 Thesis Appendices
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An analysis of the role that labor union strength played in the Mexican government’s decision to privatize Teléfonos de México and bypass the sale of la Compañía de Luz y Fuerza, as well as Argentina’s decision to privatize both the electricity and telecommunications sectors, means little without a deeper understanding of the historical forces and labor union and corporatist arrangements already existing within each country and industry. According to Francisco Zapata, power derives from the "strategic location in the economic system, which has a political dimension," rather than solely from negotiation power in the labor relations sphere. (Zapata 382) The economic crises and debt austerity plans of the 1980’s reinforced a trend in both Argentina and Mexico¾ the decline of the close corporatist relationship by the state with labor unions. The role and relative influence of the major labor confederations changed considerably in both countries over this period, to the degree that by 1985 Judith Teichman argues that the Mexican government "unilaterally decided labor policy; it was not interested in even a facade of negotiations with official labor leaders." (Teichman 165) This thesis argues exactly the opposite: the very fact that the Mexican and Argentinean governments actively tried to dilute union strength acts as proof that union considerations were of considerable concern in the privatization decisions of each country. This chapter works primarily to set the framework for the four case industries which serve as the dependent variable in this argument. Labor unions in each industry operated under a broad national coalition of labor confederations as well as industry-specific constraints that uniquely shaped their bargaining power and accordingly union strength in relation to the government. One of the most important components to bargaining strength were the national labor confederations in each country. Their support or lack thereof for union opposition to privatization and reform policy played a crucial role in determining the response by the government. Variation among the confederations in Mexico and Argentina are an important background to the power each labor union was able to express. Secondly, the primary case industries—Telmex and Luz y Fuerza in Mexico, and ENTel and SEGBA in Argentina—act as the external means of testing these hypotheses about union strength. While Telmex, ENTel, and SEGBA were all privatized, Luz y Fuerza—the Mexican electricity company—escaped this fate. The variation in outcomes for these industries acts as the primary means of testing the labor-strength hypothesis. Finally, two other sectors, commercial airlines and oil, provide an important historical backdrop for understanding the constraints to union strength felt by labor unions in the four case industries. Mexican Labor Confederations and the Role of Public Enterprise Unions Drastic changes in Mexico’s economic situation following the 1982 economic crisis put the Congreso de Trabajo (CT) and the Confederación de Trabajadores Mexicanos (CTM) into a difficult position. They had to choose between compromising with the PRI’s reforms and alienating the rank and file worker, or direct opposition to the state and a risk of demonstrated irrelevance if and when its demands were ignored. The Congreso de Trabajo chose the former, supporting the government and accepting the new politics of fiscal austerity. (Teichman 9) The CTM’s role was somewhat more complicated; unlike the CT it chose to straddle the fence and publicly became only moderately critical of the PRI’s privatization programs. According to Katrina Burgess, the PRI actually cultivated the CTM as its "primary interlocutor between the PRI and organized labor" during the period leading up to the privatization process. (Teichman 7) Given the laissez faire attitude of these two labor giants, it was the public enterprise unions more than anyone who vigilantly opposed the privatization program. By 1989 the Sindical de Pilotos Aviadores (APSA), the Sindicato Mexicano de Electricistas (SME) and the Sindicato de Telefonistas de la República Mexicana (STRM) publicly made a break with the CT, forming the Federación de Sindicatos de Empresas de Bienes y Servicios (FESEBES). (La Jornada, 28 Apr. 1990: 16) FESEBES served as one of the few confederations through which workers from primarily the telecommunications and electricity sectors were able to represent their discontent with impending privatization policy. As the Mexican government made structural changes that enabled it to reduce its reliance on rigid labor alliances, the solidarity in the chain of command on the labor side began to unravel as privatization continued. Even with its broad aims, FESEBES still publicly supported Salinas’ objectives of modernizing the state and increasing productivity. Its main mission became one to maintain worker participation in this process. (Teichman 123) The CTM later joined FESEBES in opposing the use of bankruptcy as a means of forced restructuring and privatization, but remained notably silent on many major divestitures. In fact, Judith Teichman asserts the Mexican government’s role during this period as one of "divide and