The Power and the Money

Mexico is gaining jobs, not wages, part 2

Part 1 is here.

Part 2 is based on a stunning report from Bank of America: nominal dollar wages in Mexico are now lower than in China. (Hat tip: Beyond Brics. But note that we here at TPTM called it first!)

This is a great thing for China, obviously, and it has benefits for Mexico. It means that “nearshoring” will continue, as Mexico gains competitiveness against China. In fact, Mexico became competitive back in 2008, right after the big depreciation in the peso. The below chart shows Alix Partners’ decomposition of the landed costs (i.e., wholesale cost for U.S. sales) for five representative goods. In 2005, China was cheaper than Mexico; by 2008, that was no longer true.

But is it a good thing for Mexico? I am less certain. A boom based on nearshoring and continuing low wages ($2.50 an hour from BofA; $4.53 from the BLS) is a good thing for investors and the resulting employment boom is a good thing for Mexicans, but it does not presage much future growth. (In addition, the gains from the good news are already priced into the markets; ship-sailed if you’re looking for easy returns.)

Mexico is a solid middle-income democracy with a serious (but not existential) organized crime problem. It has made amazing strides in eliminating unnecessary volatility. The country works. But looking over the recent hype it’s attracting (see here and here and here.) I feel a little like Chris Rock. “You’re supposed to have a democracy! You’re supposed to have a middle class! You’re supposed to have factories! What do you want, a cookie?”

In other words, Mexico is performing just as you would expect a stable middle-income country with substantial long-term problems to perform. The expectations of super-returns and blather about Aztec Pumas (or whatever) is just hoping for a cookie.

P.S. Noah Smith expects rising demand for Mexican manufactures to raise wages. (You should all read his blog! It is a very good blog.) His error is simple: the demand for Mexican manufactures is extremely elastic, because Mexico is not the only country in the world.

P.P.S. No, I have not started to follow Twitter feeds. I hate that thing even more than Facebook.

Is the U.S. serious about fighting organized crime in Mexico?

I recently met with a high-level PAN official from the Calderón administration. The official said some things which were very interesting. (I cannot identify the official.) First, the Calderónistas do not see much (if any) substantive policy space between them and the new Peña administration. This is in line with the common feeling that the outgoing PAN president supported the PRI candidate over the candidate of his own party.

Second, the official (do note that I am not even using a pronoun) admitted that Mexican officials do not care how many illegal narcotics cross the border heading north. They do, however, care when the people who earn profits from that traffic suborn justice and bribe officials in Mexico, and they really care when they use violence. That said, they believe that much (in fact, the official intimated it was most) of the violence comes from fighting over the rights to sell drugs within Mexico. This was said in surprisingly blunt terms, but it was not surprising: the administration openly suggested that legalization might be a good idea as early as 2010.

Finally, the official said that they had great cooperation from the United States on everything except ... stopping money from flowing back to Mexico. On that, neither the Bush nor Obama administrations wanted to do much. There was no appetite on the low end to search southbound vehicles for cash in trunks, and there was no appetite on the high end for ... well, click this link and then this one.

The second link will take you the first stories about HSBC’s laundering of narcotics profits going from the U.S. to Mexico. What happened? Well, the United States eventually reached a $1.92 billion settlement against the bank. $1.92 billion! That’s a lot of money! HSBC profits fell 17%!

Only ... well ... the Mexican ex-official was not satisfied. Consider. HSBC earnings went from $16.2 billion to ... $13.5 billion. The CEO’s take home pay declined ... from $8 million to $7.4 million. The number of employees who earned bonuses above £1 million went from 192 ... to 204. 

It is true that the fine wiped out any HSBC profits from moving illicit earnings. The problem is twofold. First, you have let people move blood money, an action that actually carries criminal penalties, but you imposed no criminal penalties! It is easy to agree with Senator Warren (D-Massachusetts) that this is an outrage.

But there is another problem. There is, right now, if you are a bank moving illicit funds, there is a low chance of getting caught. So if the idea is to disincentivize money-laundering, you need to do a lot more than just wipe out the potential profits. You need to wipe-out the risk-adjusted potential profits.

And that the United States did not do.

Which brings us back to the title of this post. Are we? Really?

Chicago is not Ciudad Juárez and never will be

The answer to this question is no.

To be brutally frank, even raising the comparison destroys the author’s credibility. I understand the point that she is trying to raise. Comparing the two cities utterly obscures it.

Legalizing marijuana in Uruguay

So Colorado and Washington have legalized marijuana! This is a big step, although it is going to be a problem that the federal government still bans the substance.

Now, it looks like Uruguay might be the first country on Earth to fully legalize marijuana. (Or “marihuana,” as they spell it.) The Netherlands tolerates it, but it is not fully legal.

It is pretty neat that a serious country may legalize marijuana, but to give away the punchline, I doubt very much that it will be a harbinger of much until the American or Canadian federal government moves. There is a lot of opposition to legalization in Latin America, and Uruguay is not considered a bellweather. (It is one in practice, but that is more because Uruguay gets to the future first and less because other nations deliberately emulate the Eastern Republic.)

The bill is pretty vague. Here is the complete text:

“The State will assume control and regulation over the importation, production, acquisition in any form, storage, commercialization and distribution of marihuana and its derivatives, under such terms and conditions as fixed by regulation.

“Likewise, the State will undertake such material activities as are necessary before, during and after to carry out the activities referred to in the previous paragraph, under such terms and conditions as fixed by regulation.

“The activities referred to in the previous paragraphs shall be realized exclusively under a policy of damage reduction that shall, therefore, alert the population to the consequences and adverse effects of marihuana consumption, as well as the effects of minimizing the risks and damages to the population of potential consumers under such conditions as fixed by regulation.”

It is worth noting here that the Uruguayan president is quite a bit more powerful than the American president. (At least inside the country. Outside Uruguay, I do not believe that Mr. Mujica has the ability to order flying robots to kill anyone.) As long as his cabinet concurs, the Uruguayan president can send bills directly to Parliament. (Officially, the “General Assembly,” but everyone calls it Parliament.) In fact, under Article 168 the president can designate bills as urgent. “Urgent” bills must be approved or disapproved with 85 days or they automatically become law. The catch is that the president can only submit one urgent bill at a time.

The marihuana bill is not urgent.

So it is taking its own sweet time through Parliament. Of the six security measures proposed by the President (the marihuana deal is considered a security measure) the legislature has approved only one, which reduced sentences for low-level drug dealing while increasing the penalties for corruption. Right now, the marihuana bill is in a dicey spot. It can pass, but only with support from the President’s Broad Front. So far, only one opposition legislator has come out in support.  President Mujica seems reluctant to pass such a significant bill on a party-line vote.

In order to get support, the administration has announced what the regulations might look like after the bill is passed. The drug will cost ₱700 per gram, around US$36. That is higher than the U.S. price of $14 per gram, but roughly the price in Uruguay. (Since marijuana is still illegal, it is hard to come up with a standardized price, even for tolerated medical marijuana.) If the law passes, Uruguayan consumers will receive a photo ID armed with a photo and bar code (that is high tech?) and be limited to 40 grams a month.

To sum, the bill looks likely to pass, but it is still generating controversy.

But I would also bet that the Mexican government is going to consider legalization but do nothing until the U.S. federal government moves. There is a great deal of conservative opposition in Mexico, deeper and wider than in Uruguay, and with a weaker president and a divided Congress everything is tougher.

In fact, contrary to popular belief, a great book by Isaac Campos shows that opposition to marijuana actually originated inside Mexico; it was not imposed by international norms. The reverse actually: had Mexicans been less anti-marijuana, then the world might not have gone prohibitionist.*

I never did think that the border wall would work but ...

... this is ridiculous.

It looks like some smugglers were trying to use makeshift ramps to move marijuana from Baja into the Imperial Sand Dunes Recreation Area near the Arizona state line. The Jeep Cherokee got stuck on top. The smugglers ran south as the Border Patrol agents rolled up: seems as though they got away with the marijuana.

I guess it’s worth pointing out that the fence is not really built on the border, but about 30 feet north of it. So it’s impressive that they not only got away, but got away with their cargo.

I guess it isn’t quite a Darwin Award moment, but really. A Cherokee over a fence? Caray.

Burying the lede

The New York Times had a story today about the changing geographic location of U.S. oil imports. We’re importing more oil from Saudi Arabia.

The problem with the story is that it began with an argument that makes no sense at all. “This reversal is driven in part by the battle over Iran’s nuclear program. The United States tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy, and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.”

Huh? The U.S. didn’t buy Iranian oil. So having Saudi make up for a boycott of Iranian oil shouldn’t increase U.S. imports from Saudi Arabia. That is just a seriously dumb pair of sentences.

Later on there is another nonsensical statement: “Domestic oil production has been surging the last three years and is up 10 percent this year. But most of the new production is coming from shale oil fields in North Dakota and Texas that produce high-quality sweet grades. Many of the refineries on the Gulf of Mexico coast are designed to refine the heavier oils that the United States has traditionally imported from Venezuela, Mexico and Canada.”

Uh ... nothing in that paragraph is false, but Saudi oil isn’t heavy either. Why then would refineries prefer Saudi crude over American? Surging production in the United States is not going to suddenly cause refineries to import oil from Saudi Arabia. That is another weird statement.

So if it isn’t the Iranian situation, and it isn’t surging U.S. production, why are we importing more Saudi oil? Well, the answer is buried down in the story: Mexican and Venezuelan exports are dropping, and the pipelines don’t exist to move U.S. and Canadian crude to the Gulf refineries. “Mexican and Venezuelan production has been sliding the last few years, and much of that oil has been replaced by Canadian oil from oil sands. While Canadian production has been increasing rapidly in recent years, there is not enough pipeline capacity.” (They didn’t mention U.S. crude, it’s true, but the point still holds.)

In fact, when you look at the numbers (which the article in fact does), it is entirely driven by a fall in imports from Mexico. Refineries are buying Saudi crude (over U.S. production in faraway North Dakota) to make up for Mexican shortfalls.

I am not sure that there is a big national security impact from this, given that as long as North America is a net importer, there is not a whole lot that will protect us from price fluctuations. But it does highlight Mexico’s problem.

Reforms are afoot ... but it is unclear if they will work. More on that eventually. The point for this post is that the Times buried the main part of the story in a fog of words.

In which I fail the cricket test

The cricket test was proof of two things. (1) The U.K. deserved to lose its empire; and (2) the country was going to have trouble with immigration. Basically, it said that if you were an immigrant and you rooted for your country-of-origin in a cricket match, then your loyalties were suspect.

That is as stupid as it sounds. I could understand a “Sign up if the Germans attack” test, or a “Don’t cheat on your taxes” test, but a cricket test? Come on, man. Tens of thousands of Americans have died for this country even though they would fail that. Not in cricket, we don’t play that in America. But other real sports.

Me, I just failed it. I am rooting for Laura Sánchez. You have a problem with that?

Don’t count on the end of Mexican emigration

A month back, we argued that the job and wage data in Mexico implied that when U.S. job growth picks back up, so will immigration from Mexico. Jobs are plentiful in Mexico these days, but wages are low: the reason for low emigration, in that view, is the lack of American demand rather a lack of Mexican supply.

It appears as though survey results from Pew are consistent with that view.

Was the Mexican election stolen?

 

Was fraud decisive in the Mexican presidential election? Well, in the sense of fraudulent vote-counting, no. But what about vote-buying? The PRI stands accused of bribing people to vote for them. Moreover, cellphones have provided a new way of circumventing the secret ballot: to get the bribe, the voter needs to zap a picture of his or her ballot. Pretty nifty stuff! More prosaically, the PRI-Green coalition hired children to watch the voting and report back.

Still, at the end of the day, Peña won by a margin of 3.2 million votes. My friend Alberto Simpser calculates that there it would have been expensive for the PRI to have bought enough votes to swing it. Here’s his calculation (modified slightly by yours truly to account for an apparent arithmetic mistake):

First, the PRI needs to swing a minimum of 1.6 million votes from the PRD to win. Second, reports show bribes between 100 and 1,800 pesos per voter. (Note the final “r”!) Youtube indicates that 100 pesos was small enough to backfire. Alberto goes with ₱700, which is consistent with data from the 2000 election (after adjusting for inflation) of a cost of ~₱500. Finally, bribing a voter is not the same as getting his or her vote. Data from a 2004 survey of Argentines implies a vote-buying efficacy of around 16%. So ... the minimum cost of buying the election is: ₱700 × 1.6 million ÷ 16% = ₱7 billion, or US$560 million.

That is a significant chunk of change. Of course, if you assume that the PRI is better at targeting its vote-buying than Argentine parties (which is not unreasonable) the cost goes down.

At 33% efficiency, the minimum cost of buying the election drops to $272 million. Even at an impossible 100%, the coalition would still need $90 million. That is a significant chunk of change: legal spending by the PRI-Green coalition came to only $111 million. Alberto concludes that although the PRI could have raised such sums, they should be detectable. For what it’s worth, the PRD claims to have evidence that the PRI-Green coalition spent $320 million.

To recap: Alberto is not arguing that the amount needed to buy the election is too large to carry out! He is arguing that the amount is too large to hide.

When evaluating the morality of the situation, as opposed to the legality, readers should keep in mind what exactly the PRI stands accused of. It matters whether voters were offered store coupons or offered rides to the polls, both being illegal under Mexican law. Consider the list of illegal behavior on election day reported by the Alianza Cívica, with the percentages reporting the activity:

1. Someone came to your door to insure that you voted (5.6%);
2. You were offered breakfast (2.3%);
3. You were called by phone (2.1%);
4. You received a gift (1.7%);
5. Someone tried to take your voter ID (1.0%);
6. Someone offered to take your voter ID to the polls (0.3%);
7. Someone gave you a pamphlet (0.3%);
8. Someone offered you a ride to the polls (0.8%).

