Mexico's wasted chance.

• Author: Arias-King, Fredo

DID PRESIDENT Vicente Fox, who ended a 71-year one-party regime with his victory in July 2000, waste his chance to reform Mexico? If so, what are the consequences--both for Mexico and the United States?

Mexico is certainly a bit freer today than before 2000. But Fox is already considered a dead force in politics. The old regime's party (the Institutional Revolutionary Party, or PRI) is regrouping and aiming for a return in 2006, corruption has actually increased, and the quality of government has deteriorated. Few significant reforms have been implemented. Some have attributed this to Mexico's presidential system, which pitted a hostile Congress against a weak president. But the reality may be less complex.

In 2000 Mexico was ready for change. Despite their much-hyped macroeconomic reforms (as well as the passing of NAFTA), the last two PRI presidents, Carlos Salinas (1988-94) and Ernesto Zedillo (1994-2000), essentially only replaced the existing crony socialism with crony capitalism. The daily life of the average Mexican had not improved since the 1960s.

Fox was well positioned to introduce "second-generation" reforms, since his predecessors had implemented economic stabilization, foreign-trade liberalization and (albeit imperfect) privatization. Indeed, transitions of this sort provide what Leszek Balcerowicz calls the "window of opportunity", which can reinvent a country dramatically. The PRI system existed essentially to make a few people fantastically wealthy at the expense of the rest through elaborate restrictions. Second-generation reforms would have cut this Gordian knot: bureaucratic red tape, monopolies, obstacles to foreign investment (which is low per capita relative to similar countries), the byzantine tax code, criminal networks in government, a bloated public sector, the lack of property rights (which hampers credit) and so on.

Fox enjoyed a ready pool of talent to carry most of this out. His party (the liberal-right National Action Party, or PAN) had over 300,000 members and had formed countless municipal and seven state governments. After the 2000 elections, its congressional coalition (with the Green Party) held a plurality of seats in the lower house and also ruled a plurality of Mexicans at the municipal level--40 percent compared to 35 percent for the PRI. To top it off, Fox was handed a golden nugget when a group of about fifty newly elected PRI congressmen, with their illiberal party demoralized and flirting with collapse, approached the president-elect with a proposal. In exchange for minor concessions (such as petty jobs for their clients), they would break away from the PRI and vote with the PAN and the Greens to provide Fox the legislative majority that had barely eluded him.

Most other reformers would have envied these conditions. Unlike most of them, Fox also had a guaranteed six-year term (with no re-election to worry about) and post-electoral popularity hovering around 90 percent. How he used this opportunity, however, is another matter.

Building a House on Mud

VACLAV HAVEL once said, "I prefer temporary inexperience to permanent sabotage." Estonia's Mart Laar, while in Mexico, quipped, "You cannot build your house on mud." The average age of his cabinet members was 33, with scant experience in the previous regime. Felipe Gonzalez, upon his 1982 victory in Spain, replaced 40,000 holdovers of the Franco nomenklatura with members of his party at all levels of government.

Machiavelli famously recommended a break with the old elites during a transition of power, an insight corroborated by recent studies that show that new regimes that followed this advice did the best economically, socially and politically--witness the three examples above. Instead, Fox emulated what Alberto Fujimori did in Peru with Cambio 90 and Boris Yeltsin with the Democratic Russia Movement, essentially bypassing the democrats who put him in power and opting to rule through elements derived mostly from the old regime. In all, Fox appointed 78 PAN members to the entire federal government his first year, mostly to inconsequential positions. Even more crudely, Fox humiliated the Green Party--which added a crucial six percentage points to his victory--by refusing to appoint them to any offices whatsoever, even though they had only requested the Environment Secretariat. While Fox's closest allies received offices such as "social programs" and "migrant affairs", Fox appointed longtime PRI operatives and several members of the failed PRI candidate's campaign to run the Finance Secretariat and his presidential office, and to control access to him and the presidential agenda. Fox also discarded the offer by the fifty disenchanted PRI congressmen that could have provided him a majority. Fox ordered they be told "to stay in the PRI, since we need a...