rule." (157) Just when the CTM truly began to resist PRI policy, its rival CROC was declared by the Secretary of Labor as a potential replacement for the large confederation. Argentine Labor Confederations Javier A. González Fraga attributes the Confederación General del Trabajo (CGT) with being the "main source of opposition to the government, replacing the Peronist party in the opposition role" after Menem was elected President under the Peronist ticket. (González Fraga 90) Yet even with this position of power, the CGT has a structure that leaves it with a much less institutionalized organization over its member unions than the CTM of Mexico enjoys. Argentine law mandates that all workers are represented by national labor organizations, regardless of their affiliation. (Murillo 1996: 16) Because of this and other clauses that inherently weaken the organization, the CGT has had to fight with factions¾ both rival and within its own ranks—for power. This organizational split in Argentina’s union structure helps to explain an almost lackluster union response after Menem demonstrated his determination to continue with the privatization process. Further, the privatization process in Argentina has been somewhat wider than in Mexico, including broad aspects of petroleum, public enterprise unions, and nearly all public areas of production of services. This broad process and the rising unemployment that resulted from it has undermined the power of Argentine unions, primarily the CGT, to negotiate with employers, mobilize its membership, or pursue broad-based ‘constant employment level’ guarantees that had initially been sought from the government. The CGT split into two competing factions at the beginning of the Menem administration in 1989, creating a situation of disorder that debilitated the labor organization and subordinated CGT power to state control. By 1992 the CGT had reunified, but by this point many of the major privatization negotiations had concluded—leaving the CGT to simply attempt to maintain the labor framework in the newly privatized firms.
Empresa Nacional de Telecomunicaciones ENTel (Empresa Nacional de Telecomunicaciones) stands unique among Argentine state-owned firms as being the recipient of two prior attempts at privatization. The first came under the military regime that ruled the country from 1976-1983. What began as a project to raise capital and "strengthen the market as the main mechanism for the allocation of resources" ended in August 1982 not as a result of the considerable labor opposition, but rather from nationalist groups within the army itself. The second attempt occurred mid-1987 under the rule of Raúl Alfonsín, a democratic government led by the Radical party. Ben Petrazzini traces the announcement of ENTel’s sale to the culmination of social discontent as a result of "deterioration of salaries, shrinking employment opportunities, and the interminable economic crisis." (Petrazzini 1995: 63) Regardless of the root cause, this was expressed in massive mobilization and strikes by FOETRA, the primary telecommunications union, along with ENTel managers, telephone equipment suppliers, and the opposition Peronist party. The final bill was killed in Congress when the Peronist Party gained control of both the Chamber of Deputies and the Senate in mid-term elections in October of 1987. Just two years later, after criticizing Alfonsín and the Radical Party for their role in advocating the privatization process and running on a traditional Peronist platform of a strong central state, Carlos Menem switched his stance to that of reformer shortly after the election. First on his agenda was ENTel, which served to significantly impact the fiscal deficit while at the same time quite visibly help to "demonopolize and deregulate telecommunications services to make them more efficient for the benefit of the users." (Gerchunoff 1992: 183) Again, labor unions were the predominant means of opposition early after the announcement, but Menem used his Peronist connections to divide union efforts. He appointed Maria Julie Alsogaray of the Unión de Centro Democrático as interventora to Entel, and Julio Guillan¾ head of FOETRA¾ as the new secretary of communication. (Petrazzini 1995: 109) After a 1990 nation-wide strike by FOETRA was ended by calling in the army to operate the phone system and the arrest of the strike leaders, Menem had all but overcome the domestic opposition that had crippled his predecessors through a divide and conquer approach toward labor unions. Teléfonos de México Teléfonos de México (Telmex) was founded in 1948 as a private firm under the control of Mexican national Alex Wenner-Green and the Swedish firm L.M. Ericsson & Co. By 1957 it had grown to control 96% of telephones in service and 98% of customers, becoming the third fastest growing telephone system in the world. It remained private until 1972, when President Echeverria nationalized it under the pretext that it would play a "key role in national development and security." (Petrazzini 1995: 108) While it was under state control, it remained profitable—unlike Argentina’s ENTel—up until its sale in 1990. Given that Teléfonos de México was one of the few state-owned firms that was not a drain on the federal budget and equally did not experience the severe service problems that plagued ENTel, its sale raises a variety of questions about possible motivations behind the government decision. Much like Menem’s election-year promises, Salinas rationalized the privatization process prior to the election as only involving the sale of "unstrategic state enterprises with little or no profitability." (Mercado Maldonado 135) This posturing was credible enough to lead the STRM (Sindicato de Telefonistas de la República Mexicana) leadership to announce that Telmex’s privatization plans had been ‘discarded.’ (Petrazzini 1995: 115) However, when Salinas did publicly revive privatization plans for Telmex, the STRM at first harshly opposed them but by September of 1989 following negotiations with the privatization team announced its support for the sale. Even though the CTM (the PRI-affiliated national labor confederation) was not offering its support behind the STRM’s anti-privatization aims at this point, the union’s about-face and decision to compromise with the privatization program is an important component of its leadership strategies and strength—quite possibly shaped by the inducement standard set in the 1988 Aeroméxico privatization through bankruptcy proceedings which cost thousands of workers their jobs. This relationship will provide the basis of evaluation for the power relationship in existence between the STRM and the Mexican government over this period. The Electricity Sector Servicios Eléctricos del Gran Buenos Aires (SEGBA) serves as the electricity production and distribution system for the greater metropolitan Buenos Aires area. As one of the dominant components of the Argentine electric power system, SEGBA has been considered a ‘vital national industry’ under state control since early in the 1960’s. (Gerchunoff 1996: 211) Like many other state enterprises in Argentina, SEGBA has been plagued with service problems and inefficiencies—in part due to what Pablo Gerchunoff attributes to the extremely high level of vertical integration from participating in the production, transmission, and distribution processes. (211) Carlos Menem did not undertake the regulatory process involving the electricity sector until 1991, but as early as September of 1989—shortly after his election and deal with FOETRA (the telephone union)—he had already convinced Luz y Fuerza (the Buenos Aires electricity sector union) of his intentions and won preliminary concessions for their cooperation on the deal. (González Fraga 95) By 1992 the government had deregulated much of the electricity market and passed a new regulatory framework for the operation of the electricity utilities. These changes were a departure from many of the earlier privatizations, where regulation was often neglected in the privatization process. In early 1992 SEGBA led off Argentina’s privatization of its electricity sector, bringing in US$275.8 million in cash and US$878.9 million in debt forgiveness. (INDEC 1992: 14) The SEGBA sale surpassed ENTel in being "one of the most successful divestitures the government inaugurated in 1989," largely due to its success in attracting competing bids, foresight in regulation of the industry, and a more gradual approach on its stock offering scheme. (Gerchunoff 1996: 213) La Compañía de Luz y Fuerza began its life as a Mexican state firm in 1960 when it was nationalized along with the American Foreing Power Company to create the Federal Electricity Commission (CFE). (Teichman 35) With this change came an amendment to the constitution that gave the state the "exclusive right over the production and administration of electrical energy." (Dueñas 117) Over the course of the next twenty years, the CFE grew to employ a considerable segment of public sector employees, to the degree such that by 1981 it likewise accounted for nearly 25% of the total public enterprise debt in Mexico. Yet as a sector considered vital to the national interest, as late as 1989 Carlos Salinas de Gortari still publicly considered the CFE as outside the realm of potential divestiture. (Teichman 136) In 1990, Salinas reclassified the electrical energy sector such that it could be opened up to private capital. These changes made it possible for the private sector to construct electrical generating plants and operate them, but the electricity had to be sold to the CFE itself, and could not be supplied directly to the general public. Though Ernesto Zedillo in 1994 called for greater private participation in the electricity industry, the perseverence of Luz y Fuerza under the Salinas administration and its special status as a large drain on public finances yet immune from the privatization ax deserve further attention. (Teichman 140) A Historical Note on the Privatization Process: The Mexican Airline Industry The privatization of the Mexican commercial airline industry Aeroméxico in 1988 provides a vivid example of the tactics used by the Mexican government—similar to those of Carlos Menem in Argentina—that acted as a backdrop to later negotiations with labor unions and other domestic opposition. Beginning in 1985, the Mexican government worked hard to restructure labor contracts and relations, seen by some as a prelude to the sale of state companies, and for others, a necessary restructuring to