The crisis of Foxism: the political economy of fiscal reform in Mexico.

The election of Vicente Fox in 2000 represented an important moment for architects of global neoliberalism, in that it heralded new potentialities for advancing a 'second generation' reform agenda in Mexico. This report examines the first half of Fox's term, and his government's efforts to implement critical economic reforms within this agenda. It goes on to explain why the Fox government had failed, by mid-2004, to implement its priority fiscal reforms, in the context of social mobilisation against the state's neoliberal project and a stagnating economy.

Vicente Fox, a wealthy businessman, former executive at Coca-Cola and state governor of Guanajuato, was elected president of Mexico in July 2000. The election was greeted as a watershed almost universally, in that it heralded the end of more than seven decades of continuous rule by the Party of the Institutionalised Revolution (PRO. For neoliberal logicians, this break with the past was seen as an opportunity to advance the incomplete transformation of Mexico into a 'successful' neoliberal national state.

The World Bank, in particular, recognised the potential for building new political coalitions vital to realising and legitimating a 'second generation' reform agenda of the kind it has espoused since the mid-1990s. (1) This explains why the Fox government and the World Bank have sought to articulate and develop a single agenda for Mexico through an extensive collaboration which, by 2001, had already yielded a bulky World Bank-published compendium entitled Mexico: A Comprehensive Development Agenda for the New Era (Giugale, Lafourcade & Nguyen, 2001); a World Bank Country Assistance Strategy; and the government's own National Development Plan 2000-6 (Poder Ejecutivo Federal, 2001). This World Bank-Mexico nexus, as I call it, has formulated a comprehensive neoliberal state project in the form of a prioritised policy agenda (see Giugale, 2001). The top priority for this project--and for Foxism--is to engineer 'fiscal sustainability' through a restructuring of the tax system.

This report provides a cursory examination of the political economy of fiscal reform over the course of Fox's first three years in power. Although fiscal reform is only one component--albeit highly prioritised--of the second-generation neoliberal project of the Mexican state under Fox, the Value Added Tax (VAT) Law, in particular, has been a defining issue for the Fox government, and for those seeking to challenge its project.

From a critical perspective, it is indicative of the way in which the Fox government has failed to advance a key aspect of the second-generation reform agenda--namely, the further decomposition of Mexican labour and the disciplining of workers to the command of capital through the 'principle of scarcity' (Hampton, 2003), and the propagation of a socially-atomising ideology of the market. (2)

The politics of economic policy reform, 2001-4

Days after the inauguration of Fox as president, Mexico's Ministry of Finance (SHCP) published its Economic Policy Guidelines (EPGs) for 2001 (SHCP, 2000), in which 'a stronger fiscal stance' was made the 'corner-stone' of its agenda. A comprehensive proposal for a 'New Public Treasury' was put before Congress on 3 April 2001.

The various changes proposed to the tax structure included a proposal to remove VAT exemptions from foodstuffs and medicines, which would entail an increase from zero to fifteen per cent VAT. This was to prove highly controversial. From the outset, the Fox administration was aware of the potential for opposition to the reforms, and especially to this regressive tax on consumption.

The World Bank itself noted the regressive nature of the VAT Law the Fox government sought to impose: it would apply only to sales to households and not to sales to business, and would hit the poorest hardest (World Bank, 2002: 16, 26 box 1).

Accordingly, the government stressed the distributive character of the fiscal reform package through a media campaign, and tabled compensatory measures to soften the blow for the poorest families (Ramos de Villarreal, 2001: 61).

By the close of ordinary sessions on 30 April 2001, Congress had approved a majority of the proposed changes to the tax structure, but had not approved the new VAT Law. The fact that a vital element of the 'comprehensive fiscal reform' package had been effectively shelved represented a blow for the government--a blow made all the more devastating by the sheer furore provoked by the proposals.

Within the Senate, prominent members of Fox's own National Action Party denounced his claim that the reforms were pro-poor as a lie, and similar accusations echoed through the Chamber of Deputies (La Jornada, 6 April 2001). The leftist Party of the Democratic Revolution (PRD) added fuel to the tire by rejecting outright the comprehensive fiscal reform package, and by unveiling a progressive fiscal reform of their own that would eliminate any taxation of foods and medicines by, for example, raising taxes for high-earning companies and taxing speculative capital (Calderon Salazar, Martinez Hernandez & Espinoza Perez, 2001).