Well, I worked heavily in North Carolina in 2008 and in Florida in 2004. (I also worked on New York local elections in 1988 and 1989.) The GOP in New York and the Democrats in Florida and N.C. all engaged in nos. (1), (2), (3), (7), and (8) quite legally. They also did a little bit of (4), not so legally. (Google “walking-around money.”) 

I find it hard to be outraged about (1), (2), (3), (7), and (8). After all, not all that is legal is moral, and not all that is illegal is immoral. That said, an argument can be made that political parties need to be held to a higher standard: they should avoid all illegal behavior (regardless of morality) and a pretty good chunk of legal behavior as well. My point is only that 1988 this is not, but I can be convinced that I should be more outraged than I am.

Prescient, or coincidence? Well, obviously the latter, but I’ll post anyway

What do you know? I post a picture of the HSBC building in Mexico City to illustrate a post about money-laundering, and suddenly a Senate committee accuses HSBC of money laundering!

But as Gancho warns, be careful about the significance of these reports. The fact the HSBC was lax does not translate into all of its business consisting of money-laundering. This is not exonerate HSBC. Nor is it to say that we should not combat money-laundering. It is simply to say that we have to be careful when estimating the size of illicit flows. Jumping to conclusions is just another way of making the cartels seem like unbeatable superorganizations, when they are not.

The internets are freedom-neutral

Not unexpectedly, the protests over the recent Mexican election (which will go nowhere) have led to bloviations about Twitter and Facebook and the blogosphere yadda yadda. My skepticism about the political effect of the Internet is well-known. Here I pointed out that the Egyptian government readily shut it down during the rebellion. Here I mentioned that revolutionary activity spread further and just as fast in the mid-nineteenth century. And here I presented evidence that most revolutionary mobilization in Egypt took place via ... printed leaflets.

So I was gratified when Mex Files (which you should all read regularly) published photographic evidence that angry young Mexicans agree with me.

“If I had known that you would be a cowardly Mexican, then I would’ve stuck to taking care of my cows. I didn’t have the Internet or Facebook, and I made a revolution. You, you’re too lazy to march for your rights. But hey, ‘Viva México,’ right?”

Right. I actually don’t think the recent Mexican election was fraudulent, and I still say right. The internet has made political mobilization easier — but only for those who were going to mobilize without it.

Money-laundering 101: Wachovia and the casas de cambio

Mónica in comments is gobsmacked by the amount of money that Wachovia handled in wire transfers from Mexico without “applying the proper anti-laundering strictures.” $373.6 billion over three years, reported the Guardian last April. What does that number mean?

Well, as Mónica surmised, it means less than one might think. What happens when somebody in Mexico goes to a casa de cambio and gives it a dollar to wire to the United States? The casa de cambio acquires the dollar bill. The casa de cambio has an asset: the dollar. Double-entry accounting means that it creates a corresponding liability: it owes $1 to whomever gave it that dollar to send. 

Now it wires the dollar to Wachovia. It gets an asset: a $1 deposit at Wachovia. It also gets a liability: Wachovia will at some point want that dollar bill, or some corresponding dollar-denominated liability. (The deposit at Wachovia then cancels the $1 owed to the customer, since the customer receives the deposit account. But the other asset and liability generated by the transaction remain.) In other words, that $373.6 billion is a gross flow: the change in the casas’ liabilities generated by wire transfers to the U.S.

Is that gross flow big or small? Clearly a lot of money sloshes back and forth between the U.S. and Mexico. But even more money sloshes around within Mexico. For example, in the first quarter of 2012 the Mexican payments system processed about $193 billion in checks and $1.2 trillion in other transactions. Over three years, that would be almost $15 trillion. (Wow!) Given that baseline, the cross-border figures do not seem out of line. Rather, what is surprising is the implication that Wachovia (and its 22 correspondents in Mexico) appear to have captured so much of the business. Even so, there is an explanation for that: the DOJ indictment against Wachovia mentions that other banks were getting out of dealings with the casas de cambio precisely to avoid problems with illicit transfers.

The indictment also says that these transfers occured on behalf of the customers of the casas de cambio, but I suspect that much the flow consisted of the casas’ own accounts. After all, they probably wanted to earn interest on their dollar balances, and this was a way to do it.

What was the net flow, then? After all, whenever the casas needed dollars the process would go into reverse. Fortunately for us, Wachovia offered two services to the casas de cambio to help them net things out when the time came for them to make good on the claims against their dollars. First, it helped them physically move dollar bills to the U.S. That came to $4.7 billion over the period. (See page 5 of the indictment.) Second, it allowed the casas to accept checks, travellers checks, and other dollar-denominated liabilities, digitize them, and use the digitized documents to effect settlement in the United States. Those transfers came to $47 billion.

In other words, the net flows were a lot smaller. $52 billion over three years is still a lot of money, but remember that is only a net flows from the point of view of the casas de cambio. From the point of view of Mexico as a whole, they are still gross flows. The Department of Justice, in fact, found that only $110 million of the flows were clearly crime-related. (The link goes to the settlement agreement.) Wachovia failed to monitor its activity, but the bank retroactively analyzed its transaction: little suspiscious was found.

The amount Wachovia processed is staggering. And the bank did a lousy job of real-time checking. But the amounts are not out of line for two adjacent countries with economies as large as the U.S. and Mexico. And neither the amount nor the malfeasance implies that most, or even 99.9% of it, is illicit or criminal. After all, how much money to you think Mexican drug cartels want to transfer into the United States?

Oliver stoned

 In a recent interview on “Piers Morgan Tonight,” Stone used a series of unfounded statistical assertions to justify his opposition to the war on drugs, the theme of his movie “Savages” which opened in the U.S. earlier this month. Among his comments, as compiled by the Los Angeles Times:

The Mexican economy would die without [drugs] because they need the money. It goes into their legitimate economy. It’s bigger than tourism. It’s bigger than oil. It’s bigger than remissions from their Mexican emigrants back to their country ... Fifty percent of our prison system is victimless crimes. People who’ve never hurt anybody, they’re in for marijuana and it has nothing to do with punishment. It’s a medical issue, and I think we have to move to decriminalization and legalization.

Stone is right to point out that the mass incarceration of drug offenders is demonstrably inefficient and in many senses immoral, but his facts are incorrect. Drug offenders do not constitute 50 percent of the US prison system’s inmates, but just over 20 percent. There are certainly more effective and humane ways to deal with the issue than tossing these people behind bars, but the opponents of the largely mindless approach to drug policy that has dominated in the last 40 years only hurt their case by casually tossing out falsehoods.

The problem continues with Stone’s statement that flows of drug money in Mexico are larger than those from tourism, oil, or remittances. Estimates for the value of the Mexican drug trade are all over the map, but the most rigorous analyses have concluded that export revenue from the drug trade is far lower than Stone suggests. Alejandro Hope, for instance, places the figure somewhere between $4.7 to $8.1 billion, while the RAND Corporation estimates that Mexican traffickers earn roughly $6.6 billion per year from sending drugs to the US.

In contrast, remittances sent by Mexicans living abroad in 2011 amounted to $22.7 billion. Mexico’s tourist trade, notwithstanding the nation’s unfortunate image in the international press, still managed to generate $11.9 billion in 2010. Stone’s claim is even further from the mark with regard to oil: the revenues for Pemex, the national oil company, amounted to $125 billion in 2011.

Consequently, Stone’s statement that the Mexican economy “would die” without drug money drifts into the terrain of the indefensible. Unfortunately, Stone is not alone in this exaggerated view of drug money’s role in the Mexican economy. One story, put forward by authors like Richard Grant and Charles Bowden, holds that a 2001 study by CISEN, Mexico’s intelligence agency, found that an end to the drug trade would result in a 63 percent contraction of the Mexican economy.

The study is not public — citing a story from El Diario de Juarez, Bowden wrote that it was leaked to the media in 2001, though InSight Crime’s online search for the original study turned up nothing. It is difficult to know, therefore, if its authors were perhaps making a more nuanced point that was lost in subsequent references to it. However, the scenario posited by Grant and Bowden, and the implicit idea that the Mexican economy would “die” without drug money, is simply absurd. [Note: Alejandro Hope and Jaime López-Aranda do not believe that the study exists.]

The most obvious flaw is the very idea that drug trafficking could disappear entirely. Though the size and composition of proceeds from the illicit trade may vary, longstanding industries, especially those that feed upon deep-seated human desires, don’t simply disappear from one year to the next.

Moreover, as demonstrated above, the total revenue generated by the drug trade is relatively small. Even using a methodologically suspect high-end estimate, such as the $39 billion cited by the US National Drug Intelligence Center, the figure amounts to less than 4 percent of total Mexican output. Using the more rigorous calculations of the industry’s size, drug trafficking probably accounts for roughly 0.5 percent of the nation’s economy. Eliminating the proceeds of drug smuggling would certainly have a significant impact on the GDP, but such an event, aside from being virtually impossible, would be nothing like the economic apocalypse posited by Stone.

Beyond simply being incorrect, Stone’s comments fuel a dystopian narrative of Mexico that has done the nation a great disservice over the past few years. They also help feed a belief that Mexico’s criminals are invincible supermen, against whom capitulation is the only solution. This is wrong, just like Stone’s facts.

Esther Gordillo wins Congress! Mexico, though, loses.

 Who is Esther Gordillo and how did she win Congress, you ask? Give me a moment for that issue. First, we have some quasi-official Congressional results. The preliminary estimates appear to have been remarkably inaccurate. (Diego Valle, can you explain that?)

In the Senate, the PRI-Green alliance has picked up 48 senators directly and 13 seats via P.R., for a total of 61, four short of a majority. In the House, the PRI-Green alliance has taken 157 districts plus 83 party-list seats. That is eleven seats shy of a majority. (It is also a full twenty districts less than the preliminary post-election count.)

The New Alliance Party (aka “Panal”) won another ten P.R. seats. If the PRI can convince the Panal to support them, that would provide 250 votes.

Now 250 votes aren’t quite enough for a majority. The Mexican constitution contains no tie-breaking provisions. Article 142 of the House internal rules states only that in the event of a tie, the House will immediately vote again.

If still tied, they vote again the next day, at which point that’s it. (Unless the matter is really pressing, in which case they will hope for a miracle, or something. Really! Go read the rules at the above link.) So the PRI will need 251 votes to pass legislation through the lower house. With the Panal plus one independent or PAN defector, they will have it.

Which brings us to Elba Esther Gordillo and the Panal. Gordillo heads the national teachers union (SNTE). Now, I am aware that Republicans like to prattle on about the power of the teachers unions in the United States. That is because Republicans do not know what a real union looks like. Gordillo is immensely powerful, and immensely corrupt. Frex, on an official salary of $26,910 a year she somehow bought a house in San Diego for $1.7 million, in the same neighborhood as Mitt Romney.

The SNTE was part of the PRI machine, but split in 2006 to support the PAN. As part of that split, the union created its own political party, the Panal. Lest there be some confusion, Patrick Corcoran reminds us that the top two positions in the Panal bureaucracy went respectively to Gordillo’s daughter and Gordillo’s personal secretary. Gordillo could have just thrown her votes to the PAN directly, but creating a party gave her more flexibility ... and access to federal election subsidies. Panal did not run a presidential candidate in ‘06, but it did picked up nine seats in the House and elected one senator.

This year, Panal ran its own candidate for president, the hapless and vaguely hipster-looking Gabriel Quadri. The reason was to leave Gordillo’s options open for post-election negotiations. The SNTE has 1.2 million members and managed to pull in about that many votes for Quadri, plus 1.7 million votes for the Panal’s congressional slate, enough for ten deputies and a senator.  

Now, my prediction is that given its internal splits, the PAN will not resort to a Republican-style strategy of unified opposition. That will reduce Gordillo’s leverage. That said, she will be the PRI’s easiest route to a working majority in the lower house, giving her something close to a veto. In other words, it is probably the best possible result from La Maestra’s point of view.

But it is a bad result for Mexico. Not the worst, but bad. For those who still wonder why (the $1.7 million house wasn’t enough?) read this article from the Economist.

Ms. Gordillo is not the sort of person you want in a position of power, and this election gives her more power.

Election update: PRI loses Senate, and recounts afoot!

OK, we now have better results ... and I’m now reading them correctly. (The previous post used the wrong numbers.)

In the Senate, the PRI-Green coalition won 18 states, 36 seats. They came in second in 10 more, for 46 seats in total. In the P.R. vote, though, the PRI will only pick up 10 seats, and its Green allies another two. That’s 58 seats, seven shy of the 65 needed for a majority. The

House still might be PRI. 174 districts for the PRI-Green coalition, plus 80 P.R. seats, for a bare majority of 254.

Large-scale recounts are underway. To be honest, I do not understand why they don’t just change the law and make a full recount automatic.

Postelection roundup: Polls blow it, PRI likely takes Congress, and AMLO calls fraud

 I hope those of you with interest in the race were turning to Diego Valle. He took on the challenge with aplomb, and his blog became the go-to data-driven place for election news.

The polls substantially overstated Peña’s lead in the run-up to the election. My initial thought was that the undecideds broke for AMLO, but Diego’s evidence is that the polls had a systematic bias. Considering the prevalent use of face-to-face polling, and that the polls were more accurate in 2006, that’s surprising, but the information should lead to better polling in the future. (And good job offers for Mr. Valle, I hope.)

The results are still not in, but it looks like the PRI will take Congress. So far the PRI (or the hard-to-explain PRI-Green coalition) has won 187 out of the 300 first-past-the-post districts. They also appear to have gotten 58% of the congressional vote (tossing the Greens running alone, who did not make the 2% threshold) which (I think! It gets complicated) will give them more-or-less 116 of the PR seats. That is rather more than 250, and thus they should have a majority in the House.

