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Thursday, October 11, 2007

IT'S NOT JUST CHINA -- MANY LATIN AMERICAN COUNRIES NOW CHALLENGED BY VIETNAM, CAMBODIA

Now that Costa Rica has voted to ratify a much-needed free-trade agreement with the United States, the big question for Central American countries -- and much of the rest of Latin America -- is whether that will be enough for them to effectively compete with Asia. I'm afraid it won't. Read here why, and let us know what you think.

11 Comments:

Anonymous Anonymous said...

from: Paul Thørsen
PThorsen240@aol.com

åndêrš, I nominate you for Presidente of Latin America. Thanks to your German ancestry, you have the motivation and effort to plan ahead for Latin America. You have ideas. The other 99.9% of Latin Americans think it's "USA/Anglo intervention" in their countries that has held them back. That if there had been no Anglos that settled the New World, that Latin American countries would have blown away the world, racing each other to send men to the moon by 1587. Inventing cold fusion by 1592. Developing unlimited, clean energy for the world by 1612.

10:42 PM  
Anonymous Anonymous said...

I wish the racist ethno-centric Hispanic bashers would get a different hobby than attacking Hispanics.
The story that is the topic about world trade and competitiveness, as shown by Nicaragua's leftist government failing to compete with Asia, is a tough-lough story about keeping realistic development policies that don't simply rely on leftist policies and pay races and bank on trade being a panacea.
Basically, Latin American governments as well as Asian governments have to compete with the rest of the world. Leftist governments like Ortega's Nicaragua and Chavez' Venezuela are headed towards growing problems. Centrist Governments such as Bachelet's Chile and Calderon's Mexico are doing just fine in their competitive drives.

12:53 AM  
Anonymous Anonymous said...

Brazil is doing better than Mexico; Argentina, in numbers, better than Chile (but their situations are different and Argentina is somehow recovering, not really improving). I mention that to get a 'more centred' point of view. And, I believe Brazil’s favourite market is Africa.

However, you should pay more attention to economics books than to newspapers. The economic strength of a country comes from its internal market, and it develops by creating jobs (F.D. Roosevelt -former US President- is a better reference than me to explain how it works). Only Chile has a decent internal market.

Selling to the US, or to any other country, is attractive if it allows creating jobs. Otherwise it has no sense, even if it increases the PIB of a country because it enhances inequalities (unless government intervenes via taxes to compensate… which will bring groups of powers to invest in destabilizing that government).

Instead of competing with Asians for a market that is devaluating so fast, the same effort can be dedicated to supply:

- Cheap money (and available to all). No LA country, except (maybe) Chile, is a good example... However the South American bank has been recently created (seven countries involved... let's hope it doesn’t become a new bureaucratic expense). Colombian politics are not clear yet because they pretend to do so but they lack the financial infrastructure to reach most of the population.

- Cheap (and available to all) energy and commodities. Again, no LA country is a good example. (Colombia and Brazil have been trying some things but I am not convinced yet). Chile is still hesitating (problems with its neighbourhood).

- Security (personal and legal) and stability. Chile would be the best example. However, the efforts made in Colombia (considering initial conditions) deserve recognition. Venezuela is the bad example (really bad… let’s hope it doesn’t get worst). Paraguay, Peru and Ecuador are not good examples at all.

- Point research education (because it creates previously inexistent job sectors). Brazil and Colombia are the best examples of the region. Chile is somehow a deception because it has all that is needed to kick asses, but the government seems too focused on developing the country as a financial centre. Argentina is the worst example by far because its (high) educational level should make point research a national strategy for development; in contrast, its historical educational superiority is reducing.

- Strong and equal market opportunities. Chile is the best example; Uruguay is not a bad example. Colombia, Brazil, Bolivia, Peru, Paraguay, Ecuador and Venezuela are bad examples; moreover, their governments seem not to care about it (some slight, mostly demagogic efforts, have been made in Colombia, Peru and Ecuador).