Ultimately, Fox could not rely solely upon the legislative support of the PAN, and--given the ambiguous position of many of the party's congressional representatives--could ill afford to allow protracted and public debate to undermine that support. In other words, if the VAT Law were to be passed, it was going to require a painstaking strategy of coalition-building and political bargaining within Congress.

The government duly stepped up the campaign to build support for its 'comprehensive fiscal reform'. A core element in this strategy was the publication of the National Program for Financing Development, 2002-6 (SHCP, 2002a) and, in its wake, the government succeeded in passing further piecemeal economic reforms through Congress. However, as the EPGS for 2003 stressed, the successful passage of a new VAT Law remained a priority (SHCP, 2002b). The mid-term congressional elections of July 2003 represented a setback, as the PAN vote dropped to 30.5 per cent, and brought them a loss of 49 seats while the PRI gained 20, emerging as the largest party (Reforma, 9 July 2003). That same month, however, Elba Esther Gordillo won an election to head the party in the lower chamber. (3) She had been a co-member of the Grupo San Angel forum with Fox and other members of his cabinet prior to the 2000 election, and had made public overtures of support for his policies (Reuters, 9 July 2003). It was therefore possible that Fox, his loyal congressional allies within the PAN, and the wing of the PRI loyal to Gordillo might form an alliance capable of passing the VAT Law. However, a meaningful alliance has never emerged, due, in the main, to Gordillo's attempt to forge a powerful position for herself within the party through patronage, at the expense of other prominent priistas [PRI members].

In November 2003, the Fox government sent its budget to Congress along with a revised version of a VAT reform it believed might be acceptable. It proposed to extend VAT to school fees and public transport at 15 per cent, and to levy an 8 per cent tax on the import, manufacture and wholesale of food and medicine (El Universal, 24 November 2003), but dropped previously proposed cuts to corporate and personal income tax. The strategy to make fiscal reforms more palatable to the left backfired, in that it mobilised reactionary opposition within the PRI at a time when party president Roberto Madrazo, along with his allies in the so-called 'dinosaur' wing of the PRI, were seeking to isolate Gordillo politically. Madrazo petitioned his supporters in the Chamber of Deputies to call a vote on the future of Gordillo as the party's congressional coordinator.

A vote was forced and, on 3 December 2003, Gordillo was stripped of her role and replaced by Emilio Chuayffet--a conservative party apparatchik with a strong power-base in the Estado de Mexico. Though Gordillo remained politically powerful, the likelihood of the so-called Elbazul alliance pushing through a VAT reform dissipated after a defeat for the alliance, on II December 2003, in a congressional vote on a second batch of fiscal reform proposals.

When, in March 2004, Chuayffet set about removing her supporters from key party positions, Gordillo resigned her congressional seat and publicly criticised the party for putting itself before the needs of Mexico, thereby indicating both her ongoing support for Fox's project, and his failure to build a winning coalition and overcome the entrenched interests characteristic of the Mexican party system. She said, 'I dreamed of putting forward from the chamber the reforms that our country urgently needs, but my dream clashed with the interests of a group for whom the future begins and ends in 2006' (El Universal, 15 March 2004). (4) For his part, Fox lamented another 'missed opportunity' to 'remove distortions in the economy that reduce competitiveness' (El Financiero, 12 December 2003).

For some, the July 2003 elections represented the final nail in the coffin of an ineffective and impotent administration (see, for example, Proceso, 30 December 2003). Nevertheless, seemingly determined to pursue what may for this administration--be a lost cause, the government has embarked on a new strategy to build support for a comprehensive fiscal reform through a national fiscal convention (Convencion Nacional Hacendaria). The aim of the convention, opened by Fox on 5 February 2004, is to encourage dialogue between the federal, state, and municipal levels of government, and to build a majority pro-reform consensus at these levels that will be sufficient to enable the executive to pass a VAT law through Congress at the third time of asking. By the close of the first convention on 17 August 2004, little progress had been made, however, beyond setting out the terms of its establishment and receiving an extensive list of initial proposals across a range of issues and from a wide variety of Mexican society (see Convencion Nacional Hacendaria, 2004).

