Calderón's challenge: Confronting monopolies

Mexicans run into near-monopolies at every turn. When they pick up a phone (to be charged rates above the international average), it's almost certain that the service provider is Telmex, which owns 94 percent of landlines. When they turn on the TV at night, they're probably viewing a channel owned by one of two dominant broadcasters.

Usually, they just sigh.

But this month, the price of corn tortillas, dominated by a company owning 70 percent of the tortilla and cornmeal market, shot up by more than 50 percent in some parts of the country. That sent the war against price gouging, usually reserved to regulatory agency meetings, pouring into the streets – with housewives marching to demand an answer.

The unrest was enough to spur the nation's antitrust watchdog to launch an investigation, threatening fines of up to $6.4 million on any company engaged in monopolistic practices.

For President Felipe Calderón, though, the "tortilla wars" could ultimately portend something much larger. He campaigned as the "jobs president," but if history is to grant him that title, he faces tough economic reforms ahead. Economists say loosening the tight grip that business elites have on the economy should be near the top of the list for a country that is losing position globally – in no small part because of the economic concentration that keeps competition down and prices high.

"Monopolies are one of the top three reasons that Mexico is not growing faster," says Luis Felipe Lopez-Calva, who is joining the UN as the chief economist for Latin America and the Caribbean. He's one author of a recent World Bank study showing that Mexican oligopolies such as Telmex, public monopolies such as oil company Pemex, and the nation's powerful public-sector unions hurt competitiveness and exacerbate the divide between rich and poor. Under the administration of former president Vicente Fox, it showed, billionaires got richer – their net worth growing steadily in recent years to 6 percent of GDP in 2006 – while nearly half of Mexico's 106 million residents continued to live in poverty.

"This is a country of pure extortion," says Victor Manuel Martinez, a locksmith and father of two, who laments the high costs he pays for telephone service and electricity in the simple shop he set up on a Mexico City sidewalk.

In Mexico, electricity is dominated by a state-controlled monopoly, and Mexicans pay some of the highest rates in the world, according to the World Bank study.

To cover his expenses, Mr. Martinez says, he must raise his prices: selling a $2 lock for double that amount, for example. High costs, especially for food and cellphone service, also affect his personal budget. "Monopolies don't let you progress," he says.

Carlos Slim, the world's third-richest man behind Bill Gates and Warren Buffett according to Forbes magazine, owns 94 percent of landlines with his company Telmex, and over 70 percent of the mobile phone industry. "I only use it for emergencies or work," says Martinez, pulling his phone out of his jeans pocket only to tell a passerby the time.

"Mexico is a country of privilege. Instead of competing for consumers to buy their goods or their services [big businesses] are always looking for special privileges," says Eduardo Perez Motta, who heads the Federal Competition Commission, the country's antitrust regulator.

With his master's degree in economics and a lifetime in politics, few people know which economic reforms Mexico needs better than the man who campaigned as the "jobs president," Calderón's friends say. Tax collection rates are among the lowest in Latin America. Labor laws make it hard to fire inefficient employees. Corruption and bureaucracy dissuade investment.

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