The Mexican Senate is currently debating a bill already approved by the Chamber of Deputies that would make important changes to Mexico's labor laws. The changes would update labor regulations for the first time since the 1970s, introducing more modern protections for workers while easing the burden that outdated labor laws place on employers in Mexico. The legislation stops short of changing Mexico's complex constitutional labor strictures, instead focusing on changing laws, which can be altered more easily. The difficulty of changing the constitution means major union reforms have been postponed.
Although there are disagreements on the details of how reform should be implemented, a consensus has emerged that a host of major reforms are needed. Although Mexico is already in an advantageous position given its proximity to the U.S. consumer market, labor reforms should make it even easier for Mexico to attract foreign investment. With wages rising in China's coastal manufacturing zones, low- to medium-end manufacturing firms are looking for more cost-effective locations. Some of this investment is moving into the Chinese interior, but much is moving into emerging economies all over the world, including Mexico. The Mexican government has made strong efforts to attract such investment, efforts that the new administration will redouble — making this a moment of strategic significance for Mexico.
Among other reforms, some of which are highly controversial, the changes would allow companies to hire and fire employees more easily. Regulations on severance pay would be loosened, with employers no longer required to guarantee payouts to employees fired for violating workplace standards. The law will also increase penalties on companies that violate labor regulations and will establish protection from sexual harassment for workers. Another important reform would allow companies to offer performance-based promotions instead of purely seniority-based promotions and to grant performance-based bonuses.
One important area still under heated negotiation relates to regulations that would alter the way unions elect their leadership. In initial discussions, the National Action Party of outgoing Mexican President Felipe Calderon had proposed that unions be required to elect their leadership via free, direct and secret ballot processes. The laws currently under discussion, however, would permit unions to set their own leadership election processes. The Institutional Revolutionary Party, which historically has had close ties to Mexico's unions, backed the withdrawal of union transparency regulations.
As the party that ruled Mexico for 70 years, the Institutional Revolutionary Party was instrumental in shaping Mexico's political landscape. With little in the way of competition among political parties, it operated as the political power broker, building corporatist structures over time that bound Mexico's many social and economic sectors together. This policy of inclusive politics played an important role in keeping Mexico relatively stable for decades. The rise of secondary parties and political competition, including the National Action Party on the right and the Revolutionary Democratic Party on the left, during the 1990s led to National Action Party candidate Vicente Fox's 2000 presidential win. This altered the political landscape in Mexico, introducing greater political competition and in many cases, political deadlock, as the parties competed for influence across Mexican society.
Though Mexican politics is more pluralistic than before the National Action Party first won the presidency, key aspects of Institutional Revolutionary Party influence remain, such as its links to the country's powerful unions. These include the Mexican National Education Workers' Union, whose leader, Elba Esther, backed Pena Nieto ahead of the July election. They also include the powerful Petroleos Mexicanos oil workers' union, whose leader was recently elected to the Mexican Senate as a member of the Institutional Revolutionary Party.
Energy and Democratic Reforms
Beyond labor, the increase in dynamism in Mexican politics means that Mexican parties may be able to make significant changes on other major issues. Energy reform is the most important issue the country faces. Petroleum output, which funds between 30 percent and 40 percent of Mexico's federal budget and accounts for 16 percent of Mexico's export revenue, has been steadily declining. Oil production slipped from 3.8 million barrels per day in 2004 to 3 million barrels per day in 2011. Although exploration has increased, Petroleos Mexicanos will need significant foreign expertise and capital to find and develop fields, which most likely will be concentrated offshore. This could take years to yield results, leaving Mexico's government facing an uncertain fiscal future.
The main steps needed to reform Mexico's energy sector would entail revising the constitution, for which the Institutional Revolutionary Party would need to garner support from at least two-thirds of the Senate and the Chamber of Deputies plus the approval of a majority of Mexico's state legislatures. But the Institutional Revolutionary Party did not win even a simple majority of federal legislature seats in the July elections. If it can obtain votes from the National Action Party along with those of two smaller parties (Mexico's Green Party and the New Alliance Party), constitutional approval at the federal level still could be possible. With 19 out of 31 governorships, the Institutional Revolutionary Party might also be able to push through the constitutional revision at the state level. Accomplishing both of these steps will not be easy, meaning the party probably will focus most of its efforts on non-constitutional legal reforms that require only a simple majority at the federal level.
Other more obscure but equally important reforms could be on the table, including measures loosening term limits. This would represent a major change to Mexico's political structure. By giving them a chance to win re-election, Mexican legislators might become more accountable to voters. It also would introduce more continuity to the political system, facilitating Mexico's transition to a democratic system for decades to come.
Whether any of these changes comes to pass depends on negotiations among a group of notoriously fractious parties. Still, with the electoral calendar cleared for the next three years and the Institutional Revolutionary Party holding the presidency, the next several years should see important shifts in how Mexico operates.