Social mobilisation and economic stagnation 

Political institutions do not function within a vacuum. They are the material reflection of struggle in a capitalist society, and outside the chambers of Mexican political power there has been a significant mobilisation of oppositional movements allied against Foxism and the VAT Law. Fox had been careful to court key sectors of Mexican society, and had paid particular attention to the unions. For instance, he pledged to 2,600 delegates at the teachers' union's (SNTE) 2000 congress that the VAT reforms would permit further funding of education (La Jornada, 14 December 2000), a pledge he reiterated to SNTE leaders during meetings a week later (La Jornada, 21 December 2000). Further, in April 200I he invited delegates from two independent unions--the National Union of Workers (UNT) and the Federation of Goods and Services Union (FESEBES)--to hear the case for the VAT Law. However, it encountered vociferous opposition from union leaders and the rank and file. Even the traditionally co-opted Labour Congress (CT) rejected any aspects of the comprehensive fiscal reform that would attack the purchasing power of wages (La Jornada, 6 April 2001). The rejection of the VAT Law was also clear within other sectors of civil society. For example, the National Executive Committee of El Barzon--the debtors' movement--denounced the application of VAT to food and medicines as 'immoral', while a spokesman from the Mexican Centre for Human Rights even went as far as to claim that the VAT Law would violate basic human rights (La Jornada, 5 April 2001). A visible expression of mass opposition to the VAT Law came from hundreds of thousands of workers who marched through various Mexican cities on May Day 2001. A speech made by Fox failed to stem the indignation of the 200,000 marchers in Mexico City, who reportedly whistled him down en masse (Mexico Labor and News Analysis, May 2001). Further protests took place on 13 September 2001, with thousands converging outside Congress to voice their rejection of VAT reform (BBC News, 13 September 2001). By the end of Fox's first year in office, it was evident that the tax reform, together with proposals to effectively privatise Mexico City's electricity distribution system, had cemented the longstanding opposition of Mexico's independent and more democratic unions. This situation was exacerbated by a sharp slowdown in the US economy, which worsened in the aftermath of the events of 11 September 2001. During Fox's first year, over a million workers lost their jobs; the purchasing power of wages declined; and even the once-resilient maquiladora [assembly-for-export plants] sector of the economy shrank, with an estimated loss of 213,000 jobs (La Botz, 2002).

The mobilisation of workers and civil society groups against Foxism has been steadily gaining momentum since 2001. This culminated, on 27 November 2003, with tens of thousands participating in a so-called 'megamarch' through Mexico City against Fox's neoliberal economic programme. The megamarch was organised by a coalition of the PRD, the UNT, the SME, the recently-formed FSM, El Barzon, and various countryside and peasant organisations united in their opposition to VAT reform and electricity-sector liberalisation. This coalition had previously threatened to call a general strike over the VAT Law (Mexico Labor and News Analysis, December 2003), and had announced its readiness to mobilise against the Elbazul alliance (La Jornada, 11 December 2003). The megamarch was demonstrative of a widespread desire to voice opposition to the neoliberalisation of Mexican political economy, and to mark three years of resistance to Foxism.

During these three years of struggle, the record of the Fox government has been tarnished further by the poor performance of the economy. On its own terms, the government has failed to deliver, and looks unlikely to put Mexico on a growth path of 7 per cent per annum by 2006, as promised in 2000. In 2001, Fox's first year as president, the economy slipped into recession, contracting by around 1.6 per cent in the last quarter and by 0.2 per cent over the whole year (BBC News, 7 February 2002), against a growth target of 4.5 per cent for the year (SHCP 2000: 1). In 2002, the Ministry of Finance set a more modest target of 1.7 per cent, and-although GDP growth did resume during that year--it fell nearly 50 per cent short of its target, at 0.9 per cent (Mexico and NAFTA Report, 6 April 2004). The yearend figures for 2003 confirmed the worst for the Fox administration at mid-term: a per-capita decline in growth made Fox the worst-performing president since the 1982 debt crisis (Mexico and NAFTA Report, 11 November 2003). The fiscal balance of the Mexican state has remained stable over the first three years of Fox's six-year term, albeit always in deficit.

However, the stabilising effect of oil revenues can largely account for this steadiness. In 2003, for example, the government was able to avoid spending cuts--an obvious corollary of maintaining fiscal discipline in the context of lower-than-predicted growth--due to a windfall in oil-based revenues caused by the higher-than-forecasted export price of oil (Mexico and NAFTA Report, 19 August 2003). The enduring dependency on oil-based revenue continues to present the state with the same problem identified when Fox first took office. The failure to reduce this dependency through comprehensive fiscal reform makes the pressure on state managers even more acute, and recent concerns over the poor productivity and heavy indebtedness of PEMEX, the state-run oil industry, have only exacerbated this (Shields, 2003). By August 2003, the Ministry of Finance was forecasting a loss of 80 billion pesos because of a projected fall in oil prices in 2004.