If you pay attention to what I have written, you will realize that I am suggesting we (Latin Americans) start doing what made countries like Japan, Sweden, (post-war) France, Germany, or the US, big countries. Moreover, except for extremists, no political side will oppose. We are not talking about doing business with the US: to be or not to be; we are talking about development as it has to be.

As you have shown in many articles, economic ‘integration’ between Latin America and the US is ‘too great’. US are the biggest economic partner for many Latin American countries; independence has been compromised. The politics for doing so is based on giving privileges to the higher classes and increasing their economic and political power in their countries. Look at the list of people getting scholarships to US universities (more than four decades of data). Look at the list of people and companies getting benefits from commerce treaties; any product allowed to enter with privileges the US market from Latin America comes from sectors that require high investments (Only already rich people can profit from the ‘opportunities’). At the same time, low investment products (mostly traditional agricultural products and easy processing products like chocolate, ham or cheese) area banned with criminal taxes while signing commerce treaties with the US.

If you can remember that in Latin America stock markets are precarious or inexistent and most companies remain family owned, you will have no problems to understand why (pseudo) free commerce agreements make rich people richer and poor people poorer. In a nutshell, it annihilates middle class, and thus enhances emigration.

Moreover, these agreements are possible because they create monopolies. Local owners sell their enterprises to big multinationals in exchage of some participation in the monopoly profits. Once the market belongs to few companies the rules of free trade disappear; nobody is competing, nothing improves. It is everyday news: fusions, fusions and fusions. "The liberty of democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than that of the state itself. That, in essence, is fascism – ownership of government by an individual, by a group, or any controlling private power."

At the same time globalisation of business allows smart accountancies. Lending money in the US (or Europe) is cheap (as low as 4 %, never more than 15 %); in contrast borrowing money in Latin America is expensive (never less than 16 %, as high as 70 %). The gap is hidden by intermediary financial consortiums (call them Citibank, AMRO, Lloyds, Iberswiss,…) in fiscal paradises like Switzerland or Luxembourg (there are many in Asia and the Caribbean too). If international commerce were transparent, US (or European) citizens (where the money really comes from) would be receiving huge benefits from their investments in Latin America. Despite of the risks (which are many but still less than in the US stock market), US citizens will be tempted by the potential earnings to invest in Latin America. Furthermore, if Latin Americans could get micro-credits (500 -10 000 usd) at 10-15 %, they will establish their own business: emigration almost reduced to 0. (Don’t you remember the Nobel Prize in economics, do you?) Investment dedicated to provide lacking services and goods in Latin America will hardly harm US economy because it will profit from the local markets potential: no US workers replacement. Businesses are business when both sides benefit, the rest is fraud.

Finally, you know, as I have never been in an English speaking country, I have an excuse for the inexact use of words. I am not a writer or journalist either. But even somebody like me can make a clear difference between intervention and integration. Travelling from the US to Latin America is cheap but I haven’t seen too many US citizens lately, except for a few looking for low-cost cocaine. What about promoting US professional to come and see? Colombia remains unsafe for US citizens, not the rest of the continent (not even Venezuela). I am talking about middle class, common US citizens; smarts enough to realize that if they really want to know Latin American countries they must be capable of communicating in Spanish. Doesn’t matter what they do for living, if they have some know-how, Latin America is a land of opportunities; we are lacking the most basic know-how (i.e. In Ecuador, the first fine cocoa producer worldwide, chocolate is harder to find and more expensive than in the US). Technicians are the most wanted, doesn’t matter their field (from medicine to agriculture or tv production); they could make good money (Although I rather advice taking some time and looking for trustable local partners; the synergy can enhance profits for both sides). Nonetheless, that would only be economical integration. What about cultural integration? I do not believe HBO, Desperate Housewives, or Sex ‘n the city, give an accurate spectrum of US culture. Mexicans are not the core of Latin America either; moreover, Mexico is not located in South America. (It goes the same for Cubans and Puerto Ricans.) To achieve true integration we need to interact as people, not as firms. I would be happy to learn from US citizens’ history, culture and values; I am sure they will find some interesting things in South America too. If everything goes fine we will all learn to make jokes about each other origin/nationality without implying offences (just to have fun).

