By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.
Despite being Mexico’s second richest man and owning one of the world’s largest mining groups, German Larrea is an enigma. Until this month the only photo that existed of the media-shy recluse was a blurry black and white image.
All that has now changed: his name and a new photo – one taken of him schmoozing with Mexican President Enrique Peña Nieto at a recent meeting of Citibank’s Mexican division, Banamex – are plastered across the front and financial pages of Mexico’s daily newspapers.
This new wave of unwelcome public attention is the result of what many are describing as the worst ecological disaster in Mexican history. On August 6 the Buenavista del Cobre mine belonging to Larrea’s flagship company, Grupo Mexico, the country’s largest mining and infrastructure company, spewed 10 million gallons (40,000 cubic meters) of copper sulfate acid into the Sonora and Bacanuchi rivers, turning the waterways orange and poisoning the water supply of 24,000 people in seven communities along the rivers.
Authorities place the cost of the total cleanup in the hundreds of millions or even billions of Mexican pesos, yet so far the government has issued Grupo Mexico with a one-off sanction of just 40 million pesos (roughly $3 million). As for Larrea, he has quickly crawled back under the woodwork whence he came, having issued not a single public apology.
It is not the first time that Larrea has shown such callous disregard for the occasionally destructive externalities of his particular line of business. In 2006 a methane explosion in the Grupo Mexico-owned Pasta de Conchos coal mine left 65 miners trapped underground. Only two of the 65 bodies were found before the decision was made to call off the search, just five days after the explosion. During that time neither then-Mexican president Vicente Fox, nor Larrea, visited the mine or interacted with the families. In fact, not a single Grupo Mexico shareholder bothered to show up.
According to Forbes, Larrea is the 60th richest billionaire in the world, boasting a total wealth of $15 billion. Through the control of just over half of Grupo Mexico, he and his family own mining assets in Mexico (Minera México), Perú (Southern Copper) and the U.S. (Asarco). They also own Infraestructura y Transportes México (ITM), which runs two railroads, Ferrocarril Mexicano y Ferrosur, as well as a 30 percent stake in the Mexican airport operator Grupo Aeroportuario del Pacífico.
Larrea is also the majority owner of Cinemex, Mexico’s second largest cinema chain. He sits on the boards of Citi-owned Banamex, the Mexican stock exchange, the Mexican Shareholders Group, and until recently the giant Mexican media group Televisa. In fact, rumours are that Larrea is poised to take advantage of the recent shake-up of Mexico’s telecommunications sector to launch his own media empire.
Like many of his fellow Mexican billionaires, Larrea owes much of his fortune to one man: Carlos Salinas de Gortari, who served as president of Mexico between 1988 and 1994. During his six-year presidency Salinas not only signed up to NAFTA, but he also embarked on a privatization spree, selling off mines, banks, railways, electricity networks and, of course, Telmex, the national telephone company. Salinas relied on a relatively small group of Mexico’s oligarchy to supply him with campaign (and perhaps personal) funds, in return for the sale of state assets at favorable rates and terms. For example, Salinas’ close friend Carlos Slim, now the richest billionaire on the planet, was essentially able to pay for Telmex out of the future profits of the company.
Welcome to Slimlandia
While Slim is often celebrated in the international press for both his sharp business acumen and generous philanthropy, his success has come at a heavy price, in particular for Mexican consumers.
To wit, from Fortune:
George W. Grayson, a professor of government at the College of William & Mary, coined the term “Slimlandia” to describe how entrenched the Slim family’s companies are in the daily life of Mexicans.
It’s not a reverential term. Many Mexicans hoped privatization, which began in the early 1990s, would create competition and drive prices down drastically. That hasn’t happened. “Slim is one of a dozen fat cats in Mexico who impede that country’s growth because they run monopolies or oligopolies,” says Grayson. “The Mexican economy is highly inefficient, and it is losing its competitive standing vis-à-vis other countries because of people like Slim.”
According to a study by the Organization for Economic Co-operation and Development (OECD), between 2005 and 2009 Mexican consumers were overcharged $6.5 billion a year for landline usage. The total loss to the Mexican economy of Slim’s dominance in telecommunications is estimated at $129 billion over a five-year period, due to excess charges and poor investment in infrastructure.
Granted, Slim was recently forced by changes in Mexico’s telecommunications legislation to divest a large part of his holdings (worth some $10 billion) in América Movíl. But his dominance over the Mexican economy remains broadly unchallenged, as was shown by the government’s recent decision to award the tender to design Mexico City’s new airport to a firm run by Fernando Romero, a Mexican architect who just happens to be married to one of Carlos Slim’s daughters. What’s more, Grupo Carso, one of Slim’s many construction companies, is part of a consortium that is preparing to bid for contracts related to the new airport. If the consortium wins, it will lead a project forecast to be worth some 12 billion dollars – and probably a whole lot more given contractors’ tendency to go over budget.
The Rise of Mexico’s Oligarchy
Slim is not the only Mexican billionaire whose fortune was built from the ashes of once state-owned assets. Just as happened in Yeltsin’s Russia, the “liberalization” and privatization of Mexican markets has given rise to a new über-caste of oligarchs. More than half of the 11 Mexican tycoons featured on Forbes’ 2012 Rich List (who between them controlled a total wealth of $129.7 billion) are or once were owners of former state-run enterprises. They include owners or important shareholders of mines (Larrea and Alberto Bailleres), telecoms companies (Slim, Ricardo Salinas Pliego and Emilio Azcárraga) and banks (Roberto González Barrera, Alfredo Harp Helú and Roberto Hernández Ramírez).
