Last Saturday I had the very unusual opportunity of having lunch with Warren Buffet and his wife Astrid, and Bill Gates and his wife Melinda. While my wife and I were eating with them, I remembered they are no longer the richest men in the world. In March this year, Forbes magazine –which every year makes a list of the world’s biggest fortunes– placed Carlos Slim as the second richest man on Earth. Slim has displaced the American Warren Buffet from a position he had occupied for seven years. Now, according to Business Week magazine, the fortune of the telecommunications tycoon has already reached 67.8 billion dollars, above Microsoft founder’s 59 billions. Carlos Slim’s fortune has surpassed Bill Gates’ and has put him in the place Gates had maintained for a long time: the one of the world’s richest man. Forbes magazine will publish its updated ranking in September. I’m  interested in this story because I think that, although Mexicans may feel proud of having the person who has made the world’s biggest fortune working from Mexico, Slim’s story can be considered a proof of two Mexican disgraces: the awful distribution of wealth and Carlos Slim’s ability to reach a monopoly level with Telmex, which is hurting Mexican consumers. 

Carlos Slim Helú Aglamaz entered into the business world at the age of eight, when his father asked him to help him with Orient Star –the family store named like that in honor of their Middle West roots. After graduating in civil engineering, he inherited some important real estate from his parents, and then challenged the conventional opinion to enter into a frenzy of acquisitions. This race, which up to now has never stopped, began in 1965 with the bottling plant Jarritos del Sur, but the takeoff would be in the late 70’s. His assets became part of Grupo Galas S.A., renamed later as Grupo Carso, which works in such different activities as department stores, restaurants, real estate, hospitality, construction materials, mining, chemicals, tobacco, metallurgy, spare parts and railroads. Later inversions would give rise to the creation of two new holding companies: The Inbursa Financial Group, dedicated to Stock Exchange transactions, banking, insurances and pension funds administration, and Carso Global Telecom, which is made up of companies related to telecommunications and Internet.

During the 80’s, more than thirty companies joined the group, including renowned names such as Industrias Nacobre, Hoteles Calinda, Grupo Condumex, and Inmuebles Cantabria. During this period, one of Slim’s most successful transaction was the acquisition of the majority block of shares of the tobacco company Cigatam –the manufacturer of Marlboro in Mexico–, of which he sold 50% to Philip Morris in exchange of a stake and a place on the Board of Directors of that American company. The perfect finale was the purchase of the Sanborns chain, which included restaurants, gift shops, personal care shops, music stores and bookstores, which in the 90’s would be joined by the Department Stores Sears and the country’s three biggest music-store chains.

But his name surpassed the business environment in 1990, when he won the bid for the privatization of the state monopoly Teléfonos de México (TELMEX), in partnership with France Telecom and Bell Canada. Carlos Slim bought Telmex during the privatizations carried out by the then President, Carlos Salinas de Gortari. The sale was done through a “public” auction, and although several foreign groups had offered higher amounts, the Grupo Carso –the major shareholder of which is Carlos Slim– won the bid, since one of the determining requirements was that the majority ownership would remain in Mexican hands. And from then on, it controls the telecommunications monopoly in Mexico. The company is now the biggest in the country, controls 90% of the land lines, and has now a market capitalization of more than $20 billion.

Moreover, the companies Slim currently owns cover several areas. In 1997, Slim bought shares of Apple Computer Inc., just before the launch of the iMac, thus multiplying his fortune. He also acquired Prodigy (an American Internet Service Provider), turned it into a powerful provider of different Internet services, and then was able to forge an alliance with MSN by launching a Spanish portal with Microsoft’s support. Furthermore, he is the President of Comertel Argos, Red Uno, Uninet, Sanborns, Teleco, América Móvil, SEARS, Telcel, Codetel, Bachoco, Cigatam, IMTSA – Impulsora Mexicana de Telecomunicaciones, Dorian’s, Inbursa, Altria Group, and has SAKS FIFTH AVENUE franchise in Mexico. And he is also a shareholder in Herbalife, Televisa, Compusa, Soulkeeper-company, Volaris, Ix-informática, Mixup and Coca Cola. To have an idea of what this means, you just have to read “A day without Slim”..

