 Thesis Appendices
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The 1982 debt crisis and the ensuing fiscal austerity policies of the 1980’s had severe consequences on nearly all sectors of the Mexican economy and society. Presidential candidate Carlos Salinas de Gortari made it clear that the state would retain its developmental role in the midst of these changes¾ continuing the rectoría (guidance) of the economy. (Schneider 22) To accomplish these aims and remain true to the highly nationalistic Mexican Constitution, Salinas ran on a platform of modernizing the state, whereby only unprofitable and non-strategic state industry would be privatized. (Maldonado 135) Yet a coalition of left political parties and labor unions was able to field a strong challenger against the PRI’s record of downsizing and harsh fiscal policies, leaving Salinas with only a narrow electoral win of 50.7% in a federal system characterized by one-party rule by the PRI (Partido Revolucionario Institucional) since its founding in 1911. (Middlebrook 3) Though the sale of state enterprises was certainly not the sole campaign issue, privatization and the policies following the economic crises of the 1980’s had severe consequences on the poor and middle classes. Less than one year after the 1988 presidential elections, Salinas made the decision to privatize an industry the Mexican Constitution reserved as within the exclusive domain of the state, and which possessed one of the most powerful labor unions in Mexico—the Sindicato de Telefonistas de la República Mexicana (STRM). Unlike the previous privatizations of small-scale and often highly unprofitable state firms, Teléfonos de México (Telmex) consistently ran a profit while serving as one of the largest state employers with 49,900 workers in 1988. (Hawkins 14) The Telmex sale did deliver a large payoff to a state desperately in need of capital to repay international creditors and modernize the infrastructure of the economy as a whole. However, Teléfonos de México was not the most valuable asset under state ownership, nor did it offer a privatization process free from considerable opposition from labor unions and opposition political parties. In particular, Luz y Fuerza—the Mexico City-based electricity company, and Petróleos Mexicanos (PEMEX)—the Mexican national oil company, are both large national industries with high potential privatization value and strong labor unions that were not privatized under the Salinas administration. The factors that influenced Carlos Salinas’ decision to privatize Teléfonos de México despite considerable union opposition to the sale will help to reveal the impact that labor union strength played in the development of privatization policy in Mexico and other Latin American countries facing the same constraints. This thesis works to establish a structure to analyze government response to labor union strength in relation to the privatization process and competing explanations emphasizing debt and modernization concerns. Previous work by Murillo (1996), Middlebrook (1991), and Mendez Berrueta (1994) has focused on labor union response to government modernization, but extensive literature which attempts to quantify government response to union strength as reflected by the actual privatization record does not exist. (Méndez Berrueta 123) The electricity and telecommunications industries provide an ideal basis as case studies for this work; both are vital segments of the state’s infrastructure network and are represented by two of the most dominant public-sector labor unions—the STRM and the SME (Mexican Electrical Workers Union). Because Mexico’s plight in implementing privatization policy over the constraints of domestic opposition is not unique, this analysis utilizes the Argentine example under the leadership of President Carlos Menem and his success over the course of his term in privatizing the telecommunications and electricity industries as well as nearly every other dominant state-owned enterprise. For both countries, the status and timing of the privatization decision for the telecommunications and electricity industry will serve as the dependent variable to help predict the role that labor union strength played over this period in relation to other competing explanations. A domestic analysis of interest group pressures on government privatization decisions in Mexico and Argentina points primarily to the role of labor unions and political parties in blocking state reforms. While opposition parties certainly played a vital role in the electoral challenges facing Carlos Menem of Argentina and Carlos Salinas of Mexico, this thesis will argue that labor unions provided the primary domestic challenges to government authority—specifically for the telecommunications industry which led off the process in each country. Government enterprises generally provide their greatest subsidy to society in the form of employment, a benefit which directly translates into the very source of organization for labor unions. (Petrazzini 56) Chile’s privatization program several years earlier provided labor unions in Mexico and Argentina with a perfect source of mobilization against privatization policy—by 1982 Chile’s programa de autofinanciamiento had trimmed the labor force by nearly 40% in the postal and telex industries and brought about massive layoffs in other sectors. (Petrazzini 1995: 349) A government facing privatization decisions has two basic strategies concerning labor strength: begin with industries where labor is weak and little opposition to privatization is likely to be found, or to privatize industries with strong and even militant labor in order to defuse their power over the government. Though privatization was occasionally used as a tool against striking workers, on the whole state reform in Mexico and Argentina has been a pragmatic attempt to introduce change that would survive domestic opposition. Yet measuring strength in labor unions remains an amorphous concept that greatly complicates government reform and privatization decisions. Union density, the overall number of unionized workers in a given industry, serves as a useful means of estimating the level of representation and accordingly the overall impact of labor in a given industry. However, union density is an imperfect measure of strength when several different and often competing unions exist for a given sector. Union concentration helps solve this problem by measuring the level of unity among competing union organizations. Though concentration can be measured in multiple ways, this thesis will use it as a guide for the level of fragmentation of representation by sector. Accordingly, the concentration argument used for estimating union strength will consider the number of union members in the largest labor union, rather than the overall number of unionized members, to be a more valid means to test union strength and unity in a given sector. This thesis will argue that as a general rule a government will be less likely to privatize an industry the more concentrated its labor union representation is. A competing explanation for the variation behind state privatization decisions