The Senate is less clear. The PRI won 18 states outright, which gives them 36 out of 128 senators. They appear to have come in second in 13 more states, upping their total to 49. Then the two received about 56% of the vote, which will give them (once again, more-or-less, it’s complicated) another 17 seats for a total of 66 ... a 2-vote majority. Recounts and the complications of the PR process could lose them that edge.

Finally, it looks like AMLO is calling fraud. It is indubitably true that the election was far from perfect: see some evidence on Mex Files, and note that the early reporting system clearly broke down for a while. But that, of course, is far from saying that the election was fraudulent. This stuff from Anonymous is entertaining, but not credible, and the anecdotal evidence is, well, anecdotal; only PRI-favoring errors have been reported.

After 2006, I get worried about these sorts of claims. A legal challenge is one thing, once again going to the streets or occupying Congress is quite another. Richard Grabman predicts more such events; I can only hope that he is wrong. Considering that the margins in most districts are quite substantial (and the overall presidential margin ain’t nada) I suspect that he is.

But I do not know. I worry, at least a little. But let’s stay optimistic!

Victory! For Spain ... and (we hope) for Mexico

 We know the result in the European Cup! Great game, and a most unexpected blowout. Poor Balotelli.

We won’t know the results of the Mexican election for a few hours yet. Absent a truly earth-shattering surprise, though, the details are for the Congressional vote: did the PRI win a majority or not?

In the meantime, here is some food for thought. Four things. First, Mexican face-to-face polling may be the future, as Americans give up land lines. (And, as importantly, become less eager to answer the calls that do come in.) Second, the Economist argues for political reform, but I encourage you to doubt whether the reforms being mooted will make any noticeable difference to Mexican governance. (If there is interest, I will explain my doubts.) Third, consider that the biggest damn difference that any Mexican government can make regarding any damn issue facing the country is to raise more public revenue. The PRI has floated the idea of higher taxes, and there are reforms afoot that might (might! maybe!) reverse the decline in Mexican oil output.

Finally, though, remember at the end of the day that politics exists for two reasons. First, to give us a way to decide on public issues that don’t involve violence. Second, to make the society a better place for its weakest members. And with that, I give you this picture of a little girl in Iztapalapa, D.F., in front of her home ... a home where the family puts out tarpaulins to capture rainwater, where the streets regularly flood, where wages are tiny, where crime is high, and where this brilliantly smart little girl will attend schools that are barely able to teach her any more than her heroic parents already have. None of that is fair, not by my lights.

It might be cheesy, but f--k that. It’s people like this family that make you remember why all this matters.

Uncertainty and certainty, European soccer v. Mexican politics

 Uncertainty involves the game that starts today at 2:45pm EST. My wife pointed out to me that my mother is probably spinning in her grave right now, considering her lack of attachment to the madre patria. (In a European competition, she would be have been more likely to root for the Netherlands than the land of our ancestors.) Me, on the other hand, I revel in the victories won by our distant cousins!

Of course, everyone in America who doesn’t think I’m Puerto Rican thinks I’m Italian-American. (Which, to be brutally frank, I am, if we abstract away from such technicalities as my ancestry.) And how could I not like the pair of Balotelli and Buffon? But I think the furia roja is equipped to keep Pirlo in a box ... and we have Llorente (from Navarra, where my grandfather was born!) and Soldado. Plus, Casillas is an awesome goalie, and Iniesta an awesome striker. (Yes, I know he plays midfield.)

It’ll be a great game no matter what, unless the two sides resort to a defensive fallback like Spain’s last game or that miserable Italy-England soccer Stalingrad. I want the furia roja to win, but it matters not.

Today’s election in Mexico, unlike the soccer match, involves almost no uncertainty at all about the result. Enrique Peña Nieto is going to win. The polls are unanimous on that point. On the other hand, there is a great deal of uncertainty about whether it matters. From looking at campaign ads, it all seems pretty inane.

But it is not inane. How much is at stake hinges on three known unknowns:

1. What does Peña Nieto want?
2. What power will he have to accomplish (1) above?
3. What will be the consequences of the subset of (1) and (2)?

Gabriel Aguilera summed up well the dilemma of question (1): does Peña Nieto want to be a great Mexican president, or does he want to be a great Priísta? That is, does he want to leave his country in better shape regardless of the consequences to his party, or does he want to leave his party more powerful regardless of the consequences to his country?

Of course, it isn’t really a dilemma but a continuum ... and sometimes, as it took the Obama administration way too damn long to learn, good policy is good politics. But that aside, the above really is the first question.

Here is a good essay on just how bad it could be if Peña wants to be a great Priísta. Jeffrey Weldon thinks that is his aim. The Economist does not. The writer of this graffiti disagrees with the Economist.

 And then there is question (2). The Mexican president, unlike his or her Argentine counterpart, really is a weak figure. Now, that is not true when seen from the North: they have two advantages over their U.S. counterparts and one advantage over their Democratic U.S. counterparts. First, only one two executive positions requires congressional approval: the attorney-general and the treasury secretary. Second, the Senate of Mexico has no filibuster and no holds and none of the other insanity that has accumulated around the Senate of America. In addition, the entire Mexican senate is elected at the same time as the President, which makes it more likely for the President to have a majority, as does the presence of the electoral list senators. Finally, Mexican parties are generally more disciplined than the Democratic Party, although not as disciplined as the Republicans.

(For a description of the Mexican Senate, see here. For those bothered by my use of “America” to mean the United States, go away.)

That said, the Mexican president is nonetheless weak as American presidents go. (For those bothered by the above use of “America” to mean the entire Western Hemisphere, go away. Consistency, hobgoblins, all that.) He or she has no true decree power, and cannot introduce bills into the legislature nor command the legislative agenda. On the margin the Mexican presidency is slightly more powerful than the president of the U.S. of A., but rather less so than most other presidents in this hemisphere. Therefore ...

... It will matter a lot whether the PRI has a congressional majority.

The wrinkle is that the PRI has lost a lot of its national discipline: the Priístas I spoke to over the past week have told me that the party has evolved into a series of state-level fiefdoms, where the governor effectively chooses the congressional candidates, and machines are perpetuated by having the governor switch offices with senators and deputies and then switch back. That means that the congressional PRI will want President Peña to be a great Priísta, and not necessarily a great President. In such a world it might be better for President Peña to lack a PRI majority.

As long as the PAN and PRD decide that they will not be served by a GOP-like strategy of automatic opposition (and I suspect that they will not be so served), a Peña who wants to serve his country could build cross-party majorities. Remember, Mexico has no filibuster; its Senate (unlike ours) functions as an ordinary legislature. In short, it will be good if the PRI does well in Congress, but not quite well enough to secure a majority in both houses.

Finally, there is question (3). The problem with it is that there is no way to tell until we have the answer to questions (1) and (2). In the field of security policy, I am with Patrick Corcoran (see part one and part two): there is unlikely to be much change. But in economic policy, there could be; ditto in political reform.

I will discuss more later about what I think the answers are to the above questions. Right now, I just want to say that every Mexican needs to answer (1), (2), and (3) for themselves, and then go out and vote. After which, root for the madre patria!

UPDATE: I was incorrectly informed that Article 71 of the Mexican constitution had been reformed to remove the Presidential power to introduce bill directly into Congress. That is incorrect. The President of Mexico, unlike his or her American equivalent, can send legislative proposals directly to committee. He or she cannot, however, force them to the top of the agenda in the manner of most other Latin American presidents.

Mexico is gaining jobs, not wages

In 2009, in the wake of rapid inflation, Chinese unit labor costs were 72% of Mexico’s. (See page 19 at the link.) By early 2010, Chinese unit labor costs had risen to 86% of the Mexican level, and Mexico started to export cars to China. For some goods, landed costs (i.e., the cost of manufacturing and moving to the mainland U.S.) are much cheaper in Mexico than in China.

If you only look at the Chinese side, there seems little prospect of these trends turning around. China is experiencing bad labor shortages. Moreover, China has an inflation problem (the strategies described in this post seem to be hitting their limit) and its low inflation of 3% is not much lower than Mexico’s higher-than-expected 3.9%. Meanwhile, the peso is falling, while the yuan is likely to head nowhere but up. (If that turns out to be wrong, expect bad political consequences.)

On the other hand, if you look at the Mexican side, the reason Mexico is gaining competitiveness is that wages are flat. And flat at a low level. The good news is that Mexico is seeing rapid employment growth (see chart below) but Mexico no longer has endless millions of peasants to pull into the cities. Job growth is a good thing, of course, but it can go only go on for so long. (Mexico rebased its employment measures in 2010; thus the two indices.)

Translation: this is good news for Mexico, but it is a one-time thing. Without productivity growth, either within industries or by shifting into new products, Mexico wll remain relatively poor.

Implication: if the U.S. economy ever picks up again, so will emigration.

Omission: the effect of violence and extortion. The jury is out.

El perro que no ladra

 One strange thing about the upcoming Mexican election is how little the economy seems to matter. I don’t mean questions of long-term growth or distribution; those are very much an issue. I mean short-term business cycle stuff. Manufacturing output is up. The peso is down, but the central bank seems relaxed. Judging from the results on inflation-linked bonds, so are the markets. Consumer confidence has followed suit. Nobody is running a campaign like the ones in the United States or Europe. Growth since the 2008 shock is slow, but steady, as the below chart of GDP (in millions of 2003 pesos) shows.

To be frank, I was worried three years ago. But the bad economy dog did not bark. Why not?

Well, I was worried that Mexico was going the austerity route. But it didn’t! Mexico was no paragon of countercyclical fiscal policy, but it avoided anything that could be called austerity. I wrote the above entry in the third quarter of 2009 ... during which government spending was essentially flat, much less than the programmed 0.7% drop. (See below chart, which shows growth in GDP expenditures between government purchases of goods and services and everything else.) In short, my fear didn’t materialize because the PAN government never followed through with its own austerity rhetoric.

Still, simply not being stupid isn’t really enough to explain Mexico’s quick recovery. Lots of countries failed to implement sufficiently large stimulus packages and suffered for it. To explain Mexico we need to turn to two other Mexican strengths and a bit of good luck.

The first strength is, paradoxically, also a weakness: Mexico had a terrible terrible financial system going into the Lesser Depression. But from the point of view of protection from the effects of a worldwide financial freezeup, it was a great thing to go in with banks that did not lend and firms that did not borrow. (I do not recommend this as a long-term growth strategy.)

That meant that the Lesser Depression hit Mexico as a good old-fashioned trade shock. The below graph measures quarterly percentage changes in the final demand for Mexican production. (It is not the same as GDP, since GDP nets out imports.) You can watch exports plummet in the last quarter of 2008. Net exports barely budged (in fact, they grew) but all those unemployed export workers dragged down private consumption and all those hurting export manufacturers stopped investing. Thus the vertiginous decline in GDP in the first quarter of 2009 that you can see in the above two charts. (Demand continued to fall in the second quarter of 2009, but manifested as a drop in imports, leaving GDP flat.)

But this brings us to Mexico’s second strength: a flexible exchange rate. The peso plunged from a little under a dime to a low of 7¢ before recovering. (In point of fact, the Banco de México intervened to stop the fall, too soon in my opinion.) By the third quarter of 2009, exports had started growing again. By the second quarter of 2010, they surpassed their previous peak. In point of fact, Mexico became even more export oriented than before: exports grew from 26% in the middle of 2008 of GDP to 35% by the middle of 2012.

And that brings us to the good luck. Any guesses before I post? It seems to have been in the news lately.

Guest post: My problem with AMLO

 This is Patrick Corcoran, from Ganchoblog.

In general, I don’t find the arguments that Andrés Manuel López Obrador (aka AMLO) is a grave economic risk to Mexico to be very convincing. His program isn’t particularly extreme. Rogelio Ramírez de la O (his proposed finance minster) is sharp, experienced, and within the economic mainstream. And most importantly, between its business community, central bank autonomy, and NAFTA, there’s something of a policy straightjacket in Mexico. I don’t think anyone should expect a Kirchner a la mexicana should AMLO pull off the upset, and if I were a fund manager or a currency speculator, his election alone wouldn’t do all that much to change my opinion of Mexico’s prospects.

The problem is this: AMLO’s democratic commitment has wavered time and again. This is something that he has demonstrated repeatedly over the past six years. The reaction to the 2006 loss was a big part of that, but it’s not the only example. The takeovers of Congress were shameful. The shenanigans in Ixtapalapa treated the democratic process in an area of almost 2 million residents as though it existed only to serve him. And there’s no reason to think that this would change. When asked if he would accept the results of the election in July, a question where the only acceptable answer is an unqualified “Yes,” he waffled. His moderation during the campaign has been laudable, but when faced with a narrow defeat of an agenda item he holds precious, I don’t believe that he’ll just take his lumps and move on. Unfortunately, taking your lumps and moving on is a basic element of democracy.

The counterargument to this is that AMLO has been justified in his more extreme actions — that is, the election was a fraud, and the oil reform proposals being tossed around were a vital threat to Mexico’s well-being. Clearly AMLO seems to believe that; he couches his reaction in 2006 as a defense of democracy, notwithstanding his sending the institutions to the diablo. Given the fraud in the 1994 Tabasco race and President Fox’s 2005 push to deprive him of his legal immunity when he was mayor of Mexico City, I can understand him assuming any opposition to him is illegitimate. But while this bias is understandable on a personal level, that doesn’t make it any less worrying or damaging. Over the past six years, there isn’t much to support his belief that he was acting in democracy’s defense: the case for outright fraud in 2006 is extremely weak and has been contradicted by numerous people on the left, and his opinions regarding Pemex are just that — opinions — and have no more inherent value than those who would privatize the company tomorrow (which is certainly not what I’m advocating). The “desperate times, et cetera” explanation for AMLO’s unorthodox actions over the past six years just doesn’t hold up, and if your bar for the barbarians being lined up at the gates is set so low, well, then, what crushing political loss doesn’t justify an assault on the system?

