Overdue reform was swiftly executed last Saturday night when federal troops descended on Luz y Fuerza del Centro, a state-owned electric company serving central Mexico. The plant was closed, operations were handed over to a larger state-run utility, and 44,000 workers were jobless come Sunday morning. The president’s decree cited inefficiency and ongoing operating losses that required large transfers—$16 billion between 2003 and 2008—from the government.
Severance packages are on the whole generous; the average employee will receive more than 2.5 years of salary. Still, the decision is generating widespread protests, and thousands have balked at the offer. Some critics claim the tactics were a throwback to the authoritarian days of PRI rule, while others say the decision was retribution for the utility’s support of opposition candidates.
This was an audacious move by President Calderón, but not because of the terms. Sure, firing 44,000 without notice may seem harsh, but with such hefty pay offs, the terms would make most Detroit line workers salivate. Rather the timing is suspect. Mexico is in the midst of its worst recession since the “lost decade” of the 1980s, and, unlike Brazil, it isn’t clear the end of the recession is at hand. No matter the size of the severance package, such a move is brashly pro-cyclical. The government should mark time, or even hire more workers to help address Mexico’s unemployment. Inefficient industries should be targeted once the economy is growing again. Keynesianism is enjoying a revival elsewhere, why not in Mexico?
I have been strongly supportive of Calderón’s past reforms. Recent news warrants serious circumspection. Laying off state employees in times of recession requires gumption or lunacy. Or maybe this was just a sage political maneuver. Having lost Congress to the PRI in July’s election, Calderón can now spread the blame if Mexico’s recovery is retarded or tepid. Mr. Calderón is right to pursue economic modernization, but does he have to do so right now?