1:11 PM  
Blogger Juan said...

I am by no means a defender of the leftist movements currently sweeping the continent, but the fact is that they are a result of the failed policies of the past. What is a country like Nicaragua supposed to do? How is it supposed to simultaneously avoid exploitation, and yet maintain some sort of comparative advantage against countries like China or Vietnam?

9:04 PM  
Anonymous Anonymous said...

As a commenter making suggestions on the third comment criticizing trade :

In Mexico incomes are higher han in Brazil, and Mexico has just passed a reform to improve efficiency of tax collection from businesses (currently much lower than Brazil and still set to remain noticably lower) to invest in roads, infrastrucuture, and social spending.
Mexico is doing better.
I personally do "pay attention" to economics textbooks and majored in economics and government at a good school.
A country's economic "strength" is not solely derived from its "internal market," rather a country's economy grows with good policies, investments from within and abroad, trade with the outside world (see China's high volume of trade and investments in infrastructure as well as India's investment in Information Technology and IT services provided to foreign companies: both countries are reducing poverty and increasing wealth by trade, investment, etc).
Argentina is being dragged down by Venezuela.
Mexico, Chile, and Columbia are standing by trade and investment.
Brazil is somewhere in the middle just enjoying its own recuperation from contagion with Argentina's crisis and moderate policies with few economic reforms.

Mainly, the earlier comment repeats some common misconceptions that are important to replace with improved logic and facts.
The debate in Latin America has yet to embrace some truths as shown by the third comment.

1) Trade with the US and other countries is a natural source of growth and investment.
If trade and investment were bad for the middle classes, how would one explain the growth of a more robust middle class in Mexico during its last 10 years+ and in China during the last 30 as they opened up to foreign trade and investment?
Trade and investment does mean competition that makes companies improve or do something else entirely, but in the long run after some specific people make a painful switch, the entire contry has better quality, more goods, more buying power, and more wealth, including the many people who did not participate for better or worse in trade outside their country or into their country directly. Wealthier people make each other wealthier as they give small businesses more business and demand more goods.

2)
Interest rates are not set blindly by robber-barron banks, they are a reflection of the number of dollars willing to lend or invest in a country given the country's risk profile and the desirability of investing their as well as the potential benefits and how many dollars and investors it attracts.

If interest rates are higher in Venezuela and Ecuador than they are in Chile, Mexico, and Columbia, consider it may be that it takes more to find and attract investors into those countries given that Chavez has basically taken investor's property in Venezuela's energy sector and Correa is nonchalant about paying back investor bonds if they are able to pay them back. Why would investors want to take the risk of putting more money in there is the price isn't higher but they have greater risk of losing most of the original money they put in rather than making gains on their money?

Why are interest rates even lower in the US and most of Europe and Asia?
Could it be that countries with lower interest rates are those who have had less changes in government and have paid back their debts and made investors feels welcome and safe in countries that are attractive places to invest in due to their policies?
The investment of wealth and know-how into a country brings the country jobs and income for people to spend in their local economies.
However, I know few people how would put their money in Venezuela if they faced the same returns but higher risks than in, say, Mexico.

After Venezuela took over energy company assets, Mexico's Calderon noted that his country was a safer alternative for investors to put their money that they were taking back out of Venezuela from fear of the same happening to them, and that quarter of the year Mexico's investments increase noticably.

Brazil and Mexico have a long way to go to be great investments like Hong Kong or Spain or Ireland, but they are far ahead of Venezuela.
Where will Venezuela and Mexico each be when oil prices drop?
It seems Venezuela will be in crisis losing people money, whereas Mexico will only be slowed and there will still be much money to be made there.