It is surprising that even though Mexico is getting too small for him and his growth must continue outside the borders, one of the characteristics of Slim’s fortune and history is that he made his fortune from the inside. Twenty years ago, when the Mexican economy was going through a turbulent period that led many businessmen to abandon the ship and search for salvation in foreign currency, Slim decided to commit to Mexico. He took advantage of the asset stripping and in a few years he had fully surpassed the wealth of the most opulent Mexican businessmen, from whom he had bought their sometimes-moribund companies at considerably low prices. Thanks to his ability to revive them and the power attained by him, he is known as King Midas (the one that turned everything he touched into gold) or as Aztec emperor. Another characteristic of Slim is that he stands out in the tycoon world because no other multimillionaire on Earth has been able to accumulate so much money in such a short time: in 2003 he had a fortune of 7.4 million dollars, but on the 2006 list he appeared with 30 billion dollars, which implied climbing from the 35^th position to the 3^rd on the list of the richest people in just three years.

What bothers me about this story is precisely the combination of these two characteristics: the great monopoly power attained so quickly and the fact that he did it in a country like Mexico where there is so much poverty. Two years ago I traveled around the Mexican Pacific

Coast, and the poverty I saw was devastating: barefoot children, adobe houses…something you don’t see in countries like Uruguay, for example. It’s not that I think Mexico does not offer good business opportunities or because I don’t believe in the abilities of the Mexican people or in Slim himself, my problem with Slim’s fortune is that it was all made in Mexico, a country where the average citizen lives much worse than in Argentina. It’s true that Slim replaced Gates, and he was also accused of monopolizing the market. But the difference lies in that Gates’ fortune has been made on a world scale and the US laws continuously control his business decisions. By contrast, Slim’s fortune was built in a country in which 62% of the companies admit they set aside some of their income to pay bribes to government employees in order to obtain some benefit, and 30% of all public resources allocated to Government contracts are set aside for corruption. Furthermore, his fortune increased with the purchase of a state-owned company.During the 90’s, there were many privatizations of State monopolies in Latin America, especially those with regard to electricity, petroleum, telecommunications and transport. The aim was to promote these companies’ productivity and efficiency, and to make them work for the “protection” of the citizens, and not to depend on Government subsidies and promote corruption and the distribution of privileges. But in some cases, the only thing achieved was the transfer of public monopolies to private hands, often with the subsequent sale of public assets to the highest bidder and to the friends of the Presidential Palace.

Particularly in Mexico, the analysts and many citizens were against Slim’s purchase of TELMEX, taking into account that he would obtain the company for an exceptionally low price (1.76 billion dollars). Even Business Week placed Slim among the plutocracy protected by the government of the then President Carlos Salinas de Gortari, who was accused of putting a real “gold mine” in the tycoon’s hands. The American companies AT&T and WorldCom also made a formal complaint against him before the World Trade Organization (WTO), accusing him of monopoly practices. Slim answers these criticisms saying that the growth of TELMEX is due to the inversion done as well as to his marketing strategy. He also says that international criticism is due to the fact that the international organizations push for developed countries’ companies to control the markets, and in many cases they manipulate the information they provide. He states that nowadays it’s hard to think that in certain countries there are more than three competitors and the important thing is not only the number of competitor but also the prices and services offered to the public.

The fact is that the Slim’s holdings monopolize 40% of the Mexican Stock Exchange and his incomes are worth 25% of the national budget. And, consequently, it is hardly likely that a government (of whatever kind) can avoid such a share of power. So I think that beyond the pride some Mexicans might feel for Slim’s worldwide success, his history embodies the eternal problem of the developing countries: weak institutions that restrict transparent growth. When there is corruption and the government institutions (elections, judicial power, bureaucracies, etc.) don’t work in a completely efficient and transparent manner, two things happen: many companies cannot prosper and they drown in a jumble of papers, inefficiency and bribes; and many (not all) of those that do prosper use unethical mechanisms to achieve success. But what happens in all the cases is that there is always a doubt about people’s honesty, because when governments are weak, temptation is too strong and hard to resist. If someone succeeds, was it because of him or because he received help?

This is also more noticeable in those situations such as privatizations. The neoliberal reforms introduced in Latin America didn’t have the expected results in terms of economic growth and social equality. On the contrary, poverty grew considerably, at the same time that investments decreased. Besides, terrible mistakes were made regarding policy design, and there were shocking incidents of corruption. Thus, it’s in this sense that the Aztec emperor’s fortune can be seen as a disgrace for Mexican people. Regardless of what Carlos Slim did or didn’t do –whether or not he used political and monopoly mechanisms– he represents the eternal cloud above Latin American governments, companies and future: the fact that one can become very rich through corruption and can be very poor despite working honestly.

What could Carlos Slim do to make all the critics of his career change their minds about his supposed bribe race to acquire an enormous economical power in Mexico –a country in which the average citizen is 40% poorer than the average Argentine? In my opinion, he could do what his successors on the list did and donate 1/3 of his fortune to improve the average Mexican’s life. I’ve been with Carlos Slim twice in my life, and I don’t think it’s impossible that he might do something like that.