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Economic reform arrived at Mexico's electrical utility on Saturday night wearing black body armor, crash helmets and ski masks. Flabbergasted workers arriving for early morning shifts on Sunday found thousands of Federal police deployed to enforce a government decree shutting down the company. A special edition of the government gazette decreed that because of inefficiency and unacceptable losses, the state-run utility that provides power to 25 million people in the heart of Mexico had ceased to exist. Its 44,000 employees were immediately terminated, depriving the nation's oldest industrial trade union of its entire membership. The plants were kept running by federal electricity workers bused in to take over.

The dramatic move against Mexico's Light and Power monopoly divided public opinion in a nation gripped by a crippling recession. Supporters hailed the move as the pro-business President Felipe Calderón's boldest and most effective step toward modernizing the economy — and exorcising the remaining ghosts of the 71-year political monopoly of the Institutional Revolutionary Party (PRI) that ended in 2000. The company and its union, they argue, were self-serving, inefficient cartels holding Mexico back. It employed too many at inflated wages, they argue, and provided a terrible service characterized by daily blackouts and power surges. "The electricity workers are not victims. They have been looting Mexico for years," said pundit and onetime PRI loyalist Abraham Zabludovsky on his daily radio show. "This could be the great action that Calderón is remembered for."

Critics, however, were quick to lambast the move as a brutal attack on worker's rights. They charge that Calderón targeted the electricity union for backing his political adversaries and protesting against his free-market policies, and accuse him of seeking only unions that are weak and loyal to the government. The deployment of thousands of riot police to inform his writ underscored such criticism. "The police and military assault on the electricity workers is a serious setback in the precarious democratic life of our country," wrote columnist Luis Hernández Navarro in the daily La Jornada. "It establishes a nefarious precedent, taking us back to the darkest eras of authoritarianism."

Founded in 1914, the Electricity Workers' Union had kept some families on its membership lists through six generations. It had fervently backed the nationalization of electricity grids, and assumed a central role in the state-run Light and Power company when it was formed in 1960. The union had loyally backed the PRI, but as the country moved toward multiparty democracy, the electricity union veered left, supporting the Democratic Revolution Party (PRD), which claims to defend Mexico's workers' rights. PRD lawmakers denounced Calderón's move as unconstitutional, and demanded that it be reversed by Congress. (Calderón and the majority of lawmakers insist the move was legal.) "In this recession, the 'President of jobs' is sending 44,000 employees to the street and leaving their families destitute. What type of policy is this?" PRD head Jesus Ortega told TIME. "We will fight this with all our might."

Calderón moved in during a leadership crisis in the union, his government claiming that the election of firebrand labor boss Martin Esparza had been fraudulent. But the focus of the decree closing down the utility company makes little mention of the union, focusing instead on the losses incurred by the company. Between 2003 and 2008, Light and Power had spent about $32 billion — mainly on salaries and pensions — and only collected half that amount in revenues. The nation could not afford such inefficiency amid an economic crisis, Calderón said.

For now, Mexico City's power grid will be run by the Federal Electricity Commission, which generates energy through most of the country. The commission's union is considered to be a loyal backer of the government. Calderón says that a new state company may be formed but that privatization is not an option at this moment.

The political consequences of Calderón's boldest economic-reform move are yet to be revealed. Foreign investors cheered the decision. "This a very good signal," said Gabriel Casillas, head Mexico economist for JPMorgan Chase, in comments representative of the enthusiasm of foreign investors. "It indicates that Calderón could carry out other structural changes to modernize Mexico." Many electricity customers are also looking forward to changes after years of complaining of high bills and poor service. But Esparza has called on fellow unions to take to the streets to fight the measure, and the outcome of the battle of wills between the government and organized labor could yet define the President's tenure.

• Ioan Grillo and Dolly Mascarenas / Mexico City
• Supporters hail conservative President Felipe Calderon's dismantling of an electricity utility as his finest hour, but critics say he's trampling workers' rights