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Thursday, January 24

La Mafia del Poder en California? 

"Yet [Mexico's new president] faces tremendous opposition as well, especially from the political and economic elite, which he calls 'la mafia del poder' – the power mafia – and whose grip, he believes, must be broken if the system is to be reformed. "It turns out that income inequality in the U.S. state of California is worse than in Mexico.  That's saying a lot, given the situation for Mexicans.  From Michael Massing'sJanuary 20 op-ed for The Guardian,

... With a GDP approaching $1.15tn, Mexico’s economy is now the 15th largest in the world, but its per-capita income of about $9,000 ranks just 70th.  According to the Gini scale of income inequality, Mexico is the world’s 19th most unequal country – more so than even Nicaragua, Bolivia, the Dominican Republic, and Chad.  A shocking 43.6% of Mexicans are considered poor. ... 

... over the last few decades, California has built one of America’s most lavish welfare states.  There’s just one problem: it’s not working. 

The sad truth of the matter is that California’s poverty rate is the highest in the country, at 20.6 percent.  This is based on data from the US Census Bureau, and modified so as to account for differences in the cost of living between states.  And if you’re a skeptical “progressive” then don’t worry, even Politifact confirms this finding. 

As bad as that sounds, perhaps the more embarrassing statistic is that income inequality in California is at an all-time high.  This should be obvious to anyone who’s actually been to California and seen the proliferation of tent cities and urban slums: [video]

Inequality can be encapsulated in a number called the Gini Coefficient (GC): “0” is perfect equality, where everyone earns the same income, while “1” is perfect inequality, where one individual earns everything (leaving none for anyone else).  Importantly, a higher GC means more inequality. 

In California the GC is 0.488.  This is the second highest of all America’s major states, behind only New York, and it is also far higher than the national average of 0.479—which itself is inflated by absurdly high GCs from large liberal states like California and New York. 

But it’s only when looking at the global context do you really get a sense of how bad it is.  If California were an independent country, it would be the 17th most unequal country on earth, according to data from the World Bank.  It would rest comfortably just behind Honduras (at 0.511), and ahead of Guatemala (0.487) and Mexico (0.482). 

Now compare this to the other “social democracies” that California is wont to compare itself with: Canada sits at spot number 111, while Norway is way down the list at number 153 (out of 176 countries).In terms of inequality, California has more in common with banana republics than the “social democracies” it emulates.  Perhaps they should get their own house in order before lecturing the rest of us on the benefits of socialism. 

California's government has a different view of the situation, pointing to a large number of American indigents that municipalities across the U.S. have 'shipped' to California because of the state's generous welfare benefits, a severe shortage of low-income housing in the state, and in general all and everything except socialism. 

Yet the bottom line, at least on paper, is that the state is among the richest regions in the entire world.  From Wikipedia's article:

California's $2.9 trillion economy is larger than that of any other [U.S.] state, larger than those of Texas and Florida combined, and the largest sub-national economy in the world. 

If it were a country, California would be the 5th largest economy in the world (larger than the United Kingdom, France, or India). 

So something about California's income inequality isn't quite adding up, and it's the same for Mexico's.  To return to Massing:

That destitution is the root cause of many of Mexico’s other ills.  Drug trafficking, violence, corruption, impunity, migration – all are outgrowths of the country’s high unemployment, low wages, poor schools, inadequate healthcare, farmers without land, youths without jobs.  These conditions seem all the more intolerable in a country so blessed with resources, including fertile farmland, vast oil reserves, deep-water ports, a temperate climate, stunning beaches, and a population that the OECD ranks the most hard-working of the 37 nations surveyed. 

Yes.  Mexico's masses are hard-working people -- and they are careful listeners, a point I made some years ago on this blog, which makes them quick studies.  No need to repeat an instruction 20 times over to a Mexican worker.  Mexico's new president, Andrés Manuel López Obrador, is clear about the country's root problem, as Massing notes:

... López Obrador’s Morena party also won control of both houses of the Mexican Congress and of many state governorships, giving him enormous power.  Yet he faces tremendous opposition as well, especially from the political and economic elite, which he calls “la mafia del poder” – the power mafia – and whose grip, he believes, must be broken if the system is to be reformed. 

While every lurid revelation of the Guzmán trial has been breathlessly noted, the power of this mafia has gone largely unremarked.  The group is dominated by a dozen or so oligarchs and their families, who have a lock on such key economic sectors as telecommunications, media, mining and banking. 

Repeated forecasts of rapid development for Mexico have come to naught due to the suffocating hold that this small circle of super-connected individuals continues to have over its economy; by eliminating competition, they can keep prices high and profits surging. ... 

In short, Mexico's government created a Frankenstein Free Market Economy (free when we want it to be, not so free otherwise) that is a sure-fire prescription for mass destitution, as post-Soviet Russians learned the hard way. Does California have anything like this Frankenstein economy?  Would that be a factor in the great disparity between incomes in the state?  I don't know enough about California to have a considered opinion on the questions.  But it could explain much if the state has developed a kind of oligarchy that's masked by large welfare schemes. One thing I do know that could be pertinent to California is that much of what's called 'free market capitalism' is itself a Frankenstein; it's actually companies started and/or supported with government help.  In any case, Mexico definitely has an oligarch problem:

While every lurid revelation of the Guzmán trial has been breathlessly noted, the power of [La Mafia del Poder] has gone largely unremarked.  The group is dominated by a dozen or so oligarchs and their families, who have a lock on such key economic sectors as telecommunications, media, mining and banking.  Repeated forecasts of rapid development for Mexico have come to naught due to the suffocating hold that this small circle of super-connected individuals continues to have over its economy; by eliminating competition, they can keep prices high and profits surging. 

At the center of the power elite is Carlos Slim.  His estimated net worth of about $60bn places him seventh on Forbes’s international rich list.  This one man’s wealth is equivalent to more than 5% of Mexico’s GDP.  The core of his empire is América Móvil, Latin America’s largest mobile phone company; its longtime domination of Mexico’s telecommunications industry has kept the nation’s phone rates among the highest in the world, costing the economy an estimated $25bn a year. 

Slim also owns nearly 17% of the New York Times, making him its largest shareholder.  Like other American news organizations, the Times rarely writes about him and the ways in which he and other Mexican oligarchs have used their power to stymie the tax policies, public investments and income transfers needed to enable more Mexicans to enjoy the type of comfortable middle-class life depicted in Roma, the recent acclaimed film set in Mexico City in the early 1970s. ... 

Spoken like a true socialist.  Massing should pay a little less attention to public investments and more to government policies that stifle business competition in Mexico.  I can only hope that Amlo will do the same.********