That’s not to imply that his opponents would necessarily make better leaders. There’s also a pretty good argument to be made that the (potential) insidious erosion of democracy from within under Peña Nieto would far more harmful than AMLO’s frontal assault, which has typically been conducted in plain view of the public. If Peña Nieto turns out to be as bad as many assume he will — that is, if he is an old-school PRI dinosaur in a pricey suit — the damage could well be much worse than what is at risk in an AMLO presidency. Even if that doesn’t happen, by all indications Peña Nieto is the lightest of lightweights, and the campaign doesn’t seem to have put much weight on his bones. And the defects of Vázquez Mota are so obvious and damning that they hardly bear mentioning. From my point of view, there is no right candidate, and this is the worst slate of candidates of any Mexican election that I am more than passingly familiar with (basically, from 1988 onward).

But now that AMLO has emerged as the optimistic, anti-Peña Nieto candidate, it’s important to be clear about what his drawbacks are. Support for AMLO carries risks that go well beyond ideology. Electing AMLO would mean entrusting the system to someone who doesn’t wholly believe in it.

Maybe the game isn’t on after all, plus health policy!

Well. There may not yet be an equivalent of Fivethirtyeight for the Mexican election, but the poll of polls doesn’t look good for AMLO. You gotta stare really hard to see any sign of movement. Enrique Peña Nieto (EPN) is still cruising towards victory with a plurality of the vote. (Mexico, I have to add, does not have a French-style runoff system nor an Australian-style transferable vote. This is a bad thing.) 

It seems odd — but not surprising! — that the biggest issues in the election are the least discussed. Oh, they both get mentioned in short ads (see below) but not much in concrete terms. I am referring, of course, to crime and health policy. The latter should be a big issue. While Mexico has made great strides in public health over the past 18 years, it is still far from universal coverage. So what do the two main candidates propose? (My apologies, Josefina.)

Well, both AMLO and EPN think it ridiculous that Mexico has a multiplicity of public health systems: one for formal sector workers, one for government employees (both run like the U.K. National Health Service) and a bare-bones People’s Insurance program for the poor. So it will be no surprise that both are calling for universal coverage. AMLO, however, wants change to be incremental. He wants to allow patients to receive services in the installations of any of the public health programs, a de facto conversion of the federal government’s role to something more like a single-payer system. The problem, of course, is a combination of complexity and vested interests. Peña Nieto is more direct: he wants a new Universal Social Security System, which he claims would cut overhead expenses from 9.5% to 3% and de jure move Mexico to Canadian-style Medicare. He also wants to provide more free medicines via a voucher system, with no word on how to pay for it.

So who would you trust? EPN has a better, more-concrete plan. AMLO is more serious about these things, and incremental change is generally easier. At the end of the day, AMLO is more honest about the inevitability of the need to throw more money at the problem ... but at the end of the day, a President AMLO is also more likely to be hamstrung by Congress.

Edge: AMLO. Not that it matters.

Game on, México!

 Wow. Oh wow. Big news in the Mexican presidential race.

Courtesy of Ganchoblog, it seems that the Mexican presidential blowout that we all expected for Enrique Peña Nieto may not actually happen. The Reforma newspaper runs reputable polls, and they show a sudden collapse in PRI presidential support from 42% to 38%, with AMLO rising from 27% to 34%. Now, I remember drinking pulque (horrible stuff, by the way) with some friends in Melchor Ocampo (awful town, I should add, although worth visiting) and being told that the polls meant nothing, AMLO could pull it out. I scoffed. Distant relatives in Huixquilucan (a very much not-awful town, at least if you like bad science fiction movies from the 1970s, but really not worth visiting unless you know somebody who lives there) said the same. But they were PRD partisans, and so I scoffed some more.

But they were all correct! If this poll holds, then the electoral game is on. We will have a real race on our hands, and not a PRI blowout. Both Melchor Ocampo and Huixquilucan are in Mexico State and under the Peña governorship. I think that gave my friends tacit knowledge about the fragility of his support that nerdy old gringo me could not appreciate. I think Mr. Hootsen, who also lives in Mexico State, would concur.

Were I voting in the election, a poll like this would pose a dilemma. I despise AMLO for his actions after the 2006 election. But I suspect, for reasons I find distressingly hard to verbalize, that he would be less damaging to Mexico than a President Peña. Which means that strategically speaking, if AMLO had a chance, I would want to cast a strategic vote for him. Except ... his behavior and statements in 2006. The questions raised by the commentators here are becoming much more valid. Assuming that the poll holds and we really do have a race, for whom should a concerned Mexican citizen vote?

I would like to end with a call for someone to start a blog like Fivethirtyeight, aimed at the Mexican elections. So far, the Reforma poll is an outlier. We have no way of judging its accuracy or predicting the result. Mexico could use a Fivethirtyeight. I nominate Diego Valle to start it.

Positive campaigning is not all that it’s cracked up to be

 The 2006 presidential campaign in Mexico was especially nasty, with television ads claiming that AMLO was the second coming of Hugo Chávez and would destroy the country if elected. Mexico, however, lacks an equivalent of the First and Fourteenth amendments and, more importantly, the U.S. Supreme Court’s interpretation of both. (Article 6 of the Mexican constitution guarantees freedom of speech, “unless it offends good morals, infringes the rights of others, incites to crime, or disturbs the public order.” Article 7 unconditionally guarantees the right to write and publish, but that is more specific than speech in general.)

The result of the election, then, was a 2007 law that prohibited negative campaigning. (Mr. López Obrador’s subsequent behavior, and whether that retroactively justified otherwise scurrilous ads, is not relevant to this discussion.) The result is an oddly anodyne bunch of ads. TV ads emphasize personality, as do the print ads from the three major parties. The PRI candidate, Enrique Peña Nieto, is also running on the Green Party ticket, however, and is using that platform to run a bunch of rather interesting issue statements:

My favorite is “Life sentences for kidnappers,” but I didn’t get a picture. Above you have a subway ad proclaiming “Pensions for all adult over age 65” and “Your place guaranteed in high school.” The latter is pretty much already true, and the former will be interesting without new tax revenue.

Below you have “No to fees in the public schools,” with a picture of an angry white man scolding a woman who only wants the best for her child:

And a related billboard proclaiming “No more fees in public schools: Truly free education.”

The end result is oddly populist to an American, but honestly no worse than the populist positive ads run by Republicans all the time. So what’s the problem? Two things.

First, the internet is unregulated. This is, I think, less of an issue than it sounds. In general, the internet is not a push medium, except for paid adverts, which are (or will be) regulated. Whispering campaigns are of course terrible, but I would need evidence to be persuaded that they are worse in the age of the internet: e.g., that they convince anyone who wasn’t already basically on-board.

 Second, negative ads can convey real information. Patrick Corcoran argues this here. It makes sense that the truly scurrilous stuff will not convince a sophisticated electorate regardless of how it is disseminated, while real bad information may find it harder to be known. That said, I am not sure how this shakes out.

What I am sure of, however, is that the Green Party has no reason to exist other than as a subsidy-collecting machine, and is very far from Green. But that is a different issue.

The 2012 election in Mexico, early musings

 On Saturday there was a massive student march against the candidacy of Enrique Peña Nieto, the PRI candidate for the presidency of Mexico.

I have been asked more times than I can remember (by friends, family, and complete strangers, including taxi drivers and bartenders who are well-aware that I am a gringo) who I would vote for in the Mexican election. As with the United States, the answer is easy. I cannot vote for Andrés Manuel López Obrador for the simple reason of his reaction after the 2006 election.

So you cannot vote for the PRD in this election. If Ebrard were the candidate, things would be different, but he is not. AMLO, no f---ing way.

Then there is Mr. Peña Nieto. Uh. Erm. Uh-huh. Next post will discuss his campaign, which is actually somewhat amusing. I will even discuss the various positions on health policy. The problem is that I do not believe that he is not corrupt. Moreover, he is a member of a party that has not abandoned corruption. This is one of the few cases where my academic research and my heart push in the same direction: institutions matter more than policies, and regardless of policies, Enrique Peña Nieto and his party will not be good for the institutions.

Which leaves us with Josefina Vázquez Mota. Were I voting in the Mexican election, she would have my vote. With little enthusiasm, sadly. But she would have it. Am I wrong? I have PRD relatives, but they are not talking to me about the election. (Baseball yes, U.S. politics yes, Mexico no.) So help me out! Am I wrong? Who should an informed Mexican vote for? 

Do U.S. agents really drive black Suburbans in northern Mexico?

 When I last tooled around the violent areas of northern Mexico, I did so in a green Infiniti. Before that, a bright red 2002 Ford Focus SVT. Why those cars? Well, they were the ones we had on hand ... but we could also be pretty sure that nobody would be gunning for us, even with Texas and California plates.

So I read this post with some incredulity. Not the story. I completely believe that the Zetas would apologetically release USDA officials that they had accidentally detained on suspiscion of being narcos. What I do not believe is that the U.S. government would actually be dumb enough to put its officials in black suburbans. Caray.

This is not to say that it is impossible to travel incognito through cartel territory. It is not hard to project the impression that you are not involved in organized crime. In fact, it is rather easy. The secret, as you can see above, is to not try to hide ... while avoiding the obvious markets of a sicario or cartel honcho. Dress like a gringo sartorially aware Argentine or Spaniard normal person and you will likely be fine.

Divorce in Mexico

 My time living in Mexico wasn’t the only time that I found myself arguing with incredulous observers that Mexican society was changing at blinding speed. When we were writing Mexico Since 1980, I got into some epic battles with one of my co-authors over the chapter on social policy in Mexico. He turned in a draft that made it seem as if the only change in Mexican families since 1950 was the decline in fertility. The quote: “Yet despite the magnitude of these changes, Mexico remains a surprisingly stable society in terms of such fundamental institutions as the family and religion.”

I argued that we couldn’t publish that. Marriages were less stable, and with almost half of all births occuring in “free unions,” abandonment was rife. It was so clearly and blatantly untrue that Mexico was a “surprisingly stable society” that we would look out-of-touch, almost crazy. The image of Mexico as stable and conservative would have been true in 1990, maybe even 1995 — it was not true in 2008.

The final version read as follows:

There has also been a substantial rise over time in family instability. One measure of this phenomenon is the growth in female-headed households, which as a proportion of all households increased from 12 percent in 1960 to 13.5 percent in 1976, 15.3 percent in 1990, 20.6 percent in 2000, and 23.1 percent in 2005. The increase in the number of female-headed families mainly reflects higher rates of divorce and abandonment. Indeed, although still low by European and U.S. standards, the proportion of marriages ending in divorce in Mexico rose from 4.4 percent in 1980 to 7.4 percent in 2000, and to 11.3 percent by 2004. In addition, since the 1990s growing numbers of men have abandoned their families (possibly temporarily) to seek work in the United States.

A skeptical reader might argue that the rising rate of family dissolution in Mexico is a side effect of the aging of the population. The logic behind this position is that the longer people live, the more likely their marriages are to end in divorce rather than death, and so the divorce rate is increasing in line with Mexican life spans. The data, however, do not support this hypothesis. Indeed, dissolution rates have risen fastest among new families. In married and cohabitating couples that formed before 1967, there was only a 7.4 percent chance of dissolution before 10 years had passed, whereas a couple that formed in 1987 (the last year for which data are available) had a 14 percent chance of breaking up before ten years had passed.

An even more skeptical reader might argue that an increase in the proportion of “extended families” (households in which uncles, aunts, cousins, brothers and sisters, and elderly grandparents live with a nuclear family composed of parents and their children) among Mexican households indicates that the Mexican family is as strong as ever. Between 1990 and 2000 the proportion of all family households defined as “extended” rose from 20.7 percent to 26.3 percent. It is equally likely, however, that this increase was an artifact of the interaction between economic distress and rising rates of single-parenthood and couple dissolution. Indeed, in the year 2000 some 60 percent of single mothers and 28 percent of female divorcees with children lived in “extended families” (that is, with their parents).

Now comes the irreplaceable Diego Valle with data on the current state of divorce in Mexico. (Hat tip: Gancho.) The short version? Divorce is rapidly increasing, but Mexico’s divorce rate is still at around the same level as the United States in the 1950s. The catch is that with half of all birth occuring out of wedlock, the true rate of family dissolution is higher. The long version? Very worth reading.

But there’s more! Here Diego digs into the divorce figures for the Federal District (aka, Mexico City) which adopted no-fault divorce in October 2008. In a brilliant analysis, he shows that the entire increase in divorce rates is driven by couples who married outside the D.F. In fact, divorces fell for people who married in Mexico City ... the implication being that the inexorable rise in Mexican divorce rates might not be so inexorable. (Read it!)

Of course, that begs the question of why D.F. divorces fell with no-fault. Diego hypothesizes (probably correctly) that the reason was the legalization of early abortion in April 2007. “Perhaps pregnancies that previously resulted in shotgun marriages now end in abortions. And it was precisely these marriages that were more likely to end in divorce. When looking at the age specific marriage totals, the younger the bride the bigger the percentage decrease in marriages compared to previous years. But this theory doesn't explain the fall in divorces among those marriages more than a few years old.”

For those of you who don’t know, Mexico City also legalized same-sex marriage in December 2009. (Coahuila has civil unions ... but more importantly, same-sex marriages performed in the D.F. are recognized by both the federal government and other states.) Abortion, no-fault divorce, same-sex marriage ... you have no idea how happy I am that we didn’t publish that early version of the chapter.

