Felipe "Backdoor Johnny" Calderon needs to confront failures of Mexico's remittances system

In what was surely history's briefest inagural for a head of state, on Friday Felipe Calderon slipped into presidential office through a side door to avoid the hordes of protestors loyal to Lopez Obrador, who still claims to be Mexico's rightful president.

It's said that what Calderon lacks in charisma he makes up for with tenacity. He'll need all the grit he can muster to prevent a war between Mexico's ruling class and the poverty-stricken -- the latter making up 40 percent of the population.

Signs of the looming war can be seen in Mexico's southern city of Oaxaca, which has seen violent protests during the past few months, and which have claimed several lives.

Calderon's course is clear: he's to do the dirty work that outgoing President Vicente Fox avoided:

Among Calderon's first challenges may be confronting Mexico's privileged business elite -- seen by many as the pillar of his support base but which benefits from tax and regulatory breaks that economists say squeeze ordinary Mexicans with high prices for basic services.(1)

But unless Calderon reverses the "Let them eat remittances" approach to job creation in Mexico ("You go work in America, then send back part of your salary to make up for the lack of an adequate tax base here"), Mexico's ruling class will continue to stave off paying their fair share in taxes. And the impetus for job creation in Mexico will continue to be dampened

The biggest problem is that the remittances system is supported by the IMF, the World Bank, China, leaders in Brussels, the US Congress, the US presidential administration, the US Department of State, every think tank that wants to do business in Washington, and US stateside businesses that profit from dirt-cheap Mexican labor.

Never has such a crummy economics idea received so much support from so many in power in the Western Hemisphere. So there is an Emperor's New Clothes aspect to the political support for remittances in Mexico.

The naked reality is that since Mexico's remittances system has been formalized and promoted by Fox's government, Mexico's poorest have remained locked into poverty. The poverty was not created by the remittances system, but the system has made the situation resistant to change.

Governments pushing remittances in Mexico (and other countries with Mexico's basic problems) refuse to see where a remittances system leads. It leads to blood in the streets. It's already happened in Mexico. All over the country, escalated gang warfare and police corruption have claimed uncounted lives. And the unrest in Oaxaca is just a prelude, unless Calderon's government finds a way to make millions of jobs.

So while they tear out their hair about the rise of the hard Left and hire more security guards to protect their families, Mexico's power brokers continue to insist that remittances are just the ticket.

For more on the downsides of the (formalized, government-backed) remittances system, See the April 2005 Pundita post Mexico: Truth, lies, and damning statistics. Not much has changed since I published the post except that the US Eastern Establishment media were forced to find Mexico on a map because of the uproar about immigration.

1) From The Washington Post 2 December issue, Page A-8