emphasizes the correction of short-term deficits in order to signal international lending organizations and investors of the commitment by the state to improving its macro-economic conditions. Referred to here as the debt imperative argument, this explanation of the rationale behind the variation in the privatization record ranks debt concerns and the potential payoff from each industry as the dominant factor in its order and status in the privatization process. Exactly because Telmex was a profitable firm with high potential growth rates, its sale was expected to lessen fiscal constraints considerably—bringing in US$6 billion to a total 1988 public sector GDP of around US$49 billion. (Teichman 39) Argentina’s commitment to the debt imperative argument was likely more solid, as 1989 brought negative economic growth and a public sector deficit at 10% of GDP. (Petrazzini 1996: 118) In both cases, some version of the debt imperative argument does provide one of the strongest arguments behind not only variation in the privatization process, but equally for the process as a whole. A third possibility for explaining the privatization record in Mexico and Argentina involves a ranking of industries by the expected gains in efficiency and welfare that each would bring to the state. Termed the modernization imperative argument, this line of reasoning depends on the assumption that policymakers in Argentina and Mexico truly believed that inefficiencies and lack of investment in the infrastructure sector translated into constraints on economic growth and modernization of the state as a whole. The four primary case study industries—the electricity and telecommunications sectors in Mexico and Argentina—were all plagued with some level of efficiency, equipment, and operation problems on a massive scale. (Economist 13 Feb 1993: 19) Carlos Salinas of Mexico and Carlos Menem of Argentina publicly gave the modernization imperative argument the most credence in rationalizing their privatization decisions. (Petrazzini 1996: 118) José Luis Guasch argues that the modernization imperative went beyond mere rhetoric, and that the primarily infrastructure-based privatization process from 1989 on in both Mexico and Argentina was at some level a response to the "economic and social consequences of such shortcomings." (Guasch 366) The usefulness of the labor-strength argument against the debt-imperative and modernization-imperative explanations of variation in the privatization record in Mexico is highly dependent upon the case industries chosen. Vital infrastructure industries are an important precondition for the modernization imperative to be important, while the debt imperative depends on sectors with high potential privatization revenue. The electricity and telecommunications sectors were chosen because of the highly-visible labor unions in each firm, the large role each sector played in state employment and in the general economy as a whole, and the large benefits that each sector would have brought the state under both the debt imperative and modernization imperative arguments. Through these sectors, this thesis tests the labor strength theory in two key ways. The first is through a variation of labor concentration between Telmex and Luz y Fuerza (Mexican electricity firm) in the Mexican context, holding general union-state relations constant. Though Pemex (Petróleos Mexicanos) provides an example of an important state-owned industry that was able to avoid the privatization process and which possesses a very strong labor union (the STPRM), the petroleum sector was not chosen as a primary case because of the great divergence in the role that oil has historically played in the Argentine and Mexican economies. The second unit of analysis tests labor strength across two different countries, Mexico and Argentina, to compare union-state relations via corporatism on a larger scale—holding the variables of infrastructure and high-sale value constant. Mexico and Argentina provide an strong framework for this comparison; both experienced a debt crisis in the early to mid-1980’s and responded with strict austerity measures and a privatization program that soon became one of the most thorough in the world. Though the Argentine political regime has historically been considerably less stable than that in Mexico, Chapter 2 argues for a convergence between the two political systems that in conjunction with Carlos Menem’s strong rule makes feasible a cross-country comparison. Finally, both countries provide several vital examples of important infrastructure industries around which the privatization debate was waged. Teléfonos de México and ENTel (Empresa Nacional de Telecomunicaciones) serve as an excellent basis of comparison for judging the impact of labor strength in government privatization decisions; both possessed very high union density rates—85% and 79% respectively—that rank them among the most unionized of public firms in each state. Moreover, each company served among the largest public employers in each country with around 50,000 employees, and their sale brought in revenues that comprise almost 30% of the total privatization process. In the electricity sector, la Compañía de Luz y Fuerza de México employs around 35,000 people, but is represented by one of the strongest and most independent unions in Mexico—the SME (Sindicato Mexicano de Electristas) with a union density and concentration of around 99%. (Bensusan 11) Servicios Eléctricos del Gran Buenos Aires (SEGBA) is the larger firm in this comparison with around 80,000 employees, but its primary union, Luz y Fuerza, only possesses a 33% density rate in union representation. . Overall, unionization density and concentration rates are lower in Argentina than in Mexico. (Greenfield 14) However, the near convergence of the Telmex and ENTel cases, as well as the vital role that Luz y Fuerza de México and SEGBA played in the national economies of both countries, make possible a strong case for using these industries as examples of the impact that labor union strength played in the privatization decisions of Mexico and Argentina. Pressures to modernize the Mexican and Argentine economies and correct the fiscal deficits in each country were vital issues in attracting the private capital needed to fight inflation, repay the foreign debt, and grow the economy out of the slump felt by most Latin American countries throughout the 1980’s. It is not surprising that Carlos Salinas of Mexico and Carlos Menem of Argentina furthered these aims by initiating broad-scale privatization programs to improve the dominant infrastructure industries in each state. However, la Compañía de Luz y Fuerza de México’s role as the only one of the primary case study industries to escape the privatization process cannot be well explained by the debt imperative or the modernization imperative arguments. This thesis advances the claim that an analysis of government response to a third theory, the labor-strength theory, is a necessary component of explaining much of the variation in the privatization record in Mexico and Argentina as well as for providing insight on why Teléfonos de México was privatized. |