Energy Security

[Rick M]

Again, I apologize for popping in & out like this, but I keep finding stuff that I think will be of interest.

Ski, further to your points about Mexico, this was just posted:
http://www.reuters.com/article/featu.../idUSGEE5AL039

[Ski]

Rick

I've seen similar data from other sources.

The maquiladoras along the US-Mexico border just asked for the UN to deploy peacekeepers in the major cities on the Mexican side of the border.

The drug cartels are a major issue to be sure, and for a slew of reasons. I think the potential collapse of the Mexican political state is going to occur because of a combination of the cartels, the corruption of public officials, the wealth distribution gap, and then finally the collapse of their economy because of the lack of external revenue sources (ie, fossil fuels).

[Bill Moore]

Posted by Ski

I think the potential collapse of the Mexican political state is going to occur because of a combination of the cartels, the corruption of public officials, the wealth distribution gap, and then finally the collapse of their economy because of the lack of external revenue sources (ie, fossil fuels).

Ski, not sure if you're predicting the fall of the Mexican political state or simply stating it is potential. I think an argument could be made that any political state could collapse at anytime due to unforeseen system disruptions, but the same can be said about unforeseen factors that allow the State to continue on. Mexico is experiencing serious problems as you indicated, but they always had a huge wealth distribution gap (what Catholic country doesn't?), so that in itself won't bring it down (unless the emerging middle class experience a down turn in status. As for corruption, well it's Mexico, does anyone think the drug cartels will govern better? The drug cartels can be defeated if they pull out all stops and decide to do so. The external revenue issue is probably the most serious, because it will touch almost every aspect of Mexican society.

Why do you think it will collapse? I understand the reasons you listed, but how will this play out into an actual political collapse? Have you studied any parallel scenarios from history where the Political State collapsed because of these reasons?

[Surferbeetle]

From the Atlantic by Phillip Caputo: The Fall of Mexico

In the almost three years since President Felipe Calderón launched a war on drug cartels, border towns in Mexico have turned into halls of mirrors where no one knows who is on which side or what chance remark could get you murdered. Some 14,000 people have been killed in that time—the worst carnage since the Mexican Revolution—and part of the country is effectively under martial law. Is this evidence of a creeping coup by the military? A war between drug cartels? Between the president and his opposition? Or just collateral damage from the (U.S.-supported) war on drugs? Nobody knows: Mexico is where facts, like people, simply disappear. The stakes for the U.S. are high, especially as the prospect of a failed state on our southern border begins to seem all too real.

[Ski]

Bill

I don't think there are too many lessons from history to apply to Mexico.

The problems in Mexico are not unseen. Here's a list of what I found that could contribute to a collapse to Mexico:

1. Lack of oil revenue - it cannot be replaced by any other export. PEMEX is not allowed to modernize or explore because the revenue has been needed to subsidize the federal budget. There is some oil in the south of Mexico but it is splintered into many smaller fields. The Mexican government is going to face a massive funding gap within the next decade. I suppose they could open up Mexico to private exploration but that will only delay the inevitable. Mexican domestic demand is expected to rise 10-15% over the next decade, meaning they will have to spend more Federal money on imports.

2. The lack of revenue means the lack of services within Mexico. With the income gap growing significantly (10% of the population owns over 40% of the wealth), and adding the lack of revenue to the case will cause additional social friction. In 1994, Mexico denationalized over 1,000 companies, and the elite (also known as the 100 Families) bought almost all of them. The rich became much, much richer. The poor only benefitted a little bit if at all. Why support a government when it cannot provide anything of interest to you?

3. Mexico has been a classic "patron" political system since the 1920's. It's similar to the Baathist system - party members and their children are given better educations, more opportunities, more government jobs. The left leaning PRI has dominated the political scene from the 20's and the PAN, led by President Calderon - is struggling to hang onto power, as he won the 2006 Presidental election by less than 1%.

4. The drug cartels will not be defeated by the Mexican government. That's my big prediction. Too much money is flowing. Estimates are anywhere from $30-50B a year. The Mexican drug czar was arrested last year for taking $450K a month from the Drug Cartel. The cartels have influence at the local, state, and federal levels with every political party. Two potential outcomes: a. the people get pissed off from the violence and turn against the Cartels
b. the Cartels are assimilated successfully in the Mexican political process, the drug profits are seen as legitimate in order to replace the lost oil revenues. Calderon deployed 40,000 Mexican Army and Federal Police personnel earlier this year - and the violence is still raging. The nationalized Mexican banking system is almost certainly laundering drug profits.

4. Large indiginous population. 30M indigineous people. Two indiginous rebellions in the last 15 years - Chiapas and Oaxaca. Many of these people live in the dope and opium cultivating areas, and they become more populous the further south one goes. 90% of the cocaine in the US comes through Mexico. I would not be surprised if there are a number of tribes cutting deals for easy access into Mexico.

5. There are signs of hollow states occuring already in Sinaloa (home of the Sinaloa cartel) and Michochan. The Mexican government had over 2,000 "Zones of Exclusion" in 2007 and supposedly reduced that number to less than 400 last year. I am suspicious of both numbers and have not been able to find a great deal of open source info on this aspect of Mexico's decline. I would love to get some more info if it is available.

6. Violence and corruption are spreading into the US in the forms of gangs (MS 13 and M 18). Corruption rates in the Border Patrol, ICE and local law enforcement departments have been rising steadily since 2005.

How do I see it playing out?