In September 2003, Gil Diaz claimed that in only three years' time, government revenues could have fallen by US $120 billion (Mexico and NAFTA Report, 19 August 2003). All of this makes the government's reassurances regarding the welfare of Mexican families, in the context of determined fiscal discipline on the part of state managers, ring rather hollow.

By the close of 2003, the failure to kick-start growth had clearly taken its toll on wages, with the purchasing power of the minimum wage back at 1988 levels by Fox's mid-term, at a time when 7.2 per cent of the workforce earned less than the minimum wage and 29 per cent the equivalent of between one and two minimum wages (Mexico and NAFTA Report, 13 January 2004).

A further problem has been a steady haemorrhaging of jobs since Fox took power, with an estimated 800,000 Mexicans losing their jobs during his first three years in office (BBC News, 2 September 2003), and with the official unemploy-ment rate reaching a seven-year high of 4 per cent in August 2003 (Mexico and NAFTA Report, 13 January 2004). Further, the recession and a slowdown in the us economy during 2002 meant that by December 2003, maquiladora employ-ment was also suffering (Mexico and NAFTA Report, 9 March 2004).

All this has led to a marked increase in the number of people working in the informal economy, where workers cannot access social security, health coverage or other benefits. It is estimated that, during the first half of the Fox presidency, 1,568,000 Mexicans joined the informal economy (Mexico Labor and News Analysis, November 2003).

This not only means that an increasing number of workers has been forced to adopt a precarious means of subsistence, but also that more are labouring outside the regulated economy within which they might be taxed, thus contributing to the otherwise-unsustainable public treasury. From the point of view of Mexico's state managers, this makes successful reform of the VAT Law all the more imperative.

Conclusion

The changes in the VAT Law, had they been successfully implemented, might have dealt a decisive blow to Mexican labour while advancing Fox's neoliberal project.

By 2002, Mexican workers' wages had lost 50 per cent of their purchasing power over eight years, and 73 per cent of the population could no longer afford the shopping basket of forty basic items (Mexico Labor and News Analysis, September 2002).

The proposed VAT Law--combined with minimal increases in incomes, and a tightly-managed rate of inflation--would further impose the principle of scarcity which compels workers to accept lower wages and benefits, thereby imposing a form of social discipline whereby individualised struggles to stay alive replace class-conscious, collectively organised struggles against capital.

Of course, there is no guarantee that capital and the state will succeed in decomposing labour into a more readily exploitable class in this way. The failure to legislate a comprehensive fiscal reform in the context of popular mobilisation against Foxism testifies to this.

Acronyms

CT: Labour Congress

EPGS: Economic Policy Guidelines

FESEBES: Federation of Goods and Services Union

GDP: Gross Domestic Product

PAN: National Action Party

PEMEX: Mexican Petroleum

PRD: Party of the Democratic Revo-lution

PRI: Institutional Revolutionary Party

SHCP: Ministry of Finance

SNTE: National Education Workers' Union 

UNT: National Union of Workers

VAT: Value Added Tax

Notes

* Greig Charnock acknowledges the support provided to him by an Economic and Social Research Council (ESRC) studentship during the research and writing of this report (award number PTA-030-2002-00084).

(1). See the series of Viewpoints publications by the Office of the Chief Economist for Latin America and the Caribbean at the World Bank. Since the aftermath of the 1995 financial crisis in Mexico, the Bank has consistently called for a 'second generation' of reforms to 'complete' the 'unfinished agenda' across the whole region.

(2.) The Italian Autonomist Marxists, such as Mario Tronti and Antonio Negri, first formulated the theory of class composition. However, here the author is using the theory as reformulated by exponents of Open Marxism--for verification, see Holloway (1992, 2002: ch. 9).

(3.) Gordillo is also president of the teachers' union, the SNTE--the largest union in Latin America. For more background on Gordillo and resistance to her leadership by dissident members of the SNTE, see Cook (1996).

(4.) Gordillo remains number two in the party hierarchy, and heads the Fuerza Reformadora wing of the party--a platform, possibly, from which she might manoeuvre herself into place as a potential presidential candidate for 2006.

References

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Hampton, M. (2003) 'The return of scarcity and the international organisation of money after the collapse of Bretton Woods', in The Commoner, no. 7.

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--(2002) Change the World Without Taking Power: The Meaning of Revolution Today (Pluto Press) London.

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--(2002a) Programa Nacional de Financiamiento del Desarrollo, 2002-6 (Secretaria de Hacienda y Credito Publico) Mexico City.

--(2002b) 'The executive submitted to Congress the economic program for 2003', Investor Relations Office, November 5.

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