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UNCLAS SECTION 01 OF 04 MEXICO 002752 
 
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SIPDIS 
 
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E.O. 12958: N/A 
TAGS: ECON ELAB IO PGOV PINR MX
SUBJECT: WORLD BANK BLAMES MEXICAN UNIONS AND PRIVATE 
MONOPOLIES FOR HINDERING ECONOMIC REFORMS 
 
¶1.  SUMMARY: World Bank (WB) officials recently visited 
Mexico City to formally release a report on Mexico,s efforts 
to enact economic reforms. The report entitled, &Mexico 
Beyond State Capture and Social Polarization8, concluded 
that the country,s endeavors to carry out meaningful reforms 
are being stymied by entrenched labor unions and empire-like 
monopolies (both private and public).  The WB report received 
wide coverage in the Mexican media, which, like the document 
itself, laid a larger share of the blame on unions 
(particularly public unions) than on large (private) 
monopolies.  In making its case, the WB report indicated that 
the monopolies and the unions have been able to successfully 
resist change under Mexico,s current pluralistic democracy 
as well as they did when a single political party ruled the 
country. The WB urged greater transparency as the best way to 
compel Mexican labor unions and monopolistic businesses to 
act more in the national than in their own parochial 
interests. A knowledgeable American observer of both the US 
and Mexican organized labor movements agreed with the WB 
report on the areas where urgent reform was needed and, to 
some extent, on the actors responsible for hindering these 
reforms, but questioned the relative influence of even the 
most powerful unions in comparison with that of Mexico,s 
large private monopolies.  END SUMMARY. 
 
 
WORLD BANK DIAGNOSES MEXICO,S ECONOMY 
------------------------------------- 
 
¶2.  In mid-May World Bank (WB) officials traveled to Mexico 
City to formally release a report, entitled &Mexico Beyond 
State Capture and Social Polarization8, that laid out its 
diagnosis of what ails the Mexican economy.  The report 
listed 11 problems that impede economic development in 
Mexico: Competitiveness, Tax Laws, Regulatory and Investment 
Environment, Education, Transport, Corruption, Innovation, 
Finance, Energy, Labor, and the Macroeconomic Environment. 
Of the 11 problems listed in the WB the two items that 
received the most disparagement were the areas of 
Competitiveness, or more specifically the lack thereof 
because of (public and private) monopolies, and Labor. 
 
¶3.  None of the problems listed in the WB report are new to 
knowledgeable observers. Many of them are interconnected and 
topics of frequent public analysis by academics, journalists 
and others. For instance, the report said there is little 
innovation in Mexico because monopolies ensure that there is 
there is little competition.  Another example was the 
observation that corruption exists in Mexico as a way of 
dealing with a burdensome regulatory and investment 
environment. (Comment: Post notes that the WB report made no 
mention of what effects the public security or corruption 
problem generated by narcotics trafficking might be having on 
Mexico,s economy.) The report itself received wide coverage 
in the Mexican media, which, like the document itself, laid a 
larger share of the blame for Mexico,s economic problems on 
the country,s national labor unions than it did on its large 
private and public monopolies. 
 
 
EMPIRE-LIKE MONOPOLIES 
---------------------- 
 
¶4.  As noted above, the WB report singled out labor unions 
and monopolies as two of the most intractable elements 
negatively affecting the Mexican economy but for the most 
part the country,s monopolies came out as the lesser of the 
two evils.  This is not to say that the report implied that 
if a choice had to be made monopolies were less bad than 
labor unions.  Both were given near equal billing in 
preventing needed structural reforms. However, as reported in 
the national press, the greater villains preventing economic 
development in Mexico were labor unions and not monopolies. 
 
¶5.  The report made clear the WB view that monopolies both 
private (like Telmex, the de facto national telephone 
company) and public (like Pemex, the state-owned national 
petroleum company or the two companies who generate and 
distribute 100 percent of the country,s electricity) are 
 
MEXICO 00002752  002 OF 004 
 
 
significant factors preventing greater economic development 
in Mexico.  These monopolies, the WB report said, was one of 
the main elements responsible for Mexico,s lack of 
competitiveness and was perhaps the single most important 
factor impacting the poor distribution of wealth in Mexico. 
 
¶6.  The report averred that the massive concentration of 
wealth in relatively few hands is then used by the privileged 
few to ensure that Mexican politicians protect the 
empire-like status of these nearly untouchable monopolies. 
Relatively speaking, the WB report devoted considerable 
detail to explaining how Mexico,s telecommunications 
monopoly prevents competition and then translates its 
financial wealth into political power.  The power of 
monopolies like Telmex, the WB report stated, operates 
outside of Mexico,s formal electoral processes and mitigates 
accountability in the legislative arena.  As a result, the 
report said, Mexican voters grow (increasingly) skeptical of 
their politicians and of anyone,s ability to obtain 
effective economic reform through the formal political 
system.  One reporter told post,s Labor Counselor that, in 
general, the Mexican public is against privatization (and the 
politician who advocate for it) because so far in Mexico it 
has only served to make the rich richer. 
 