improve fiscal health of the firm so that it could remain in state hands. These changes amounted to a watershed period for employment levels of many state firms—with Aeroméxico employment dropping nearly 40% over the next 3 years. In April 1988, after a four-day strike by the SNTTAM (ground workers union) over wages and working conditions, the entire firm was declared bankrupt and privatized as a new entity—Aerovías de México—in September. (Tandon 227) Judith Teichman attributes the closing of Fundidora Monterrey and the bankruptcy proceedings with Aeroméxico as "test cases in the evolution of this hard-line strategy." Government policy surrounding the Aeroméxico privatization was admittedly "taken to ensure the alteration in collective contracts and ... convince labor leaders that such changes were both necessary and inevitable." (117) Carlos Menem in Argentina mimicked this approach with the ENTel sale, taking a much harder stance with labor opposition than his predecessors and calling in the army to block the effects of strikes. (Petrazzini 1995: 83) Whether test cases or not, these examples of hard-line policy stances by the government after intractable labor disputes certainly set the stage for later negotiations with labor union leadership. (Schneider 30) An interview with a senior-level Mexican government official reveals that after the use of hard-line approaches and bankruptcy proceedings to privatize these firms, most other unions "became much more amenable to alterations in their collective contracts." (Teichman 117) Pemex and the Special Case Theory With the nationalism of the oil industry by President Lazaro Cardenas in 1938, Mexico asserted its economic and symbolic independence from foreign nations and multinational corporations. Petróleos Mexicanos (PEMEX) has since changed considerably and influenced national development in a variety of ways, but the one constant over this time period has been its symbolic importance as the expression of the nation itself. (Randall 1) Though she argues against Mexico’s status as a purely ‘oil economy’ from 1973-1984, Laura Randall admits that it did comprise 5.4% of GDP over this period and sparked an oil-led industrialization policy that had multiplier effects on the entire economy. (155) Moreover, the STPRM (oil union within PEMEX) was one of the most powerful within the nation, with a union density and concentration of over 90%. Given all these indicators of strength, it is no surprise that limited plans to privatize even the secondary petrochemical industry were scaled back as late at 1996. (New York Times 14 Nov 1996: sec.2-8) This thesis argues that because Petróleos Mexicanos falls into a category of such blatant nationalism, its union density/concentration relation to union strength and power is simply not a valid basis of comparison with Yacimientos Petroliferos Fiscales (YPF) in Argentina, nor with even Teléfonos de México or other predominant state-owned firms in Mexico. YPF was certainly a vital industry to Argentine politics, but with employment at only about 5% of the level in Mexico it did not play nearly the same role in symbolic terms. In interviews with Aaron Tornell, assistant Minister of Finance under Salinas, and with Florencio Lopez-de-Silanes, on the Council of Economic Advisors to Salinas, PEMEX (and not YPF) fell outside the range of normal calculations of domestic opposition and union strength. (Tornell, interview, 11 Feb. 1997) (Lopz-de-Silanes, interview, 24 Nov 1996) Accordingly, though PEMEX provides a valuable means of comparison against Teléfonos de México as one of the few large firms (along with Luz y Fuerza) that survived the privatization process, this thesis will relegate it to the role of a special case. Conclusion A study of the role of labor union strength in the Mexican and Argentine governments is of little use without knowledge of the overarching conditions of labor confederation support, division and reorganization within the case industries, and the impact the reform process had on employment levels in each country. Privatization for both countries was in many ways an economic necessity, whether this necessity arose from the debt or modernization imperative arguments. An understanding of the structure of labor unions in the affected industries and their more powerful large syndicates is vital to interpreting the time frame and methods used by each government to effect change. Both the telecommunications and electricity sectors in Mexico were represented by a ‘new’ type of union, one whose structure was more representative and which encouraged the expression of protest through FESEBES. These same sectors in Argentina were somewhat less strong, as splits within the CGT debilitated the confederation for the first two years of Menem’s privatization program. Of course, the fiscal austerity programs in both countries likewise considerably reduced the level of government control over union leadership. Using this historical background from the telecommunications and electricity industries, this thesis will analyze competing explanations behind the privatization process to determine the impact that labor union strength may have played in the decision to sell Teléfonos de México.
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