Mexico has changed!

 When I lived in Mexico, during the late 1990s, I often found myself arguing with people over the rate of cultural change in that country. It was blinding, even in those days before the internets and all that. And the pace has not slowed.

Evidence of change is not that the woman in the white dress handed out the order in which the presidential candidates were to speak. Evidence of change is that it was extremely controversial and prompted an apology by the organizers.

That said, wags could not help but declare her the winner of the debate. And having watched it, I can understand why. Plus, Enrique Peña Nieto is so far ahead that it does not really matter. As long as he does not throw up on himself, or confess to killing his ex-wife, then he is going to win. (For more on the ex-wife rumors, see here, or for a hella show go to minute 5:30 to see a state legislator cause a giant fuss after making the accusation on the floor of the Mexico state congress.)

A map of violence

 This interactive map of the violence in Mexico is amazing and incredibly useful. You can even download the data! Thank you, Mr. Del Valle.

Now if only I can find the equivalent data for the decades before 1990. That would be something. I still find myself astounded that nobody in Mexico seems to have bothered to compile mortality data at the county level before then.

Here is a short and useful summary of what we know about the MOCOs, although its recommendations are so vague as to be nearly useless. The most important piece of information is that serious attempts to estimate the export revenues earned by the cartels in 2011 ranges between $4.7 and $8.1 billion. The U.S. government, on the other hand, makes estimates between $13.8 and $29 billion. The U.S. government appears to be wrong.

The market for stolen oil

 “In a reversal of the classic Western movie, Mexican criminals have sought refuge with their ill-gotten gains by crossing the Rio Grande to the North, where the Mexican government has no authority to follow.”

—Pemex, in a suit before the U.S. District Court for the Southern District of Texas

So, stolen oil from Pemex makes its way to the United States. How, you ask? It’s a reasonable question. Oil has a high value-to-weight ratio, but cocaine it isn’t. You can’t smuggle economically-viable quantities in jerrycans. Plus, if you’re moving crude oil or natural gas condensate, you can’t then flog it on a streetcorner. You need to sell it to a refinery.

The answer: give the refineries plausible deniability. Fake paperwork to get it over the border, then sell it to a reputable middleman. How did this work?

On May 29, 2011, we got the answer, when Pemex filed a federal lawsuit in the southern district of Texas against a group of American refineries for knowingly buying stolen natural gas condensate.

Here’s the value chain. The condensate is produced in Mexico’s Burgos gas field, located near the U.S. border across the northern stretch of Tamaulipas, Nuevo León, and a little bit of Coahuila. Pemex produces gas from 2,827 wells in the field. It then pumps the gas to 150 collection stations. Pipelines then transport the gas and condensate (the liquid byproduct from gas production, which can be used in oil refineries) from these 150 collection stations to 52 transfer and delivery systems, which are basically small pipeline networks. After collection at the transfer systems, Pemex transports the condensate by pipeline or tanker truck to a storage facility near Reynosa, Tamaulipas. From there, the condensate goes by pipeline to the Burgos gas processing center or tanker truck to a refinery in Cadereyta, Nuevo León.

The Zetas intercept the oil in one of three ways. The major one is to simply tap into the transfer and delivery systems. (To do this, the Zetas needed to build their own pipelines, a pretty impressive accomplishment.) The secondary one is to hold-up the tanker trucks on their way to Reynosa. The final one is to kidnap Pemex officials and force them to divert condensate.

Now, the Zetas can easily fence refined products inside Mexico, but they can’t sell condensate: Pemex operates the only refineries! So they have to move it to the U.S. According to the lawsuit, the stolen condensate was moved by tanker truck (think about that for a moment) to the border. Before crossing, however, the Zetas transferred the stuff to newer trucks that meet U.S. regulations. The drivers then presented forged export documents, sometimes mischaracterizing the condensate as naphtha. They would then sell the stuff to the U.S. defendants.

Big Star and F&M Transportation bought the oil from Ygriega Energy Corporation of Edinburg, Texas, whose owner, Arnaldo Maldonado, has already pled guilty to felony conspiracy to receive and sell stolen goods. F&M transported the condensate, in addition to buying it. Superior Crude also transported stolen condensate, and brokered sales of the stuff. (Pemex fingered Superior because a man named Donald Schroeder coordinated the shipments ... who has also pleaded guilty to felony conspiracy to receive and sell stolen property, specifically Mexican condensate, in his role as president of a company called Trammo Petroleum.) Finally, TransMontaigne operated the storage facilities in Brownsville which the stolen condensate passed through on its way to the final buyers. Finally, Western Refining bought condensate from companies like Continental Fuels, whose president confessed to trafficking in stolen goods.

In other words, according to Pemex, Big Star, Superior Crude and F&M “actively and knowingly participated in a conspiracy to import and market the stolen condensate in the United States.” TransMontaigne, meanwhile, stands accused of negligent participation, since Pemex claims that they should have realized that the goods passing through their hands were illegitimate. Western Refining is accused of no wrongdoing, but Pemex says that it is liable for all its transactions involving Mexican condensate. Recently the company has moved to add subsidiaries of ConocoPhillips and Shell to the lawsuit.

Now here’s the good news: on the U.S. side of the border, several people are going to jail and the rest of the companies involved in buying the stuff are facing a serious civil suit. In short, it is likely that the United States legal system will soon enough shut down the export of stolen Mexican crude and condensate.

But there’s also bad news: there is money to made in stealing refined products and selling them inside Mexico. Lots of money. In fact, as Patrick Corcoran has pointed out, the fact that pipeline-siphoning is shifting to Sinaloa (where the lines carry refined products) is a sign that other groups besides the Zetas are getting into the act. (In this case, likely El Chapo’s people.) The U.S. government can and will help. But it can’t change the fact that Mexico is now a lucrative market for its own petroleum production. Keeping organized crime from taking more of that market is something that Mexico will have to solve on its own.

David Shields got the solution to the problem of internal oil theft right when he wrote:

“It’s very easy to solve this. Total control over the tanker trucks. Total control over every liter of gasoline from the refinery to the gasoline station. That’s the way it was 15 years ago. You move the army in and take control over all the distributors by making sure they have a contract for every single movement of gasoline around the country.”

Where I would disagree with Mr. Shields is that the solution he proposes is far from easy.

Organized crime and oil in Mexico, some numbers

 Organized crime in Mexico is spreading beyond drugs. The cartels have a comparative advantage in transporting and smuggling high-value illicit product. So why not oil? Organized crime can threaten employees, knock over trucks, defend pipeline siphons, and move stolen goods across borders. Pemex is a hard organization to shake down, but a much easier one to steal from.

It turns out to be hard to get an idea of the scale of oil theft. According to Patrick Corcoran, Pemex lost about 3 million barrels of hydrocarbons last year, up 52 percent on 2011. This caused losses of roughly $500 million to the company. That number is large. It is not large relative to Pemex revenues north of $100 billion, but it is large relative to the estimated revenues earned by Mexican Organized Crime Organizations (yes, MOCOs), which is in the $7 billion per year range according to the Rand Corporation.

It is also quite possibly an underestimate. The Excelsior article that broke the story is vague on whether the figures are through Novemeber or from November. If the latter, then total losses could range as high as $3½ billion. Those numbers are possible. Last year the Wall Street Journal, citing Pemex’s CEO, estimated that criminal gangs stood to earn $750 million from oil thefts in 2011. Reuters reported $600 million in losses for the first half of 2011. David Shields estimated (although I am not sure on what basis) losses between $2 billion and $4 billion.

So what do we know? Page 172 of Pemex’s 2009 SEC filing estimated losses of 5.0 million barrels in 2008 and 3.1 million barrels in 2009. The breakdown between refined products and crude was not given. In its 2010 form 20-F, (on page 173 of a report filed in 2011) Pemex gave a little more detail. It estimated losses of 0.9 million barrels of diesel and gasoline in 2009, 1.4 million in 2010, and 1.4 million between January and May of 2011. It also reported losses of crude and condensates of 1.4 million barrels in 2009, 2.3 million barrels in 2010, and 2.0 million barrels between January and May of 2011. (For comparison, the amounts lost in Jan-May 2010 came to 0.3 million and 0.6 million respectively, so the increases are larger than they might seem.)

Using numbers on pages 4 and 5 of Pemex’s 2011 statistical yearbook, it is possible to calculate the gap between Mexico’s domestic supply (production + imports − exports) of refined products and its domestic sales of refined products. (Before 2006 the definitions were different, effectively overstating exports: for that reason, sales were consistently larger than supply.) The excess of supply over sales rose from 4.4 million barrels in 2007 to 9.5 in 2008, 10.6 in 2009, and 31.8 million in 2010. I would assume that most of that is stockpiling, non-theft losses, or refined products used as inputs in petrochemical production, but the trend is ominous.

Again, however, it should be emphasized that the reported losses are not large relative to Pemex production. In 2010, the  company produced 516 million barrels of refined products and 1.1 billion barrels of crude and condensate. That would make theft equal to about 0.3% of domestic production of refined products and 0.2% of crude and condensates. The scary thing is the trend, not the level.

What can be done? As Patrick Corcoran points out, a lot of the stolen oil is destined for the United States. And that raises a possibility for the next post, which involves some of the most entertaining legal documents that I have ever had the pleasure to read.

Monterrey is not an American city

 Alejandro Hope suggests that low population density may be a cause of police troubles in northern Mexico. Hope uses Monterrey as an example. I am here to say that said hypothesis is almost certainly incorrect, simply because Monterrey, Nuevo León, is rather densely populated. Monterrey is underpoliced, but the problem is not the city’s land area.

It is fairly common for both Mexicans and Americans to comment about the Americanness of the city of Monterrey. And in some ways, they’re correct. Until sometime in the 1990s Monterrey was more culturally American than the country’s other major cities. (The rest of the country liberalized, dramatically; Monterrey did not become more conservative.) It was also much more prosperous, and its infrastructure was rather better developed. It also had less violent crime, certainly less than Mexico City. Other than the crime and the culture — Monterrey is today much more violent and much more old-fashioned than Mexico City — these differences still hold, albeit rather less markedly.

That said, Monterrey is not in Texas. The the city sprawls much less than any American equivalent. This might not be immediately obvious to the casual visitor. Public transportation at the airport can be called inconvenient at best, and the suburbs of Apodaca sprawl, with big box stores and parking lots. Nonetheless, it is true. The houses are much smaller. The informal settlements are densely-packed. The freeway network is extremely sparse, and prone to congestion. Car ownership has risen dramatically, but is still low by American standards.  

In short, metropolitan Monterrey has a fairly high population density: 4,334 people per square kilometer, spread out over only 894 square kilometers. The 6,680 square-kilometer number used by Hope is based on county boundaries, not the actual built-up area. The same applies to Mexico City and Guadalajara, both of which are much more densely populated than county boundaries would suggest.

Of course, the same also applies to most American metro areas: by county boundary, Los Angeles stretches all the way to the Nevada border and is mostly empty desert. There is a lot of empty space out there.

When you rework Hope’s numbers, you get the following:

	Population	Area	Density	Police	Police per 1,000	Police per km
Monterrey	3,875,000	894	4,334	8,717	2.2	9.8
Mexico	19,460,000	2,020	9,634	141,261	7.3	69.9
Guadalajara	4,400,000	699	6,295	11,574	2.6	16.6
New York	8,175,133	783	10,441	36,000	4.4	46.0
Chicago	2,853,114	606	4,707	12,244	4.3	20.2
Boston	617,594	232	2,660	2,056	3.3	8.9
Los Angeles	3,792,621	1,302	2,913	9,925	2.6	7.6
San Antonio	1,327,407	1,067	1,244	2,000	1.5	1.9

(Note: the above chart does the same apples-to-oranges as Hope, by comparing Mexican built-up areas with American central cities. Since San Antonio and to-a-lesser-extent Los Angeles have large swathes of empty space within their municipal boundaries, the comparison makes them look less dense than they actually are.)

Monterrey still looks underpoliced compared to New York and Chicago, but not compared to most American cities. It has a per capita coverage somewhere between L.A. and San Antonio, and a geographic coverage in the same range as Boston. If one makes the assumption that what Monterrey needs is as many police per area as New York City, you would need to hire an additional 32,386 officers. That is a big number, but it is quite doable, and much less than the 307,280 implied by the county boundaries.

This all assumes, of course, that one thinks that more police officers is part of the solution to Mexico’s crime problem. I am not convinced, although I doubt that it would hurt ... but that it a much longer discussion.

Organized crime and a research fail in Mexico City

 So I’m in Mexico City at the moment. Why am I here? I’m looking for county-level homicide data back to 1950. Thus far, I haven’t found it. INEGI, the national statistics agency, didn’t have it. The Instituto Nacional de Estudios Penales didn’t have it. The health ministry didn’t have it: that last was a surprise. Thus far, a bust, which has me annoyed because the other bit of data collection — finding the times and places of PGR and Operation Condor actions — has proved less hard.

Bah. It is enough to drive one to purchase and smoke a good Cuban cigar. For $3.87. Which would be, in 1913 prices, 17¢. A bit more than a good five cent cigar, but not too far off. It is annoying. Unless I have some data collection luck, my next big project now looks to be French nuclear power instead of a history of violence in Mexico. Not that there’s anything wrong with either one! One is a form of energy that (absent breakthroughs) needs to be developed around the world in order to avoid catastrophe; the other threatens one of the great countries of the world.

The Revista magazine recently ran an issue about organized crime in Latin America. (Warning: the link will only work until the next issue comes out.) There is a piece by yours truly on the business strategies of Mexican cartels. (I may post a condensed version on this blog.) Morris Panner, a very smart guy, wrote another good piece that illustrates how far organized crime has sunk its tentacles into Mexican life. (The title is a bit misleading, however; the article is not about crime business models.) A third piece gives a nice short view of life in Ciudad Juárez.