But for every winner in a system founded along oligarchic lines, there must be countless losers. In Mexico, all the promises of miraculous growth, unstoppable development, cheaper prices, and better living have come to naught. Instead of state-run monopolies calling the shots, Mexico is subject to the whims of privately owned oligopolies run by a small coterie of hyper-connected individuals who now effectively own the country.
In many ways, Mexico is the poster child of neoliberalism. For decades and under successive governments the country has followed the standardized rule book of 21st century economic governance to the letter. According to the economist Julián Castaño, Mexico is now Latin America’s second most privatized nation. It has also signed more bilateral and multilateral free trade agreements than just about any other nation under the sun.
Yet the result, far from one of freer more open markets, is ever-increasing concentration of power and wealth, rising prices and dwindling choice for consumers – a trend that seems set to continue as Salinas’ disarmingly handsome apprentice, Enrique Peña Nieto, prepares to complete the project his master began 26 years ago. By Don Quijones. An exclusive for Wolf Street.
Mexico, the tide may well be subtly turning against Monsanto and its fellow GMO oligopolies and in favor of independent food growers and consumers. Read… Mexican Judge Departs From Script, Turns Monsanto’s Mexican Dream Into Legal Nightmare
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Would you please give the reference to Julian Castaño’s remark about Mexico being the second most privatized country in L. America?
BTW, which is numero uno?
Peña spoke at the Council on Foreign Relations Tues Sept 23
I asked him about Carlos Slim and his politically facilitated monopoly over the Mexican phone system. He said there would be reforms, though didn’t provide much detail.
Moderator Robert Rubin (remember the peso crisis he (Citibank) created/benefited from?) commented (inappropriately) that he didn’t agree with the description of Carlos Slim. The 1% sticks together. Or maybe Citi wants a deal with Mexico.
here is the text
QUESTION: My name is Lucy Komisar. I am a journalist. I think Mexico has problems similar to the U.S., which is [that] sometimes individuals with huge amounts of money use that money to buy influence, buy politicians, buy policy. You have an individual called Carlos Slim, and he has had a monopoly on the phone system in Mexico, which hurts mostly the people at the bottom, because it takes more of their disposable income, and some can’t afford phones at all. Why has this been allowed to continue? Are you going to stop it so he doesn’t have a monopoly or even a dominant position in the telephones system?
RUBIN: This is why it’s good to be president. You get to answer questions.
NIETO (through translator): Well, let me tell you, the reforms that have been enacted, there is one specifically and of course relates to your question. That is the telecommunications reform. And that is oriented — is not oriented for just one person or a company. These reforms are overarching. This reform sets forth new rules for the sector to make it more competitive.
And upon the enactment of the telecommunications reform, the company Telmex announced that they would divide the company, because they were declared a dominant company in the telecommunications sector. The agency in charge of competition, they determined that they were a dominant stakeholder, and therefore, the scope of the telecommunications reform and also the economic competition reform is precisely that, to incentivate more competition and you have shared concern yourself. So, the answer is there, in the reform that we have enacted, and what will come after it is implemented, and that is to have more companies offering telephone services, ground lines, television services.
And the government will also open the bid for two more broadcasters. And the process has just started, and it would finish by early next year. We’re going to bid two more television broadcasters, so this is how we have been implementing the telecommunications reform.
RUBIN: Yes sir. Actually, I’ll just add, it’s interesting, when this reform was enacted, one of the comments in Mexico were the great credit to the president for taking on something that was opposed by — I have not quite the same view of Carlos Slim you do, but that took on the power of Carlos Slim. You’ve got a great deal of credit for having done that.
Great catch, Lucy. If you want to know what society’s Great and Good are thinking, there are few better places to start than the CFR.
Will have to give the transript a good, thorough read.
The text I took the reference it from is a Mexican government document on privatisation and decentralisation you can consult here:
Castaño’s work is mentioned at the bottom of page 9 as well as in the bibliography (at the bottom of page 80), with a corresponding link to a very brief summary of his thesis.
As for the most privatised nation in Latin America, I would hazard a guess at Chile. It certainly has the most privatised education system in the region and its water is completely privately owned — and almost exclusively by foreign companies such as Suez. Indeed, according to the country’s Minister of Education, Sergio Bitar, Chile is probably the most privatised nation in the world:
Thank you very much! Great articles and greatly appreciated.
It’ just to sad that even experienced writers fall to the Orwellian “newspeak” use of the term “neoliberalism”. Is it lack of professionalism or just love of lefty demagogy that let Don Quijones ignore the fact that the current situation in Mexico (and other countries) result from the LACK of neoliberalism in the sense it was established by Alexander Rüstow, Ludwig von Mises and others.
In answer to your question, it’s neither. I strongly suggest that you take a good look at the myriad definitions of neo-liberalism. Now you might want to romantisize the word, picturing it as some all-encompassing term to describe the perfect wonders of Austrian economics. The reality is that there has never been any perfect — or even close to perfect –real life representation of Austrian school economics. What we have had is 40 long years of a bastardised form of free market economics, a system that is far more Mr Hyde than it is Dr Jeckyl.
Whether correctly or not, the ideological creed underlying this system has come to be known as neoliberal economics. At certain times it has enjoyed the support of key figures of the Austrian movement. Hayek, for example, was a strong supporter of certain elements of the Thatcherisation of Britain, during which time many public services were privatised, with varying degrees of success.
In the end, however, all that neoliberalism has achieved is to consummate a steely marriage of convenience between the world’s most powerful corporations and national and regional governments. The inevitable result is that corporations grow stronger as they come to dominate virtually all markets, while government become little more than a protection racket for the very same corporations.
Mussolini called it fascism, some people call it neoliberalism. I myself prefer the term coporatocracy (or inverted totalitarianism). But to suggest that all the criticism of neoliberalism (in its most broadly understood meaning) is a left-wing conspiracy is, I’m afraid, a little far fetched.