7:31 PM  
Anonymous Anonymous said...

Oh, one more point, a country also grows through investing in technology, implementing technology, teaching technology, investing in education and science and technology, saving & investing... etc.

Technology has been huge in reducing poverty in India, Ireland, and has in the past been one of Costa Rica's strengths.

It noticably made the US even richer over the last 15 years.

Add that to good policies, trade and investment friendly policies, savings, investments, etc.

7:35 PM  
Anonymous Anonymous said...

I am not criticizing trade. Trade is fundamental for the development of any society. And, if somebody is so cynical to theorise the other way, communism failure is the pragmatic example. I am criticising hypocrisy. I will repeat, so there will be no more confusion:

I AM NOT CRITICISING TRADE, I AM CRITICISING THE HIPOCRESY BEHIND THE TLC SPONSORED BY REPUBLICANS.

Now, let’s talk about your truths:

1) China did not sign a free trade agreement with the US. The Chinese government created an especial region (in the South) where private property was respected. Many investors came because China provided security to their investments and Chinese work was extremely cheap. It was only more than twenty years later that Chinese government asked to enter the WTO, mostly to be allowed to negotiate (to sell) worldwide. Even today Chinese trade barriers are strong. I believe no Latin American country will be so stupid to deny an opportunity like that. However, average Latin American per capita is higher than 3000 usd/year while today’s Chinese per capita is around 2000 usd/year. Many poor Asian countries remain more attractive to investors because of ‘uncommon’ labour conditions; I will use Sakosy’s expression: “social dumping”.

About Mexico’s robust growing middle class, I think you are kidding. By the way, could you look at hard numbers and tell me if you are not confusing growth and recovery from the Tequila’s crisis?

Because of the inmobiliary crisis, vulnerable US dependent economies (Central America) growth has been compromised. In contrast, predictions for the rest of Latin American are not bad because increasing demand of commodities. “Trade with the US and other countries is a natural source of growth and investment.”… Please, we are no kids; do not be so black and white. Countries can benefit or not from trade with US and other countries. Otherwise, the US, the EC, or Japan (just to mention the three big players) would not be full of protectionist rules. (Don’t you remember the last fight between the EC and the US because of iron?)

Signing a free trade agreement can bring benefits (there are plenty of examples). However, conditions have to be considered. US market is always volatile but it remains solid because it has plenty of sectors. It is not the same situation for small Latin American countries; to be attached to US economy can be too risky. Moreover, with the dollar devaluation trend, sacrificing internal policies to be allowed to enter the US market is extremely dangerous.

2) Money is cheap in the US for many reasons. You mention some, do not forget US Federal Reserve policies; its independence from the government, its concentration of geniuses (amount of people, diplomas they have, and even IQ averages) and its long experience have played an important role. A couple of years I read a European paper that also pointed to the business transparency inside the US (when compared to Europe or Asia).

Do not change my words. I never said money should be cheaper in Latin America than in the US. I will repeat, so there will be no more confusion:

I AM NOT SAYING MONEY COST HAS TO BE CHEAPER THAN IN THE US. I AM SAYING THERE IS A HUGE GAP BETWEEN WHAT USA AND EUROPEAN CITIZENS GET FOR THEIR SAVINGS. AND, THAT GAP DOES NOT REFLECT THE RISKS ONLY, IT ALSO HIDES A FRAUD.

I am saying there are a lot of investment opportunities for European and US citizens if they could know Latin America reality and potentials. Real estate, tourism, medicine, and agro-industry are good examples. Average return in these sectors (none of which is risky) is superior to 28 % but outside investors do not know. Country risk indexes do only reflect the government commitment to pay debts. Private sector is something different (By the way, oil is public sector). In fact, negotiating with a government is always risky because you are negotiating with the one that makes the laws. Negotiating with big enterprises can also be risky because most of the time they own the government.


