments, and ignores a major dimension of the administration's success.

To focus solely on presidential power, foresight, technocratic and political skill, and weak opposition is misleading both theoretically and factually. It imputes to policymakers a type of prescience they did not possess, and it implies that the Mexican president's preferences in implementing divestment invariably were realized. It also paints too broad a picture of union weakness. What's more, it obscures the lessons both the administration and the labor movement learned in the course of the privatization campaign. These lessons, brought home through repeated conflictual but ultimately instructive interaction, proved highly conducive to widescale divestiture.

Such learning affected three variables: the patterns of behavior between reform advocates and opponents, the goals labor pursued, and the government's stock of political capital; that is, the aggregate support and credibility governments enjoy at any given moment. Through repeated interaction with organized labor, the state moved from highly coercive tactics (implementing divestment via bankruptcy and union busting) to more moderate ones (hard bargaining plus compensation to labor). Labor opponents, meanwhile, moved from an inflexible posture (typified by total opposition and the strike) to a more accommodating one. In the process, preserving the collective contract remained a basic goal; but compromise replaced strikes as the tool of choice to protect union interests, and syndicates grew more receptive to noncontractual forms of compensation (job training, generous severance packages, community infrastructure projects) to help offset contract givebacks. As engagement patterns changed, compromise gradually displaced unyielding conflict, allowing both camps to preserve core interests and permitting later divestment rounds to proceed more smoothly than before.