For some hope that might be realized in the short-term, read this piece by Gabe Aguilera and Viri Rios about the keys to reducing violence in Mexico: the tactical recommendations are well-worth following. There is also a very nice piece warning Mexico that it might want to think twice about adopting models that worked in Colombia. The reason being that they are, you know, very different countries. (My wife had some very cogent observations about law-and-order in Colombia that I will try to remember to blog about in the near future.) And everyone needs to read more about the Zetas and Guatemala, a country that will (with Honduras) start filling headlines in a newspaper near you, or whatever insane electronic thingcrappy the young people are using.

The rest of the issue is also very good! If you have any interest in the violence spreading south of the border, go read it.

While I am here, I’d like to make a plug for Grits and Tamales, a blog about life in the deep south, published by a compa from Los Angeles. (Deep South meaning the one inside the United States, not Tierra del Fuego.) I know this blog has Canadian readers. I love you all and your country, but trust me, Prince Edward Island to Brooklyn has nothing on East L.A. to Montgomery, Alabama. Recommended. Especially as someone who has spent the past week gorging on tacos al pastor, enchiladas con mole, cochinita pibil, chilaquiles (verdes and rojos!), caldo tlalpeño, cebollitas, and all the other good stuff that is pretty much impossible to get outside of southern California, a few parts of Texas (Tex-Mex is awesome, and eaten by most Mexican-Americans in the state, but it is not Mexican food), and that truly awful taquería on East 117th Street and First Avenue in the old neighborhood down the block from Patsy’s.

(Side note: the miracle of Google tells me that Eric Asimov reviewed la crapola taquería for the Times. Which has gotta say something about the pathetically small number of taquerías in NYC.)

Anyway, regardless of the review, it is a bad taquería. But is bad in the way that lousy taquerías in Mexico City are bad, and thus I highly recommend it should you find yourself in Manhattan jonesing legitimate Mexican street food. Californian and Mexican readers take note. If, however, you should find yourself with the same jones, but be looking for something more upscale, I give this place a conditional recommendation. Why conditional? Well, my dearly-departed ma knew the owners, and we used to eat there all the time, and it was excellent. But ... I have not been there since 1988. So you pays your money and you takes your chances.

Oh, and since I have friends from the Deep South who still harbor suspicions about us effete academic liberal not-quite-white folk from the coasts, lemme give you this post from Grits and Tamales. God bless you Al Pacino, another boy from the old neighborhood.

The Sicilianization of Mexico; this time it’s personal

 With the events in the Middle East and North Africa, let’s not forget about northern Mexico and its problems with organized crime. It is no longer just about drug trafficking. My friend Gancho reports both a study from Cancintra, Mexico’s most important business federation, and a personal experience:

An influential Mexican business group says that 10,000 businesses closed last year because of security problems. This is a pretty good reflection of the pernicious developments in the Mexican underworld over the past five years, even beyond the rise in the murder rates. It's not the spike in killings that made these businesses close, but, the group says, kidnappings and extortion. This is, in that sense, a qualitatively different challenge.

This also doesn't measure the businesses that never opened because of security concerns. I actually had an idea for a street-side food-stand during my last six months in Torreón that would have surely made a killing, and in the process also given me the incredible pleasure of telling my horrid boss that I was quitting due to a more compelling opportunity to sell sandwiches on the side of the road. The plan was taking shape. I talked to other people who'd done similar stuff, started to build a client base through friends and acquaintances, put together the figures giving me a rough idea of what my profit margins would be, designed the portable grill set-up I needed and talked to a guy who could build it for me, and scoped out the space where I was going to set up shop. In short, I was ready to go. This close. Then, the daughter of a successful restaurant-owner a couple blocks from me was kidnapped and murdered by an organized crime group and the Oxxo that was to let me use the parking lot for my cash cow was held up at gunpoint. Suddenly, being out on the street every night with lots of cash seemed less attractive, so I reluctantly deferred the idea to a later date.

For a time, it seemed as though the criminals had a modus vivendi with big business. A few months ago, a principal at a major security firm in Mexico assured me that was true, as did the head of a major business group. But the truth is that Mexico’s economic future lies as much with its small and medium businesses as it does with its major companies. So the costs of extortion are serious, even if they don’t affect large companies. Moreover, it’s only a matter of time before the extortion spreads ... if it hasn’t already.

While I’m here, let me add that the people who told me about corruption in Immigration and Customs Enforcement (ICE) and along the border were recently indicted for running guns into Mexico. The irony? Here’s what they told me (more or less, I paraphrase) when I wondered why corruption wasn’t a problem on the U.S. side: “The difference is that while you get a lot of corruption on the American side, it’s all at the individual level. Once you get two officials conspiring, you’ve got two officials who are going to be caught.”

In a bit of good news for Americans worried that the disorder might cross the border, it looks as though they were right!

Pants on the ground! Pants on the ground!

 It has been a little harder to keep up the blog than I had thought. Work is quite pressing. But every so often, something comes up that the rest of the internets seem to be ignoring. So, in the interest of showing how Boston is changing, I would like to mention that Sunday was the fourth annual “No Pants Subway Ride,” in which people ride the T without any pants.

Of course, as you might expect, the “No Pants Subway Ride” didn’t start in Boston in 2007. It started in New York in 2002, and has since gone international. An example of the influence of the internet! I can hear some of you shouting. Well ... probably not. I mean, I’m sure that this idea in particular spread via the internets, but anyone familiar with the 1960s will find lots of similar events, and let’s not mention the decade after that one. Moreover, the participants physically rally before removing their pants. So please no conclusionamating about the awesome marveliciousness of our new interlinkeded planet. 

It isn’t really a surprise to find that it’s spread to Boston ... Boston has a giant 250,000 person college town laid atop the real city of 1.7 million. While Boston itself is not the sort of place that would smile upon pantless T-riding, the college town appended onto it certainly would. So no surprise there. And it has also spread to such unsurprising places as Philly. After all, the city that celebrates Mummer’s Day is not going to have a problem with pants-removing on the Orange Line. 

I have to admit that it was a bit more unexpected to find that it had spread to the Mexico City. But when you think about it, that reaction makes no sense. The D.F. long ago left behind its cultural conservatism. 

My excuse is that the rapidity of the cultural changes in Mexico between 1990 and today have left me reeling. Still, the United States changed even more between 1960 and 1980. So it is far from unprecendented. And why wouldn’t the chilangos take advantage of the opportunity to ride the subway without any pants?

My worry that it presages the end of Mexico’s unofficial ban on shorts.

Here is a much better photo of the Mexico City event, courtesy of El Pinche Holandés:

 

Invade Mexico?

 I’ve heard second and third-generation Mexican-Americans in Manhattan and El Paso call in frustration for the United States to invade northern Mexico. I did not expect to hear it from the Governor of Texas. (Hat tip: Gancho.) This is the same guy who has called for secession, and in the linked interview he doesn’t, well, come across all that well. “Shermanesque? Help me on that one,” said Governor Perry. When told that it meant that if nominated he wouldn't run, and if elected he wouldn't serve, he came back with, “How about Perryesque?”

 

But Governor Perry’s record of odd statements doesn’t make the idea less worth debunking. First, the U.S. is not menaced by what’s happening across the border. Second, while the U.S. Army is increasingly designed around counterinsurgency, that is not quite the same thing as policing, and it is hard to see what the soldiers would actually do. Conduct investigations? Arrest malefactors? Patrol streets? I’d favor allowing U.S. law enforcement personnel to operate in Mexico, but when Perry says “Any means we can to run these people off our border and to save Americans’ lives, we have to be engaged in,” you get the impression that he means something more expansive. Like a free-fire zone? It isn’t clear. Finally, well, Perry didn’t call for American troops to help reduce violence; he called on them to “defeat” the cartels. What does that mean? The complete disappearance of organized crime in northern Mexico? Well, by that yardstick, organized crime is undefeated in Texas.

In short, a non-threat, fought with unclear tactics, for a vague goal.

The unbearable lightness of Mexican law-and-order spending

 Saturday is the official centennial of the Mexican Revolution. In its honor, Aldo Musacchio and I will be giving a pair of short talks at the Rockefeller Center for Latin American Studies. ¡Viva la Revolución social, compañeros!

 

Of course, a big part of the talk will be dominated by crime. Yesterday, the Calderón administration announced that the judiciary will receive a 10% boost in its budget ... but also 10% less than they had requested. Why is this a problem? Well, the proximate issue is that the country was going to open 71 courts to alleviate the current strain on the judicial system that will now not be opening. That’s a problem. It’s a worse problem in the context of the recent judicial reform, which introduced oran trials (as in the United States) and was designed to speed up the wheels of justice ... but which will now not be fully implemented.

 

It gets worse: Congress cut the budget for the Procuraduría General de la República (PGR) and the Secretaría de Seguridad Pública (SSP). The PGR is the nation’s chief prosecutor, while the SSP runs the federal police and prisons. How was this justified? Listen to Luis Videgaray: “Neither the budget of the PGR nor the SSP was cut. What was done was a cut in running costs, in the government’s bureaucratic expenditure, that had a marginal effect in all agencies. But I can guarantee that the President’s proposed budgets for the PGR and SSP remained intact.”

Uh huh. Look at the above graph. Mexico spends less than a third of the United States (at all levels of government) on courts, police, and prisons. Even if you say that every single bit of Mexican defense spending is in effect spending on law-and-order, Mexico spends less than half of its northern neighbor. It should be spending two or three times as much, maybe more. It is crazy. In fact, when you do finally read about a serious operational plan to reduce violence (courtesy of Gancho, who provides a translation and some wise commentary) it turns about to be an extremely labor-intensive operation ... and one which would benefit from having courts to prosecute the offenders, and reliable prisons to hold them. Moreover, it would benefit from a separate police force dedicated to monitoring the men on the ground, and higher salaries all around. Frex, the vetting process for police is ridiculously incomplete.

But sadly, the low spending is also understandable. Even with the recent tax reform, Mexico collects barely 12% of its non-oil GDP in taxes. At the same time, oil production is declining. U.S. help could fill the gap, but current levels are risible.

Can organized crime be combatted at such low levels of public spending? In the absence of serious tax increases, or massive American aid, the only thing I can say is: “I hope so.”

Juárez’s violence in geographic perspective

 Violence in Ciudad Juárez jumped around 1993, as the Colombian monopoly broke down and the domestic retail market expanded. The city quickly developed a reputation for lawlessness; every time I visited it back in the 1990s or early 2000s, my mood could be charitably described as “edgy.” 

Yet, as Diego Valle points out, its reputation was undeserved. He compared homicide rates in three cities: Juárez, Toluca, and the Mexico City borough of Miguel Hidalgo. Toluca is the capital of Mexico State, about an hour to the west of the national capital, and it was a place where it would never have even occurred to me to be worried about violence. Miguel Hidalgo contains some of the nation’s richest neighborhoods, and is pictured above. Carjackings and muggings were a threat, but it was not someplace where fear of crime was particularly vivid, at least not for me personally. 

 

And what do you know? Until the recent explosion, both were more violent than Juárez. The first implication, as Diego argues, is that what is going on now in the northern cities truly is something new, and not simply the extension of an ongoing trend. The second, well, pace this comment, is that perceptions and reality can greatly diverge, particularly in terms of violence. Other thoughts?

Would legalization reduce violence in Mexico?

 Legalization of marijuana is now on the table in Mexico, even if action seems unlikely. It’s also on the table in California, where the polls are much harder to read. (Respondents seem much more likely to tell a robopoll that they plan to vote for legalization than they are to tell a human pollster. That difference opens up the possibility of a sort of reverse Bradley effect.) I think it’s a long-overdue idea. But would it help the violence?

 
There are some reasons to think not.

(1) If you legalize distribution in California, without legalizing supply, you haven’t done much to cut into the cartels’ profits. You might make things worse.

(2) If you do cut the cartels’ profits, that might cause them to move into other lines of work — extortion, and extortion — which would have the perverse effect of increasing violence and further Sicilianizing northern Mexico. A lot depends on the reason for the Dell effect. If the uptick in violence after a PAN election is fighting over drug routes, then legalization would help. If the uptick in violence is because the gangs move into other things when the PAN makes their life difficult, then legalization would cause violence to jump — unless the other thing is marijuana retailing. To be frank, it seems unlikely that the gangs are fighting over the control of retail marijuana sales.

(3) Finally, nobody is talking about legalizing heroin, cocaine, or methamphetamines.

In short, while I think that full legalization of marijuana is good policy, I am skeptical that it would halt the violence. And I fully agree with Gancho’s take.

Border effects

 From Gancho, more evidence of the Sicilianization of northern Mexico. “In the face of the wave of violence afflicting the nation, bishops from various parts of the country, principally the north, have asked the Catholic hierarchy to avoid public religious ceremonies at night, in order to avoid putting worshippers at risk.” The article quoted one priest: “They [organized crime] use all sorts of ruses to extract money and extort from priests. When extorsion takes place, the bishops don’t admit it. There haven’t been kidnappings, but there is a lot of extortion. Only we don’t have any written documentation, each parish keeps its own records, but they talk about it.” Nuevo León, meanwhile, has created yet another police force to fight organized crime. It has more guns, but as Gancho points out, there is no evidence that they are going to be any more immune from corruption. Finally, in addition to yet another narcobloqueo in Monterrey, we’ve seen the second car bomb in the cartel war, this time in Ciudad Victoria. Nobody seems to have been hurt.