Chavez and Venezuela’s details I don’t know (By the way, you are prone to mix Presidents, phosphorous in the diet is good for memory). Let’s talk about what is going on in Ecuador. Ecuador signed an investment protection agreement with the US; in short it says US investments can never loose money, otherwise they can break contracts unilaterally or change them. For that a referential price is fixed (24 usd/barrel). The remaining (40 usd if the barrel price is at 64) is called ‘extraordinary income’. Former President Palacios created a law that divided extraordinary income: 50 % to the foreigner company, 50 % to the government. Before that law (couple of years ago) the companies were keeping 100 % of extraordinary income and referential price was 14 usd. Now Correa changed the law and 100 % of extraordinary income goes to the government. Although companies will earn less, they do not leave the country because of the US investments protection agreement, with the 24 usd referential price, that ensures profits (If oil price was 13 usd or lower, Ecuadorian government would have to pay to the companies that invested in Ecuador because by agreement they can never loose money). Ecuador accepted these conditions because there were no national technicians to exploit oil (Being unable to exploit it was like not having it, or worst). Actually, Ecuadorian government wants to change the contracts to services contracts (paying for the technological service) because Venezuela and some OPEP members have the technology that is needed for exploitation. In short, this technological know-how is not anymore a blackmailing tool like at the beginning of the 80s. (Other conditions like known reserves and the never descending price of oil have also reduced the supposed financial cost for exploitation). Companies are thinking about it because, although earning less, they will always get profits. If they accept (By the way, they have not been forced), Ecuadorian government will have to pay for their investment (so they don’t loose money).

As I said, I do not know Venezuela’s situation. However, I will appreciate somebody explains me why US investments in oil in Venezuela remain growing. (And, although Mexican’s oil company can attract investors, it is also one of the economists’ favourite examples of bad government management… Mr. Andres Oppenheimer had a very beautiful interview about the topic; I remember they compared Mexican’s oil company to Disneyland)

I did not say Mexico can not be a good investment place. If you follow what I’ve said, US (and European) citizens are invited to invest in countries like Mexico. It is far more secure and lucrative than letting their money sleep in a bank or playing lottery in the stock market. Remember: private sector, private partners… not in public sector or big companies (in developing countries they can cheat on you, governments are compromised)

Making comparisons is not healthy because it touches sensitivities. However I have to say Brazil is:
Developing alternative energy technologies
Doing medical research (Instituto Pasteur)
Developing biotechnology
Selling planes from its aeronautics investments
Planning to launch satellites
Building small nuclear submarines
Planning the ‘everybody’s computer’

Mexico’s growth is too much of an inflation bubble and one rich man making money from latinos in USA.

I will repeat, so there will be no more confusion:

I DID NOT SAY MEXICO CANNOT BE A GOOD INVESTMENT PLACE.

About your last comment, that is what I meant by point research education. India is an excellent example in many topics, not only in technology. Ireland is also a case that deserves close study. I cannot agree about Spain after what I read (almost 60% are “mileuristas”).

Finally, as we are deviating from the main topic:

"IT'S NOT JUST CHINA -- MANY LATIN AMERICAN COUNRIES NOW CHALLENGED BY VIETNAM, CAMBODIA"

We are not talking about doing business with the US: to be or not to be; we are talking about development as it has to be.

6:53 AM  
Anonymous Anonymous said...

I will give the third and seventh comment credit where credit is due (as banks do to the numerous third-world Asian and Latin American countries):

1) a good point was made about micro-credits, offering small scale loans to poor people in poor country (especially to women as noted by the Nobel-prize research) does help reduce poverty. Women tend to use that business loan in a way that does make them higher income, pays back the loan, and leaves extra money to help their families. Kiva.org is one website where people can participate with micro-credit loans.

2)
The details on Ecuador's specific policies were interesting, and in a way the possibility of working with Venezuela's oil-money do create a new "competition" for western democracies that want to help their friends and isolate their enemies and isolate their enemies (at the same time, some investors in these countries will continue to just choose asian countries instead for their business climates with no chavez nearby to threaten their investments)

3) state-owned oil companies are indeed more inefficient than private ones (although nobody said differently), and their is much room for emprovement there.

