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Mexico Flirts with Nationalizing Its Electricity Sector

Mexico finds itself in the middle of an energy debate. En bloc, the Mexican president, Andrés Manuel López Obrador (AMLO), seeks to nationalize the electricity industry. In as many words, AMLO recently said that the essence of his proposed initiative is that since electricity is a strategic industry, it should be “owned by the nation, by all Mexicans.” He is willing to accept modifications of his proposal so long as energy is not generated nor distributed for profit (God forbid!). In response to his critics, he offered more specific comments when it comes to lithium:

“They do not like that lithium is the property of the nation, because they would like it to be like the other concessions, silver, other minerals, private concessions and no, lithium is a strategic mineral…”

One of the main objectives of his plan is to strengthen the Federal Electricity Commission (Comisión Federal de Electricidad, CFE), giving them almost total control of energy in the country. This removal of private provision will see pushback from American companies. Indeed, lawsuits have already been mentioned as a response.

AMLO believes that this market organization (read: “soft nationalization”) is the only thing that can stave off “chaos,” and the CFE director even promises a uniform rate throughout the country!

So, what should one make of this move? For readers of this website, I am sure the following analysis will be elementary. But such a quotidian reminder of basic economic principles hardly hurts anyone, so here we go.

As Ludwig von Mises pointed out, the absence of the price system in an economy leads to economic chaos—contrary to what AMLO may believe. While Mexico has not nationalized all the means of production, Mises’s calculation argument still holds. There is no scenario where any state can engage in calculation. In outright socialism, this is because the lack of prices for the means of production renders any type of cost accounting impossible. A similar situation occurs even when the state exists in a capitalist economy. While the state can access prices for the means of production, its cost accounting is still meaningless. This is because it has the power to use coercion in its purchasing of producer goods, which may influence the price it actually pays. But even if the state pays market price, it cannot engage in calculation. Due to its extractive nature, the state cannot calculate the income from the service it provides. Citizens do not choose whether or not to pay. In this case, the Mexican people would have no choice but to go to the CFE for electricity. Thus, profits cannot be calculated—half of the profit equation, the income, is worthless. It is not the result of actual economic evaluations, which can only occur in voluntary market transactions. Without being able to engage in profit and loss accounting, the resources used by the state cannot be said to have been used efficiently. In fact, Murray N. Rothbard notes that by the simple fact that all state action is predicated on extortion, no state action can ever be said to increase social utility.

Asking the same question will result in the same answer. This does not mean that the Austrian school has the same answer for every question (the state should not do anything). But no matter how you wish to dress the question of ____, whether the garb be energy, gas, food, education, or police, the question is not new. No, Mexico should not accept this centralization of the energy sector under the state. Mexico is not hindered by capitalism run amok, but by state actors, whether they be ignorant or malicious. The state will not save the Mexican people. Removing institutionalized coercion from its economy and society will.