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Congressional Negotiations with Costly Voting: Understanding the Reforms to PEMEX in 2006–2008

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Abstract

The state-owned petroleum company in Mexico has played a fundamental role in the economy, but its productivity has been worryingly in decline. Several presidents of Mexico before Felipe Calderón tried to modernize Pemex but they failed to pass any meaningful legal reform through Congress. In this chapter I explain why Calderón was successful where other presidents were not. At the same time, I explain why Calderón’s successes were not as large as they could have been: indeed, the legal reforms to the Mexican oil industry in 2006–2008 were not as profound as they were expected to be. I claim this was due to the costs that political conditions imposed on congressional negotiations. Irrespective of their preferences, legislators faced punishment by radical political leaders and passionate voters if they supported Calderón’s initiatives. At the same time, some pivotal negotiators in Congress were able to extract significant side payments for their support of government initiatives. To clarify these complex dynamics, I use the traditional concepts from spatial voting theory: I identify the main issues regarding Pemex; the main political agents in charge of reform; and the positions of these agents on those issues. I also propose a modeling innovation to the traditional spatial theory of voting, which consists on considering the punishment that legislators may incur from supporting a bill that they like. With these theoretical tools I am able to explain the puzzling coalitions that were formed for the 2006 budget law, the 2007 fiscal reform and the 2008 energy reform. I suggest that these same theoretical tools could be used to understand congressional negotiations in other contexts.

Keywords

  • Side Payment
  • Major Party
  • Opposition Parti
  • Opposition Party
  • Incumbent Party

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Notes

  1. 1.

    As quoted by Elizondo (2011, p. 35).

  2. 2.

    The Workers Party (PT) and the party Convergencia. Together, the three leftist parties were referred to as the Ample Progressive Front (FAP).

  3. 3.

    The Green Ecological Party of Mexico (PVEM) and the New Alliance Party (PANAL).

  4. 4.

    For more details on the 2006 post-election crisis and how it influenced legislation in Congress, see Serra (2012).

  5. 5.

    The negotiations did encounter some trouble due to enmities of PAN members with the president, which seemed to stem from personal vendettas rather than fundamental ideological differences (Starr 2009, p. 146).

  6. 6.

    See the many examples described in Elizondo (2011, fn 73).

  7. 7.

    PVEM, PANAL, PT, Convergencia, PASC.

  8. 8.

    I briefly overlapped with Felipe Calderón while taking similar courses in graduate school.

  9. 9.

    Technically, there were two laws that needed approval: an income law and an expenditures law, both of which were approved nearly unanimously (Castellanos et al. 2009, p. 157).

  10. 10.

    A detailed critique of these measures from the 2007 electoral reform can be found in Serra (2012).

  11. 11.

    According to Castellanos et al. (2009), the PRD legislators voted in favor of some pieces of the legislation, such as decreasing Pemex royalties, which were going to pass anyway. Rhetorically, though, the PRD came out against the fiscal package in full.

  12. 12.

    Strictly speaking, Calderón’s remark was correct only considering proved reserves. If we add the probable and possible reserves, Mexico had enough oil until the year 2035 (Alberro 2007).

References

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Appendix: A Theory of Legislative Preferences With Costs and Benefits of Supporting a Bill

Appendix: A Theory of Legislative Preferences With Costs and Benefits of Supporting a Bill

The theory of spatial voting postulates that policymaking takes place in a “policy space,” by which we understand a series of dimensions where different policies are located. For instance let us assume that a given policy can be represented with a single dimension that we will call x, where x is a number larger than zero. Our assumption is that different policies can be represented by different values of x. This would be the case of a tax levied on Pemex. If the tax rate in the status quo is 79 % as it was around 2006, we can say that x SQ  = 79. Three different tax rates, x’, x” and x”’ can be ordered along the tax policy line, for example if x’ < x” < x”’. A given legislator i will have a preferred policy in this dimension, which we call the legislators “ideal point” and we denote by x i . For example, if the legislator belongs to the incumbent party, she might prefer a fairly high tax rate of 85 %, such as x i  = 85. The theory assumes that legislators are increasingly unhappy with policies that are increasingly farther from their ideal point. In other words, legislator i would want to minimized the distance between a given policy proposal x and her ideal point, which is given by |x i x|.

Now assume that a given legislative bill has two dimensions that we will call x and y, where x and y are numbers larger than zero. For example, this would be the case of an energy bill introduced in Congress that affects the state-owned firm Pemex on two issues: private investment and accountability. Each bill is then defined by a point called (x, y) in this two-dimensional graph. Three different bills, called (x’, y’), (x”, y”) and (x”’, y”’), can be placed in a two-dimensional graph with axes x and y, where x’, x”, x”’ are the amounts of private participation and y’, y”, y”’ are the amounts of transparency that each bill is proposing for the state-owned firm, respectively. A given legislator i will have a preferred policy in this two-dimensional space, which we call the legislators “ideal point” and we denote by (x i , y i ). As I said above, the theory assumes that legislators are increasingly unhappy with policies that are increasingly farther from their ideal point. In other words, legislator i would want to minimize the distance between a given policy proposal (x, y) and her ideal point, which is given by √[(x i x)2 + (y i y)2].

This framework is standard in political science and political economy (see for example Chapter 5 in Shepsle 2010). To this traditional framework I would like to add some elements that will be useful in understanding the type of congressional negotiations that I study in the chapter. In many circumstances, it is quite clear that legislators have payoffs from supporting a bill irrespective of their ideological preferences for this bill. There are several types of costs and benefits, punishments and rewards, to a legislator for voting in favor of a given initiative. For example, if a powerful political boss repudiates a bill, he might be able to punish legislators who support it by jeopardizing their future political careers. On the other hand, if a certain initiative is popular with the electorate at large, anyone supporting it will gain points with public opinion. I will assume that this type of payoffs may exist for certain legislators in the negotiations studied in this chapter. For a given legislator i, we call b i and c i the benefit and the cost she would incur if she voted in favor of the bill being discussed.

To sum up the theory that will be guiding this chapter, I will assume that each legislator would like to minimize the distance between her ideal point and the policy in being discussed, while at the same trying to obtain the benefit and avoiding the cost of supporting this policy. If the bill being negotiated is not accepted, then the status quo (SQ) will remain in place. These preferences can be summarized as follows.

Consider a bill (x’, y’) that involves two policy dimensions, x and y.

  1. 1.

    If the bill passes, legislator i would receive the following payoff:

    √[(x i x’)2 + (y i y’)2] if she votes against the bill

    √[(x i x’)2 + (y i y’)2] + b i c i if she votes for the bill

  2. 2.

    Otherwise, if the bill does not pass, legislator i would receive the following payoff:

    √[(x i x SQ )2 + (y i y SQ )2] if she votes against the bill

    √[(x i x SQ )2 + (y i y SQ )2] + b i c i if she votes for the bill

With this theoretical framework in mind, the chapter analyzes the negotiations to reform Pemex between 2006 and 2008.

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Serra, G. (2017). Congressional Negotiations with Costly Voting: Understanding the Reforms to PEMEX in 2006–2008. In: Schofield, N., Caballero, G. (eds) State, Institutions and Democracy. Studies in Political Economy. Springer, Cham. https://doi.org/10.1007/978-3-319-44582-3_13

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