Something like this:
Mexico's economy continues to get hammered by the global recession over the next two to three years. The middle class is getting smoked just like every other middle class in the world. The maquiladoras - from the high point of 4000 of them in 2000, at 3000 in 2009, continue to slowly fade away as cheaper companies in Asia take their place. Globalization has many side effects to many people.
The drug cartels continue to make big profits thanks to El Norte, and many people start joining them to get a full belly. in 2012, the PAN and Calderon are defeated, and the PRI regains power. The PRI looks to gain closer ties with other populist leaders in Central and South America. The drug cartels are allowed to operate with greater impunity as they continue to bring lots of much needed cash into Mexico. The drug violence along the border rises as the cartels bribe entire units of the Mexican Army and Federal Police to look the other way.
Mexican people are still ok with their government. The oil flow starts to dry up, and then Mexican government, regardless of party affiliation, becomes more an annoyance than anything else to the people of Mexico. They've lost the financial power to the drug cartels and the super-rich who own the corporations. The corporations and the cartels have deals in place - business will not be disrupted on either side of the coin.
By 2020, the Mexican government is a government in name only. The cartels have locked down the flow of drugs from the south, and own the Mexican side of the border. The political collapse has been slow - people just don't get anything from the government except for increased taxes (this is actually how Calderon expects to meet the shortfalls in oil revenue) over this period, and finally just ignore them. The state doesn't have the power to respond in any real manner.

The wild cards are the indiginous people, the US government, Chavez and other populist leaders, and the potential decriminalization of drugs both in Mexico (it's already happened for personal usage) and in the US.

Worst case scenario is the drug cartels become the government, form strategic alliances with Chavez, Cuba, and you have an unfriendly government - built on narco-economics on one hand and supra-national trade on the other - telling the US to get bent whenever they want to.

Of course, this reads like a dime store novel. But I really don't see how the Mexican government is able to survive all of this - mainly because it's visible now, and their response has been to increase taxes to make up for the lack of oil revenue, furthering the isolation betweent the government and the people. If the US economy sputters , the Mexican government will get hurt even more.

Posted by Ski


Ski, not sure if you're predicting the fall of the Mexican political state or simply stating it is potential. I think an argument could be made that any political state could collapse at anytime due to unforeseen system disruptions, but the same can be said about unforeseen factors that allow the State to continue on. Mexico is experiencing serious problems as you indicated, but they always had a huge wealth distribution gap (what Catholic country doesn't?), so that in itself won't bring it down (unless the emerging middle class experience a down turn in status. As for corruption, well it's Mexico, does anyone think the drug cartels will govern better? The drug cartels can be defeated if they pull out all stops and decide to do so. The external revenue issue is probably the most serious, because it will touch almost every aspect of Mexican society.

Why do you think it will collapse? I understand the reasons you listed, but how will this play out into an actual political collapse? Have you studied any parallel scenarios from history where the Political State collapsed because of these reasons?

[Bill Moore]

Ski,

All good points, but predicting the future is always a guessing game. One that I'll join you in.

Mexico for the issues you already addressed continues to spiral into a kleptocracy for two key reasons:

1. The State is broke, it can't reasonably protect its citizens, and can't provide essential services, so it has lost its legitimacy with its citizens, if they want to maintain any form of power (or the illusion of it) they need to reach out to the cartels and build their legitimacy with them.

2. Elections are bought and cartels have the money to buy the elections, and thus the politicians.

Mexico is now run by the families through their surrogate politicians.

This rapid demise of Mexico and the serious threat it poses to the U.S. will encourage the U.S. to militarize its southern border in order to contain the problem (it won't work). The the desparate Mexicans who desire to escape (illegally immigrate to the U.S.) will look more like the Cubans fleeing on make shift watercraft in the Gulf of Mexico or in the Pacific (where they risk becoming a meal for the rather large great white population in that region). Yet the drugs and money will flow through alternative means that are more sosphisticated and bypass our S. border. They'll also continue to smuggle illegal aliens into the U.S. who can afford to pay for it (like the many they have already smuggling into the U.S. from the Middle East).

Violence and corruption are spreading into the US in the forms of gangs (MS 13 and M 18). Corruption rates in the Border Patrol, ICE and local law enforcement departments have been rising steadily since 2005.

Violence and corruption will continue to spread throughout Norte America via the vast Latino-American street gangs and Mexican mafia social plague already well established in most urban areas and currently seeping into rural areas as well. They can either buy cooperation or get it through coercion. Would you like to find your kid's head in your mailbox senor?

By now the majority of the world's global market is either gray or black, so governments have less of tax base, thus less and less resources to combat these trends. The corrosive effect begins to pick off our cities, counties and states one by one.

Of course this is a worst case, grade B movie, speculation, but not entirely unfeasible IMO.

What's the alternative scenario? What do we need to do to reverse this trend?

[Ski]

Bill

It's difficult if not foolish to try and predict what is going to happen, but we still must try.

You make a very good point about the grey and black (we called them shadow economies) economies. Mexico is heavily affected by the shadow markets as well.

The alternate scenario for me is still in the works. I don't even have all (or nearly all) the variables identified yet. I know one thing - Mexico will be in real trouble economically over the next decade without critical economic, governmental and social reforms.

[Rick M]

I'm afraid I don't have anything worthwhile to contribute re. Mexico.
I'm aware of the oil aspects but that's it... never been down there, only know what I have read.

On a different note, this was posted today re peak oil and our agri-food system.
I think that the situation in Canada applies equally to USA: the first farmer is looking at biofuels, the second at local food supply.
My comments re. our energy dept being in denial on PO apply equally to your DoE.
My comments re Agriculture Canada apply equally to your USDA.
Until DoE sounds the alarm, USDA is unlikely to examine how US agri-food might function in a world without cheap energy.
Here is the link... please let me know what you think:
http://www.energybulletin.net/node/50800