 
LABOR UNIONS ) THE TRUE EVIL EMPIRES (?) 
---------------------------------------- 
 
¶7.  The WB report, at least in the local media coverage of 
it, portrayed Mexico,s labor unions as the true evil empires 
in the national economy.  The worst actors in this scenario 
were the National Teachers Union (SNTE), the Pemex Workers 
Union (STPRM), the two Electrical Workers Unions (SME in 
Mexico City and the surrounding states and SUTERM in the rest 
of the country) and the Telephone Workers Union (STRM). 
Although the report itself (on the World Bank Website) did 
not go too far out of its way to single out any of these 
unions as being worst than the others, the local media 
coverage of the report highlighted the Teachers Union and the 
two Electrical Workers Unions as the typical examples of how 
unions prevent economic reforms. 
 
¶8.  According to the WB report and the local media coverage 
of it Mexican labor unions are able to (negatively) influence 
the country,s efforts to implement economic reform through 
their ability to strike or otherwise disrupt key state 
functions (like education or the provision of electricity) or 
important sources of state revenue (oil sector income). 
Also, depending on the circumstances, the unions are every 
bit as willing as the large monopolies to use financial 
inducements to influence Mexican politicians.  The local 
media,s coverage of the report faulted the SNTE for its 
excessive political influence and the poor state of Mexican 
education.  The media cites STRM for the fact that Mexico has 
some of the highest telephone rates in the world. 
 
¶9.  All of the above mentioned unions were cited for 
excessive labor costs.  The WB reportedly compared the 
salaries in Mexico of employees with similar education levels 
and work experiences.  Using that standard, the media 
reported, Pemex Union members workers receive salaries 71 
percent higher that similar Mexican workers.  The telephone 
workers of STRM receive salaries 30 percent higher.  In the 
case of the SME and SUTERM, their salaries were compared to 
an international average and not to similar workers in 
Mexico.  By that standard their salaries were reportedly a 
minimum of 50 percent higher than the international average 
for similar workers. 
 
 
WB REPORT RECOMMENDS GREATER TRANPARENCY 
---------------------------------------- 
 
¶10.  In the case of both the unions and the monopolies, the 
WB report recommended greater transparency as the key to 
reducing the influence these two groups have on Mexico,s 
economy.  As in other parts of its report the WB devoted more 
time to the unions than it did to the monopolies.  In 
 
MEXICO 00002752  003 OF 004 
 
 
fairness to the WB, the organized labor movement in Mexico 
does seem particularly resistant to almost any type of 
openness or transparency. For example, union workers have no 
legal right to know what the union leadership does with 
organization resources. Workers are often enrolled in unions 
as a condition of employment and without their knowledge but 
once in the union they are not informed of their rights as 
union member, they are not entitled to know the terms of 
their union negotiated contact nor can they easily find out 
such basic information as the names and business contact 
phone numbers of the leaders of their unions. 
 
¶11. That said, such practices, while very wide spread, 
normally occur only in cases where the unions are not real 
organizations formed to collectively bargain but rather paper 
unions that are actually operated by persons or offices 
controlled by an employer.  However, this abuse of workers is 
made possible by the resistance of genuine labor unions to 
being held openly accountable for many of their internal 
procedures or for any of the financial transactions they 
conduct on behalf of the union. Any and all attempts to 
promote this type of transparency are met with cries of 
interference in union autonomy; a right guaranteed under 
Mexican federal labor law. 
 
¶12.  In the case of both the unions and the monopolies the WB 
report asserted that greater transparency would make it 
increasingly difficult for privileged actors to put their 
special interests above the greater interests of the Mexican 
public.  The WB report firmly stated that the lack of 
transparency has enable these special interest groups to 
defend their privileges as well now, when Mexico is a more 
democratic and pluralistic society, as they did when the 
country was essentially ruled by a single party. 
 
 
ANOTHER PERSPECTIVE 
------------------ 
 
¶13.  A knowledgeable American labor observer with long 
experience I  the US and Mexican organized labor movements 
agreed with the WB report on the areas where urgent reform 
was needed and, to some extent, on the actors responsible for 
hindering these reforms. That said, he questioned the 
relative influence of even the most powerful unions en 
comparison with that of Mexico,s large private monopolies. 
For example, the teachers union, which is undoubtedly one of 
the more powerful in the country, received some of the 
report,s harsher criticism.  Its influence in education, 
teachers, salaries (as opposed to SNTE union leadership 
salaries), and public civil servants pension and health care 
is considerable.  However, the observer stressed, outside of 
these important but nevertheless finite areas, the Teachers 
union,s influence is extremely limited. The American 
observer noted that there is no area of Mexican society and 
even many of its foreign commercial activities that are 
outside the influence of the owners of Mexico,s telephone 
monopoly.  Consequently, he seriously doubted whether the WB 
report could really be called a fair and balanced document. 
 
COMMENT 
------- 
 
¶14. The extensive local media coverage of the release of the 
WB report on Mexico,s efforts at economic reform are a clear 
indication of how many in the country are keenly aware of how 
Mexico is perceived by the outside world.  The heavy local 
media emphasis on the negative role played by the country,s 
organized labor movement feeds into the perception reported 
in a recent national poll that cited national unions as one 
of the least respected institutional groups in Mexico.  Given 
their resistance to almost any type of change that would 
foster openness and transparency, the unions have perhaps 
unwittingly contributed to the negative image of them held by 
many in the Mexican public.  The damage that the unions have 
done to their own image notwithstanding, the size of 
organized labor unions has markedly decreased in the past 
10-20 years. With this reduction in size has come a growth in 
internal divisions and, according to many officials, a 
 
MEXICO 00002752  004 OF 004 
 
 
corresponding reduction in economic and political influence. 
The same cannot be said of the country,s largest national 
monopolies. 
 
 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT