NARCOS, NO'S AND NAFTA

This is a strange time for U.S.-Mexico relations. The Mexican
government just issued a travel advisory warning Mexicans about going
to Arizona -- where they could get arrested by the police for no
reason -- and the U.S. government just issued a travel advisory
warning Americans about going to northern Mexico -- where they could
get shot by drug dealers for no reason. Meanwhile, Wal-Mart de Mexico
is expected to open 300 new stores in Mexico this year, thanks to
growing Mexican demand for consumer goods. And Mexico's drug cartels
will probably open just as many new smuggling routes into America
thanks to our growing demand for marijuana, cocaine and crystal meth.

We take the Mexican-American relationship for granted. But with the
drug wars in Mexico turning into Wild West shootouts on city streets
and with our own immigration politics turning more heated, what's
happening in Mexico has become much more critical to American foreign
policy and merits more of our attention. Mexico is not Afghanistan,
but it also has not become all that it hoped to be by now. Something
feels stalled here.

Three groups are now wrestling to shape Mexico's future. I'd call
them "the Narcos," "the No's" and "the Naftas." Root for the Naftas.

The Narcos are the drug cartels who are now brazenly attacking each
other in turf wars and challenging the state for control of towns.
The success of U.S. and Colombian efforts to interdict drug
trafficking through the Caribbean and north from Colombia have pushed
the cartels to relocate their main smuggling up through the spine of
Mexico. President Felipe Calderon is bravely trying to take them on,
but the Narcos have bigger guns than the Mexican Army -- most
smuggled in from U.S. gun stores.

The Mexican daily Reforma reported last week that "the recent wave of
insecurity in Mexico has made businesses related to public security,
automobile armoring, insurance, satellite positioning systems and
bulletproof vests grow at an unprecedented level." Companies in
Mexico, it added, now invest between 1 percent and 3 percent of their
sales in security. In 2006, it was just 0.5 percent.

While the Narcos are the rising bad-news story here, the rising
good-news story is Mexico's burgeoning middle class -- sort of.
Mexico has two middle classes. One lives off the oil pumped and
exported by the state oil company Pemex, which funds 40 percent of
the government's budget. That budget sustains a web of salaries and
subsidies to teachers' unions, national electricity company workers,
farmers unions, state employees and Pemex workers.

I call this group the No's because they are the primary force
opposing any reform that would involve privatizing state-owned
companies, like Pemex, opening the oil or electricity sectors to
foreign investors or domestic competition, or bringing best-practices
and accountability to Mexican schools, where union control has kept
Mexico's public education among the worst in the world.

Fortunately, though, there is another rising middle class here, which
the Mexican economist Luis de la Calle describes as the "meritocratic
middle class." It's people who came from the countryside to work in
new industries spawned by Nafta. This rising middle class has a
powerful aspiration to dig out of poverty. Mexico has standardized
school achievement tests, so you can see how well schools in one
neighborhood stack up against another. Some of the best results, said
de la Calle, can now be found in small private schools in poor Mexico
City neighborhoods where the Naftas reside.

What is also striking, he added, are the names of the private schools
in some of these poor Mexico City districts -- like Iztapalapa: "They
are called John F. Kennedy, Abraham Lincoln, Isaac Newton, Winston
Churchill, Carlos Marx, Van Gogh and Instituto Wisdom." Why such
names? They are appealing to the aspirations of Mexicans, about 40
percent of whom live below the poverty line but 75 percent of whom
identify themselves as "middle class" in polls.

De la Calle also studied the top 50 Mexican baby names in 2008. The
most popular for girls, he said, included "Elizabeth, Evelyn,
Abigail, Karen, Marilyn and Jaqueline, and for boys Alexander,
Jonathan, Kevin, Christian and Bryan." Not only Juans. "We have two
middle classes," he said. "One comes from teachers' unions and Pemex
and power companies, who milk the Mexican government. These are the
middle-class conservatives, and they want to preserve the status quo.
But there is a rising and far larger Mexican middle class coming up
from the bottom who send their kids to the Instituto Wisdom and who
have a meritocratic view of the world."

So here's my prediction: When Mexico's steadily falling oil
production meets its rising meritocratic middle class, you will see
real political/economic reform here. That is when the No's will no
longer have the resources to maintain the status quo, and that is
when the Naftas from the Instituto Wisdom will demand the reforms
that will enable them to realize their full potential.