Don Quijones: “Slimlandia,” The Land of Mexican Oligarchs

Posted on September 26, 2014 by Yves Smith

Yves here. As Don Quijones explains, “In many ways, Mexico is the poster child of neoliberalism.” So take this as a cautionary tale of what rule by our modern oligarchs will look like.

By Don Quijones, a freelance writer and translator based in Barcelona, Spain, and editor at Wolf Street, where this article was originally published

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.

No Apologies

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 Oligarchs

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.

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