When Felipe Calderón declared in his annual report to Congress last month that Mexico needed to pursue “fundamental” change, the country’s political establishment yawned. Almost all of the reforms he proposed during the first three years of his presidency were diluted in the legislature, and his conservative National Action Party (PAN) has just lost a midterm election. But on the evening of October 10th, while Mexicans were celebrating their football team’s qualification for the World Cup finals, Mr Calderón began to make good on his word.

Without warning, he dispatched over 1,000 federal policemen in riot gear to occupy the offices of Luz y Fuerza del Centro, the state-owned electricity distributor for Mexico City and its surroundings. He issued a decree closing the company and transferring its responsibilities to the Comisión Federal de Electricidad (CFE), another state firm that supplies electricity to the rest of the country.

Luz y Fuerza has been a scandal for decades, run in the interests not of its customers but of the electricians’ union. It was one of the more egregious examples of the corporatist privileges that flourished in Mexico under the seven decades of rule by the Institutional Revolutionary Party (PRI), in which unions and private businesses gained monopoly power and protection from the state. Although the PRI lost the presidency in 2000, many corporatist vestiges have survived.

The government was pumping $3 billion a year into Luz y Fuerza. Most of this went on fat salaries and even fatter pensions for its 44,000 employees and 22,000 pensioners. The company managed to lose 30% of its electricity through illicit connections and technical failures. Because it was unable to supply big new customers, companies have tended to set up new factories outside its catchment area. By contrast, the CFE loses just 11% of its power and costs the government nothing.

The electricians’ alliances with other, bigger unions and the left-wing Party of the Democratic Revolution (PRD) have hitherto deterred reform. The union has been weakened by a disputed leadership election, and the PRD did even worse than the PAN in the mid-term election. But if Mr Calderón, whose government is trying to plug a $22 billion budget shortfall next year, chose to act against Luz y Fuerza it was mainly because he could. Since the company was established in 1994 by presidential decree, it could be legally wound up by decree.

The take over by CFE went smoothly, with only a few scattered power cuts. It is running the business with many fewer staff than Luz y Fuerza required. The government reckons the measure will save $1.3 billion next year. But first it must face the electricians’ ire. The union has vowed to seek thousands of legal injunctions. To try to dampen opposition, the government offered additional severance pay provided workers accept their dismissal within a month. It hopes that an average lump sum of 33 months salary (costing a total of $1.5 billion) will overcome loyalty to the union.

The takeover of Luz y Fuerza looks like a coup for Mr Calderón. But it may be an isolated one. The teachers’ union exercises a similar grip on schools, for example, but its leader is a political ally of the president. Business monopolies have political protection too. If fundamental reform were easy in Mexico, more of it would have happened by now.

Source: The Economist