The Battle Over Luz y Fuerza del Centro: Jobs Versus Tight Budgets

Duncan Wood

Office of the William E. Simon Chair

Since the closing of Mexico City’s electricity provider, Luz y Fuerza del Centro (LyFC) on October 10th, massive protests, intense political debate and close media attention (both national and foreign) have focused on the issue. The government and its supporters argue that the losses of the monopoly, requiring $1.9 billion a year in subsidies, were unsustainable and that the people of the valley of Mexico deserve a better service than the one they were receiving. Critics have countered by claiming that this was an out and out attack on a union (the Sindicato Mexicano de Electricistas or SME) that unabashedly supported Andres Manuel Lopez Obrador and that the move may actually be illegal (there is little evidence to support this latter claim).

I have argued elsewhere that, from a political and policy point of view, the timing of the Calderon administration’s bold move against LyFC can be explained by the President’s need to jump-start the second half of his mandate at a moment when he appears to be a lame duck. By making such a strong declaration of his intent, the President is essentially marking his presidential territory and rebranding himself as a leader of actions rather than negotiations.

But the timing is highly unfortunate for the economy. Although the government has claimed that by bringing in the largely respected Comision Federal de Electricidad (CFE), a state-run monopoly that has until now provided electricity supply to the rest of the country, to replace LyFC, taxpayer money will be saved. In the short run the liquidation of LyFC’s obligations to its employees, plus the extra payout offered by the government to workers who accept the package before a certain date, will cost a huge amount of money. What’s more, the government has only guaranteed jobs to 10,000 of the 55,000 workforce; this means 45,000 newly unemployed in an economy that is hemorrhaging jobs and is likely to remain depressed in terms of both growth and job creation deep into 2010. A high price to pay for an assertion of authority, some may say.
 

Flickr photo by PhotoA.nl and used under the Creative Commons license