I want to repeat that there is no sign of the violence spreading across the U.S. border. The New York Times publishes articles under the series name, “War Without Borders” ... but when you read the articles, they say the exact opposition of the implicit argument in the series name. Consider this story. A violent Mexican drug fued in San Diego! Oh my God!! Except, well ... the SDPD pretty well wrapped up the oddly-named “Toothpicks,” who only managed to last as long as they did by not going after anyone who wasn’t neck-deep in crime themselves. Or consider this one. Corruption in the ICE! Except, once again, the corruption has a long history with no ill effects. “I do think that the public, for a while at least, needs to be assured that who we have at the border are 100 percent individuals of integrity,” said the judge in the corruption case highlighted in the story. Maybe the public does, but those who work in law enforcement do not.

There is a long economic literature on border effects. National borders seem to matter a lot, even when you might not think so, such as inside the Eurozone. (Catalonia, frex, trades a lot more with the rest of Spain than with France or Italy. The single market and EMU reduced but did not eliminate the effect.) Not only do borders retain their economic significance, even when governments try to open them, they retain an even larger political significance. Strong governments in Syria, Jordan, Saudi Arabia and Kuwait have kept a lid on the absolute chaos in Iraq. The U.S. has a stronger state than any of those countries, and the Mexican crime syndicates have far fewer incentives to extend the violence than did the Iraqi insurgents.

In short, there are many reasons for Americans to worry and worry greatly about the Sicilianization of Mexico. The fear of car bombs and hit squads in American cities is not one of them.

Social science and Mexican organized crime: PAN victories, smuggling routes, and death

 What caused the explosion of violence in northern Mexico? Homicides ticked up in 2007 and jumped in ‘08 and ‘09. One common story is that the Calderón administration provoked the violence by its decision to crack down on organized crime right after its accession to office in December ‘06. The causal mechanism is unclear, but it something you hear cited a lot.

Now Melissa Dell, a brilliant student at MIT, has crunched the numbers to test the hypothesis that the national crackdown may have in fact incited the violence. She took daily county-level data on drug-related homicides (generally called “executions” in the Mexican data). She then tested a simple, but not intuitive, hypothesis. If the government crackdown prompted more violence, then we should expect drug-related violence to jump after a county elects a mayor from the Partido Acción Nacional (PAN). The reason is that Calderón’s party is the PAN. Not only did the federal PAN spearhead the assault on organized crime, but PAN candidates generally campaigned on a “tough on drugs” platform, and one would expect PAN mayors to be better able to coordinate law enforcement with the PAN federal government. 

So what does she find? Well, here’s a picture:

Violence jumps about 15% after the election of a PAN mayor. The dotted lines are confidence intervals, so you can see that effect is statistically significant. The violence does not occur after the election, but rather the inauguration of a PAN mayor. In other words, the expectation that a Panista will take office does nothing, but the actions the new administrations take after gaining office do something. (Editorial note: I decided to capitalize “panista” when writing in English. I also translated “municipio” as “county” rather than “municipality,” since they are akin to American counties in size. Mexico does not have incorporated municipalities in the American sense.) 

Melissa also used data on shootouts between cartel members; they jump after a PAN victory. In addition, reported narcomantas jumped 63% (with a standard error of 32%) in places where PAN just barely won compared to where they just barely lost. Narcomantas are ... well, a photo of one in Torreón is to the left. 

The jump in drug-related killings does not happen if a PRI or PRD mayor wins.  (The PRI is the Partido Revolucionario Institutional, the old ruling party from Mexico’s bad old days of dictatorship. The PRD is the Partido de la Revolución Democrática, the social democratic opposition party.) It might be that PAN mayors are more corrupt that their Priísta or Perredista competitors, but that seems unlikely. In fact, the 2008 county-level data she analyzed showed no difference in mayoral corruption (as reported by federal law enforcement agencies) across counties governed by different parties. Moreover, in theory one would expect corruption and violence to be substitutes, not complements ... although that is really a hypothesis to be tested rather than an assumption upon which to base a model. She has some evidence that extortion threats against county governments jump after a PAN victory, but it is relatively weak. 

Still, her results follow what one would expect. The effect is bigger in border states than elsewhere. It is also bigger in drug-producing states. Better still, it’s bigger in counties along trafficking routes. The cool thing? She derived the routes herself. In her words, slightly paraphrased:

1. Central places are those that are relatively costly to go around when transporting drugs from producing counties to the U.S. border. 
2. For each producing county calculate the least cost path to the nearest U.S. border crossing. This path can pass along any edge in the Mexican road network. Calculate this over all counties for a baseline measure. (Least-cost routes are calculated solely on geographic distance to the border.)
3. Repeat this calculation, but do not allow the paths to pass through the county. Calculate this for each county.
4. The centrality of a county = (2) – (3). The higher the value, the more central the county, and the more executions should jump after a PAN victory.

And lo, she found it holds up as expected! (She controlled for other factors that one might expect to be correlated with centrality.) Executions jump everywhere if the PAN wins, but they jump more in central counties. Now, executions are a politically-derived variable. (How do you know if a homicide was drug related?) The chance of a homicide occurring in a county jumps about 7% per month after a PAN victory (and overall homicides leap 49%) but there is a lot of variation and the result is not quite statistically significant. So it is possible (although upon first reading of the results unlikely) that PAN mayors are simply more likely than opposition mayors to classify homicides in their county as drug-related. 

In short, there is some evidence that the PAN decision to crack down on organized crime triggered the upsurge in violence. Why it would trigger the upsurge is still not clear, and I should point out that her results are preliminary and could change. But it is awesome research, and it is, I think, a great example of how social science techniques can be applied to some of the realest of real world questions.

We would love to hear critiques and suggestions. We would also love to hear what you think the policy implications, if any, might be.

A hypothesis about corruption from a police officer

 Traffic is spiking, but no one wants to comment. That seems appropriate, oddly enough.

If Juárez is so dangerous, why is El Paso so safe? And it really is safe. Statistically, yes, but the place also feels safe. The worst neighborhoods are quiet. Yet it is clear that massive amounts of drugs pass through, and one might expect that the large population of Mexican-born immigrants (24% — and that does not count the American-born minor children of foreign-born parents) would provide fertile ground for extortion rackets. The short answer, of course, is that the police in El Paso function as police. Gangs can’t operate with the same impunity. 

But why doesn’t corruption rapidly sap the effectiveness of the law enforcement agencies? In fact, they are corrupt. According to the FBI, “in fiscal year 2009, there were over 100 arrests and over 130 state and federal cases.” But one cop (from New Mexico, talking about the American ICE) said to me one very interesting thing. “You get a lot of crooked cops. What you don’t get is two crooked cops. Two officials try to collaborate, and the result isn’t two richer officials. It’s two federal prisoners.”

In short, the hypothesis isn’t that individuals in the U.S. show any more rectitude. Nor is the hypothesis that individual enforcement is particularly effective. It’s that individual acts of corruption don’t matter, because they don’t corrupt the efficacy of the organization. Orders still get carried out, information does not get systematically passed to the wrong people, and the state functions. What would matter would be systematic corrupt conspiracies among officials, and that is what the United States is very effective in preventing. (Of course, there are examples of systematically corrupt American agencies: the 77th Precinct in the 1980s, or the Rampart Division, or the NOPD today. According to the hypothesis, however, those episodes are soon smoked out because it is too hard to keep corruption conspiracies secret, and the conspirators have too many incentives to rat each other out.)

I don’t know how to test this. Thoughts?

The intensity of insurgency, but Mexico faces no insurgency

 Mexico does not face an insurgency. Repeat: there is no insurgency. Thinking of the gang violence as such, no matter how intense it gets, is somewhere between counterproductive and stupid.

I can see how a casual observer might miss the thesis of this post. After all, there are soldiers and checkpoints everywhere. The above-pictured soldier was a pretty nice guy, I have to say. We had a good conversation about soccer, baseball, the U.S. presidential election, how basic training sucks, and the fact that the U.S. does not have conscription while his men slowly dismantled and remantled the interior of our car. And he is  facing violence levels akin to war. But Mexico is not in a war, because the gangs do not have any insurgent-like goals ... at least not by any useful definition of “insurgency.”

This point seems to be increasingly lost north of the border. Yesterday I had an interesting conversation with a recent veteran of Gulf War II. (He served as an officer south of Baghdad in 2006-07.) After joking — truthfully! — that I had inadvertently traipsed through a combat zone as intense as the one he faced, he called the violence an “insurgency.” We then had a talk about the big difference between the Mexican cartels and Iraqi insurgents. (See the paragraph after next for that difference.)

Our discussion reminded me of a link that Andrew Reeves sent me to an article in the Small Wars Journal called “The Spiritual Significance of ¿Plata O Plomo?” That article hyperventilated, and you can’t make this stuff up, that “this insurgency has at its basis a spiritual, if not religious, component that threatens the underlying foundations of our modern Western value system.” In this view, not only do the drug gangs want to displace the state, they want to displace the Enlightenment!

Organized crime in Mexico does not want to displace the state. It does, of course, want to end the state’s monopoly on legitimate violence, because you can’t run an extortion racket without that. But it has no desire to replace or destroy the state. The capos certainly would like to subvert the state, and failing that, they’d like it to leave them alone. But that’s it. This is why Ciudad Juárez can experience Baghdad-high levels of violence (and I owe a favor to Anon for pointing out that misplaced decimal point) without experiencing Baghdad-like breakdowns of public service. If you define an “insurgency” as any group with a desire to break the state’s monopoly on violence, then most organized ones become insurgents and the word loses all its usefulness.

The article on the putative religious motivation behind the cartels, meanwhile, is head-scratchingly bizarre. Yes, La Familia uses initiation ceremonies. So do all gangs. Hell, so does the U.S. Army. That’s how you build loyalty. As for the weird-ass tattoos, they show your macho and spook the uninitiated. Ditto the use of increasingly horrible torture to intimidate. This is not deep psychological analysis. The piece is so over the top hysterical that I don’t even know where to start.

 

I recommend the New Yorker piece on organized crime in Michoacán if you want a serious look at how La Familia operates in its state stronghold. As you can see, while violence has ticked up in the state (and the mafia has done crazy things, like toss grenades into an independence day celebration) it remains in the level of merely “high,” barely above Louisiana and below Puerto Rico, far less than nearby southern states which have been traditionally violent places, drug violence or no drug violence. It is even less than the state itself experienced in the tumultuous 1990s, despite all the violence associated with the federal attempt to break the mafia.

Horribly violent this is. Bad for Mexico this is. But an insurgency this is not. Thoughts?

Narcoterrorism

 I’ll admit that I don’t like the term “narcoterrorism,” but as Gancho argues, “terrorism” is a pretty accurate term for the recent mass attacks in Torreón. Here is what he had to say:

The mass killings in Torreón have gone largely unnoticed, but 40 innocents have been killed this year not because of any gang affiliation, but because they chose to have a drink in a certain venue. The targets were the civilians. The goal of the attacks was to kill them by the bunch, and to scare the rest of us away from certain bars. And it’s worked; there are basically no nightclubs open in the town.

The tactic of targeting civilians in Torreón doesn’t seem to be spreading nationally, and Mexico isn’t turning into Colombia. However, we need to call a spade a spade, and react accordingly. Until this week, Torreón hadn’t had a federal security presence since last year, despite terrorist tactics being employed on various occasions going back to January. If Mexico’s worried about the Colombianization of its security situation, pacifying Torreón and punishing the gang behind these killings should have been one of the government’s highest priorities. Instead, it sent the message that you can intentionally kill civilians by the dozen, and as long as you don’t score big-time media attention, you don’t have to worry about the Mexican government.

What we do not know is why the gangs operating in the city want to terrorize the citizenry. My own hypothesis is that they are either setting up a protection racket, or dueling it out for control of one. I suspect the former, for the simple reason that the attacks seem to have scared the population away from everywhere, and not just the places in question. (There is evidence that the Zetas and La Familia are fighting to be the first to set up a citywide racket, but that is just a wrinkle on the basic hypothesis.) It is possible that these are just incredibly clumsy hits, of course.

 
The amazing thing is the incompetence of Mexican law enforcement. In the U.S., attacks like these would immediately prompt hundreds of arrests. Every existing warrant would be executed, every parole threatened. The police would extract plea bargains for information, make more arrests, and find evidence of other crimes among those suspected. (This does, of course, assume that the police care about the victims. As the citizens of many American inner cities can tell you, that is not always the case.) Yet Mexico seems to simply not have anything resembling an investigatory police force, at least not in the north.

Consider the murder of the U.S. consular officials, gunned down in their white SUV returning from a party in Juárez. The U.S. immediately responded with Operation Knock Down, which sent hundreds of federal, state, and local agents into El Paso. It resulted in 54 arrests. The resulting information was passed to authorities in Mexico, enabling the arrest of three gang members, most prominently Jesús Ernesto “El Camello” Chávez Castillo. The rub? The U.S. does not think any of the three were actually involved in the killings.

But they were killers. Why did it take evidence from the U.S. to arrest them? The gangs, of course, threatened to retaliate against U.S. law enforcement. So far, they have been unable to. Which is not surprising: they would be shut down the next day. Unofficial DEA spokesmen have politely expressed frustration that Mexico has not given them access to the information that they would need to solve the crime.

The strange thing, which I will try to talk about later, is that everyone in El Paso believes that law enforcement is corrupt in Texas. They especially believe that federal ICE officials are all on the take. Yet they (which includes law enforcement officers from New Mexico) also believe that the corruption, unlike in Mexico, has no effect on police ability to maintain public order.

Before I explain why they think that, I would like to ask my readers three things. What do you think the killings are about? Why do you think Mexican police forces seem ineffective? And, most importantly, why do you think the violence hasn’t crossed the border? I would really like to hear thoughts on this.

By the way, go read Diego Valle on the topic!

