An Alternative to Mexico's Resource Nationalism
Photo by Jorge Aguilar on Unsplash
By Martin Rodriguez Rodriguez
Mexico's populist president, Andres Manuel Lopez Obrador, has shown the cards of his plan to renationalize the nation's power sector by any means necessary. AMLO, as Mr. Lopez Obrador is known, has used his daily news conference to sell the plan as a crusade for sovereignty. Likewise, he has given assurances that the constitutional reform bill Congress rejected in April would not have violated the terms of the USMCA (a trade pact between the USA, Mexico, and Canada).
But when politicians reassure private companies that their investments and contracts will not be altered or revoked, it tends to mean precisely the opposite. Latin America's long history of resource nationalism gone awry proves this very point.[1]
AMLO’s proposal also contains provisions to place the country's lithium reserves—critical for manufacturing batteries and accelerating the energy transition climate change demands—in state hands. He has insisted that even if an act of "treason" from the opposition in Congress prevents the reform’s passage, Mexico will deny any new request for lithium mining rights to private companies anyway.[2]
This apprehension of foreign investment in extractive sectors is well known in the Mexican national character. In 2004, Nobel laureate Vernon Smith told civic leaders in Mexico City that the country should emulate the success of the Permanent Fund of Alaska. This would reconcile popular resource nationalism with a market approach to foreign investments in the energy sector.
Inspired by Mr. Smith, myself and a small team of economists affiliated with Atlas Network Center for Latin America have been working on a better pathway for Mexico. Our proposal is a blueprint for the first-ever citizen wealth fund, which would empower all Mexicans without distinction and tackle the root causes underpinning the country's rampant income inequality and lackluster human development levels.
The plan would grant property rights over the country's energy and mining income to all Mexican citizens. Expanding capital ownership among all Mexicans will promote human progress and, in due course, allow universal access to financial services and credit markets to citizens currently excluded.
The proposal rests on an ambitious citizen consensus that dispenses with ideological distinctions and partisan bickering. It would democratize energy-mining income, promote financial inclusion, and close economic gaps—particularly in households living in extreme poverty.
By democratizing energy-mining income, we mean granting citizens a robust and credible property right over the revenues (subject to taxation) from energy and mining activities. This would start a virtuous cycle of reduced inequality, in part by broadening the benefit of new investments in the sector. If everyone has skin in the game, there is greater transparency and accountability over decisions affecting the sector’s performance.
A second aspect of the proposal is the inclusion of all Mexicans as taxpayers regardless of labor force participation status and employment sector. Our intention is not to tax the poor. Instead, it is to include the more than half of the Mexican population currently in the shadows of the “informal” economy, while simultaneously setting up a new relationship between citizens and the state that better manages public expectations and demands accountability for the use of taxpayer dollars.
Lastly, by devising a system of targeted sovereign dividends for the less fortunate, we ensure that the policy blueprint delivers help immediately to those who need it the most—not by the grace of the government, but by a tangible property entitlement.
Our proposal models a reasonable scenario starting in 2025.[3] We found that the fund could redistribute more than $130 billion in twenty-five years and generate individual retirement savings of thousands of dollars per adult by 2050.
Contrasting the potential of a Mexican citizens’ wealth fund with the impoverishing policy proposals coming from this administration might seem like fruitless exercise. After all, AMLO has chosen resource nationalism as his top legislative priority and is unlikely to compromise on what he views as his legacy. However, for those truly interested in tackling the root causes of poverty and income inequality, converting mineral wealth into intergenerational citizens' wealth offers a brighter path forward. If the tyranny of dead ideas does not blind future administrations, perhaps they will see the value of disseminating resource wealth to its rightful owners: the Mexican people.
About the Author
Martin Rodriguez Rodriguez is a Visiting Research Fellow at Atlas Network Center for Latin America.
The author sends words of appreciation to Dr. Sary Levy-Carciente, Fausto Hernández, and Manuel Hinds for their observations and insightful critique.
Endnotes
Francisco J. Monaldi, “The Cyclical Phenomenon of Resource Nationalism in Latin America,” Oxford Research Encyclopedia of Politics (Oxford: Oxford University Press, 2020), https://doi.org/10.1093/acrefore/9780190228637.013.1523.
“AMLO: Mexico ready for arbitration as lithium battle heats up,” BNAmericas, October 8,2021, https://www.bnamericas.com/en/news/amlo-mexico-ready-for-arbitration-as-lithium-battle-heats-up.
Martín Rodríguez Rodríguez, Carlos Navarro, and Roberto Salinas León, “Fondo Soberano Mexicano: Un Fondo de Riqueza Ciudadana para México,” Atlas Network Center for Latin America (publication forthcoming).