New judges: contracts, bankruptcies and competition

One of the necessary conditions for an economy to efficiently allocate productive resources, as well as for private investment projects in fixed assets (plant and equipment) to materialize and for productive capacity to expand, resulting in economic growth, is to have an independent, impartial, capable, efficient, and expeditious judiciary that guarantees individual rights, including private property rights, against acts of third parties that violate them, including acts of government. The judiciary also has the role of ensuring compliance with contracts and assigning guarantees in the event of breach by one of the parties involved.

When there is a judiciary that complies with the above, companies will enter into contracts with both suppliers and customers that allow them to operate efficiently and maximize returns on invested capital, with the certainty that if one of the counterparties breaches the contract, they will be able to go before a judge who will compel the violator to comply or, where appropriate, assign the guarantees established in the contract. Conversely, if there is no independent, impartial, and capable judiciary, companies will enter into contracts only with counterparties considered "morally responsible," even if they are not the best suppliers or customers, resulting in a socially inefficient allocation of resources.

The above is relevant in light of the aberrant judicial reform that resulted in a senseless and illegitimate exercise of electing federal and state judges in 19 federal entities so far. Anyone with a law degree can be elected by popular vote, regardless of whether or not they have the knowledge and merits to be a judge. All of them were elected without the voters even knowing who they were and what their merits and specialties were (if they had any).

Article 104 of the Constitution, Section II, establishes that it is the function of the Federal courts to hear "All civil or commercial disputes arising from the enforcement and application of federal laws or international treaties entered into by the Mexican State. At the discretion of the plaintiff and when only private interests are affected, ordinary courts and tribunals may hear such disputes."

We know that judicial reform has lost the independence of the judiciary, and the question remains as to whether elected judges, both federal and state judges, will be impartial, honest, and capable. In terms of ensuring compliance with contracts between private companies, as well as between private companies and the government, will they have the knowledge of the General Law of Commercial Companies, the Commercial Code, the Law of Credit Institutions, the General Law of Negotiable Instruments and Transactions, and the General Law of Alternative Dispute Resolution Mechanisms? If they lack this knowledge, they will not be able to offer judicial guarantees for the protection of private property rights and the enforcement of contracts. The result will be an inefficient allocation of resources and a lower GDP.

Two other relevant issues, given the popular election of federal judges, are: first, the issue of corporate bankruptcies, particularly their in-depth knowledge of the Bankruptcy Law. How will they handle bankruptcy proceedings for liability restructuring or final bankruptcy proceedings? Will they be able to appoint an efficient and impartial liquidator of the assets, and will they understand the order of priority for the payment of debts incurred, including labor and financial debts?

The second concerns federal antitrust judges, whose primary function is to punish monopolistic practices that harm consumers. To achieve this, a thorough understanding of the Federal Antitrust Law, as well as the Telecommunications and Broadcasting Law, is not enough; it also requires the necessary knowledge of economic theory regarding market structures (monopoly, duopoly, oligopoly, monopsony, price leadership, cartels, and competition), as well as understanding when a monopolistic practice is absolute or relative. They must also have knowledge of the different mechanisms for regulating monopolistic practices, such as setting maximum prices based on marginal or incremental costs. Furthermore, it cannot be overstated that judges must be truly independent and impartial, and not subordinate to political powers that might grant preferential treatment to a particular company to the detriment of its competitors and consumers. Nor must they be subordinate to the economic power of a company and allow it to engage in monopolistic practices.

I would like to be optimistic that the elected judges will comply with what is established here. However, it is difficult to be so when what we witnessed was the nomination and subsequent election of individuals completely unknown to the voters. But what we can be sure of is that if the new judges do not fully perform their duties, the main losers will be all Mexicans, who will experience lower growth, a lower GDP in the future, and a lower level of well-being.