A brief and incomplete history of organized crime in northern Mexico

 The history of organized crime in Mexico goes back before Mr. Carrillo, of course. As far back as 1916, in the middle of the Mexican Revolution, U.S. customs officials in Los Angeles reported that the government of Baja California, one Colonel Esteban Cantú, was selling leases to smuggle opium into the U.S. for a $45,000 down payment and monthly leases around $10,500. (Of course, the dollar isn’t what it used to be: $10,500 in 1916 dollars is worth about $212,000 today.) Cantú didn’t last — he became involved in a bizarro-world attempt to secede, which led to his exile — but the governors who followed him continued their involvement with drugs, even after the federal government of Mexico banned marijuana in 1920 and opium in 1926.

Somewhat amusingly (at least to me) the Baja criminals were under the thumb of a group of Jewish gangsters based in Los Angeles. Harold “Happy” Meltzer, connected to Mickey Cohen, arranged with the Mexican consul in Los Angeles to use Mexican customs agents to smuggle opium across the border.

When Enrique Diarte (their source of supply in Tijuana) tried to go into business for himself, an American named Max Cossman (aka Max Webber) had him killed. Cossman had the support of the state government, but ran afoul of the feds, and wound up in a Mexico City jail in 1949. Mexican jails being what they were (and, sadly, are) his wife had no trouble smuggling heroin into the prison, which Cossman resold. He escaped and continued to operate across the border well into the 1950s, using the moniker “Francisco Mora.”

Smuggling soon spread away from Baja. In 1931, President Pascual Ortiz Rubio (who was actually not the true head of government at the time — that position being occupied by the Jefe Máximo de le Revolución, Plutarco Calles)  expressing worry over “the increase in national and international narcotics trafficking along the rail line joining Mexico City and Ciudad Juárez.” He went on to state that he was sending three “secret agents” who were “currently in Torreón” to combat the traffickers.

 
The head secret agent, Juan Requena, sent back a report stating that Torreón was the “main center for narcotics trafficking in the towns linked by the rail line from Mexico City to Ciudad Juárez and for the international trafficking carried out in this city.” It went on to say the main kingpin was a man of Chinese descent named Antonio Wong Yin, who was in continual contact with the mayor of Torreón (Francisco Ortiz Garza), a close friend of the governor of Coahuila (Nazario Ortiz Garza), and the head of the federal Army in the state, General Jesús  Garza Gutiérrez. (It was good to be a Garza!) He went on report that the traffickers “have a complete espionage service prepared to do anything.”

At that point Requena was transferred to Los Angeles. Sadly, I have no records of what this Mexican secret agent did there.

The next year, General Rodrigo Quevedo became governor. His brother became mayor of Juárez. They shot the head of the smuggling cartel there, who fled to Mexico City, where gunmen killed him in a tiny little park that used to be next to the Casa de Azulejos in 1937. That same year, the head of the federal Department of Public Health, José Siurob, called Juárez “possibly the most dangerous center where traffickers operate who ... defend their trafficking with gunfire.”

By 1947, Harry Anslinger, the head of the Federal Bureau of Narcotics, declared Mexico to be U.S.’s main opium supplier. He also accused state officials in Sinaloa (where it was grown) of being in the drug business, including Governor Pablo Macías Valenzuela. Surprisingly, the Mexican press picked up the accusations. There must have been some sort of infighting between Macías and President Miguel Alemán, because once the President made a trip to Sinaloa, the accusations stopped. Macías finished his term and became head of Military Camp No. 1 in Mexico City. The feds made a show of capturing one of the traffickers Macías was accused of protecting — Miguel Urías Uriarte — but he was soon released.

In short, organized crime was tied up with the political system practically from the very beginning. The result wasn’t good for Mexican governance, but it did mean that the politicians were in control of the gangsters. There were violent outbreaks in the 1960s and then again in the late 1980s, but organized crime simply didn’t exist separately from the political system. There were individual gangsters and criminals, but no independent syndicates and no armies upon which the capos could draw to resist the state or intimidate the citizenry ... at least not without the active cooperation of the politicians.

That went away with the transition to democracy in the late 1990s. But violence didn’t really get out of the control until the last few years. So something else is going on. If that “something” turns out to be Sicilianization, then the end result will be a return to the bad old days of the PRI’s dictatorship, minus the protectionism. In Sicily in 2007, extortion rackets collected about 12% of GDP from businesses on the island — that’s more than the Mexican federal government collects in non-oil revenue.

In fact, it could get far worse. Sicily is part of nation that isn’t (despite the Prime Minister’s best efforts) completely corrupt, and receives large-scale transfers from the rich north and the European Union. In Mexico, though, it’s the richest part of the nation what would be Sicilianizing.

Still, there are two big issues that need explaining. First, why did gang warfare break out in 2008, instead of 1998 or 2000 or 2006? And second, why hasn’t it spilled over the U.S. border?

A history of violence

 Violence in Juárez has reached a level comparable with situations that most would consider civil war, and far outside the range of anything that has happened in major metropolis in the developed world. So far, the rest of northern Mexico has not yet followed Ciudad Juárez into chaos, but death rates are escalating. This picture of me (wearing an entirely inappropriate grin) is dab-smack in one of the most violent neighborhoods of Chihuahua City. No, it doesn’t look it. That’s the point.

 
What is going on?

There is an explanation for the early-1990s jump. Pablo Escobar died in 1993, not coincidentally the year violence began to escalate. With the U.S. government raising the cost of using Florida as an entrypoint for smuggled drugs (law enforcement is not helpless), a mid-level drug dealer named Amado Carrillo Fuentes took the opportunity to shift the traffic to his city. That in and of itself would be expected to cause a temporary jump in violence ... but not a shift to a new, higher equilibrium.

The thing is, wholesaling cocaine across the border wasn’t Carillo’s only business strategy. He also began to sell retail inside Mexico. Juárez is littered with “tienditas,” also called (for heroin) “picaderos,” where you can buy drugs for less than a quarter of the U.S. street price. In theory, the tienditas were under police protection. In practice, the police functioned as just another gang. Carillo’s death in 1997 ended (or so runs the conventional wisdom) any hope of getting the situation back to its pre-1993 equilibrium. Dump the creation of a retail market with three necessary (but not sufficient) factors and you have all you need to explain a homicide rate around 30 per 100,000: a large population of transient young men, an economy that offered few economic opportunities, and continuous running connections with U.S. prison gangs that could not freely operate in El Paso but could easily coordinate their activities south of the border from American redoubts. (Plus weapons from El Norte, but I am not convinced that was determinative.) In short, Juárez went the way of Baltimore. You could probably remake the Wire there without too much trouble.

In short, the early-1990s leap in homicides in Juárez appears to have been driven by the emergence of large-scale retail drug markets within Mexico, in the context of a police force that was not disposed to much anything about it. (Other than skim its take off the top.) The result was not all that different from the parts of America characterized by poverty, weak social bonds, and police forces indisposed to actually carry out investigative or preventative policing.

The recent leap, though, that is different. Rural southern Mexico has always been a lawless and violent place. So have been the Sierra Madres. But this explosion to civil war-levels, this is new.

The Sicilianization of northern Mexico?

 King-Walters asks what effect the Juárez violence is having on the rest of northern Mexico. The direct effect is pretty small. Hundreds of thousands of people have left Juárez, but they have mostly gone to El Paso. Villa Ahumada and Chihuahua City look more prosperous and developed than they did when I was last there in 2004.

 

But the violence is spreading. Yesterday I got the news about the massacre at a party at a hotel in Torreón, Coahuila. At first, I thought it was the same place I stayed in a month ago. It turned out not to be ... but it was a recreation hall in an equally nondescript suburban part of the city. There are some very worrying signs. My friend Michael told me the even was called the “Electro Party Gay,” and Gancho confirms. He also reports that the party was scheduled to be over by the time the gunmen burst in. That latter fact makes it unlikely (but not impossible) that it was a hit. Warning notes of unknown provenance have surfaced.

Rather, it was probably extortion. When I was in Torreón, I was told about (but did not see) the little Z stickers that you find on alcohol sold at certain stores, meaning that the owner has paid the Zetas their take. The Familia, a Michoacán-based mafia that is branching nationally, appeared to have warned people in Torreón not to have anything to do with the Zetas ... and the massacre followed a series of gun battles in the city, including one near the hotel where I stayed.

The violence is spreading. Four states border Chihuahua; homicide has risen in all of them. That said, things need to stay in perspective. Coahuila’s homicide rate would still fit comfortably within the United States, having risen to the level of Maryland. Sonora’s rate has soared past Louisiana and Puerto Rico, but is still around the same as it was in the early 1990s. (A time when bandits hijacked entire trains and chilangos feared to drive to the States through the state.) Sinaloa has always been violent; I saw narcos walk into a barbacoa place, put guns on the table, and scare the hell out of the other patrons (or at least me) back in the 1990s. That said, it is certainly possible that killings in Coahuila and elsewhere will soar in the next few years. The signs are there.

My worry is that it may not be about drugs. Rather, my worry is that it is about everything; that gangs are fighting it out to establish themselves as Mexico’s version of the Cosa Nostra or ‘Ndrangheta. Extortion and racketeering, drugs and vice. The end result would see violence decline ... along with economic growth, political democracy, and Mexico’s prospects. Organized crime is the issue in Mexico right now: you can follow the ins-and-outs at Ganchoblog.

Michoacán (where I have to say I have not been) may provide an example of the future. 

How bad is it in Ciudad Juárez?

 As some of you may remember, I recently completed a trip through northern Mexico. The amount of violence stunned me. I have travelled through the region many times; this was the first time that I felt its effect.

How bad is it? The above video show yesterday’s car bomb attack. It starts with a video of the first explosion; the second bomb explodes nine seconds in. It is the first use of car bombs in the gang warfare plaguing the city.

The above graph attachs some numbers. The violence in Juárez jumps twice. The first is in 1993, when the city leaps from a medium-level homicide rate around six per 100,000 to a hair under thirty. One way to think about those numbers is that the place went from being about as violent as New York City is today to the carnage that prevailed back in the 1980s ... roughly equivalent to the kind of violence that afflicts declining Eastern urban centers today. Is was violent, but normal life continued. (The dotted orange line plots the contemporaneous New York homicide rate.)

Another way to consider the numbers is to consider that the Juárez drug violence of the 1990s and most of this decade was roughly comparable to the peak of the Troubles in Northern Ireland. The dotted yellow line shows the Northern Ireland death rate from 1969 through 1988. It spikes up from next to nothing, stays high for about six years, and then falls again to something around the level of New York or pre-1993 Juárez.

So Juárez was bad between 1993 and 2007, enough to make me nervous when I visited, but nothing outside my own experience. In fact, it was less violent than places I would visit without blinking an eye. It was not a level of violence to worry about; in fact, I usually felt silly about my own edginess. It certainly was not enough to make you worry about Mexico’s future.

And then, it jumps again in 2008 and 2009, to something way outside the norm. (The 2010 numbers are based on the first half of the year.) How far outside the norm? Well, one consolation is that Baghdad still seems a bit more violent than Ciudad Juárez ... more so when you consider that the Baghdad figures (the light blue dots, taken from the Iraq Body Count) don’t include security forces. Whoops! A commentator just pointed out that I misplaced a decimal point. Looks like the violence in Baghdad (according to the Iraq Body Count) was only higher than in Juárez in 2006, at the height of the civil war.

So there you have it. Safer than Baghdad. Still. in 2006. More dangerous than Baghdad today. I feel virtuous, somehow, having gone through that without body armor.

Watching Team USA in Mexico

 This is a little late, but I was in Mexico City for the U.S.-England game, and it was awesome. With the quarterfinals coming up, it’s time to relive the glory. 

 
The bar was the Black Horse, a self-styled English pub in the Condesa, a part of Mexico City that was a run-down formerly-Jewish area when I first moved here and is now more hip than Bo Jackson. I got there an hour early, figuring that there’s a big group of English expats in the D.F. The outside seats were already taken, but the inside was pretty empty. It didn’t stay that way. My friends showed about 15 minutes after I got there. (I managed to claim a slew of bar seats.) With a half-hour  to go, it was SRO ... with U.S. fans. None of whom knew each other.

Which made it awesome. The U.S., see is not a big soccer nation. So we had to make stuff up as we went along. First thing we did was try to launch into “America the Beautiful” over “God Save the Queen.” That didn’t work, because nobody knew the lyrics — this after nine seasons of singing the damn thing at the seventh inning of every Yankee game — so we switched to “This Land is My Land” That got everyone going. 

The drama of the game has been recounted elsewhere. But it was great. We yelled, we screamed, we chanted “U-S-A! U-S-A!” and in the most perfect touch, yelled “The roof! The roof! The roof is on FIRE!” after the U.S. tied. 

We drank out the bar’s entire stock of Sam Adams, some midwestern beer I’d never heard of, and Budweiser. The party then moved outside.

 

I love the world cup!Tomorrow, I hope for the triumphs of Brazil and Uruguay. Go Mercosur!

Do tax systems matter? Evidence from Mexico

 Many politicians like to claim that low taxes are good for growth. it is not at all clear that low taxes do anything for growth. What makes me say that? Well, if they were, Mexico should be a powerhouse. After all, KPMG just declared that it had the best tax system in the world, with an overall burden only 60% of the United States and a third of France! So it should be growing like gangbusters, right?

Some argue, sensibly, that low taxes only work when budget deficits are low. Otherwise the beneficiaries of low taxes act as if they have received a tax postponement rather than a tax cut. Anticipating higher taxes (or inflation) in the future, they work less now. The problem? Mexican budget deficits are very low, as are its overall debt burdens.

 

Obviously, other things are going on. But having slow-growing Mexico get the top score for a business-friendly tax system should make one wonder about the importance of tax systems to actually doing business.