4) inflation and independent central banks have indeed not been covered sufficiently ... another blog perhaps...

5) China did indeed have a preferred region for investments along the coast, and has since joined the WTO. The point remains that they have been growing tremendously since joining the WTO. Specific trade agreements are yet another story with their own sets of benefits, costs, and opposition, but a net good to the people of the countries over the long run (despite short-term pain and change).


However, many of the same major disagreements remain, which still reflect a lack of rigour and responsibility in the economic discussions of the region:

Latin America cannot blame a major part of interest rate spreads on competiting banks, as banks and investors do compete with each other over the best risk-reward ratios throughout the entire world. That is why loans to third world countries such as the various countries in latin america and in asia are all different (that's a lot of countries with very different interest rates that change with a country's policies and experiences).
One major example of risks in currency risks that exist anytime you invest in a foreign country due to use of their currency. Argentina and Brazil had the most recent problems in 2000-2003 with the Argentina crisis and contagion. There is no longer a peso-dollar tie there, and people lost a lot of value in their peso-denominated investments and loans.

-Venezuela is one of the very few countries in the world which lost net investment dollars the months that Chavez was taking over energy companies. The money coming in did not keep up with the money coming out.

-Trade disputes occurr in the US, Europe, and Japan for the same reasons of many countries, some powerful companies prefer being protected from competition than letting citizens and other countries benefit from lower prices. Steel companies don't want cheap steel coming in, they would rather the governments force the people to pay more.

Brazil has not actually done a lot of the things you mentioned, it has announced it plans to do them. Mexico also does extensive medical research. Brazil's size and room for further improvements and growth from previously sky-high interest rates needed to reduce its higher inflation were some things that made it a more tempting place to invest. However, the momentum is noot keeping up with Mexico, where reforms are actually taking place, countries continue to expand their productions in Mexico, and the gap between Brazil's previously advantageous road network is being shrunk by the new reformed Mexican tax policy and infrastructure projects. Mexico is starting to steal more thunder with its reforms and energy reforms still remain a possibility. Mexico has over the last several years had LOWER inflation than Brazil and still maintains low and stable inflation. There is only moderate inflationary pressure and it makes the news only due to the high standards of low-inflation kept by the central bank and the question on if it will meet its ambitious goals. I would be curious to see a reasonable argument or even explanation as to what "inflation bubble" exists. Small inflationary pressures exist due to rising food and energy costs (which are always more unpredictable in every country compared to other costs). This may be a language barrier more than a disagreement.
I have made the point that Mexico is making a move towards becoming a true growth story while Brazil remains largely asleep at the switch. This even though energy policy in Mexico remains controversial and badly in need for reform despite the potential political risks. The current president may be skillful enough to turn reform into a plus for him in an election year if he chooses the right specific small policies to change, such as how to work with Brazil for improved oil-drilling cooperation and technological assistance in off-shore drilling.

-The stock market is not the lotto, a well-diversified portfolio with some adjustments almost always grows significantly over 40 years, whereas investors have learned to run for the hills from countries like Venezuela when there's trouble brewing. Not too long before that, they fled from Argentina which had a huge debt and kept spending and tried to keep a fixed peso-dollar exchange rate.
Maybe if the Correas of the world didn't try to gain votes from the uneducated to stay in power (by saying he will "prioritize" development over paying back Ecuador's debt if he has to), good policies in latin american countries like chile, costa rica, mexico, columbia, and even brazil might benefit more as investors would not fear the entire region.
I did not mix up the presidents in my earlier posts, but feel free to point it out. I believe it is a misunderstanding there too.
Also Bolivia's Morelos is scaring investors, and in Nicaragua the return of Ortega has meant a lot of the same thing. companies are leaving countries that don't learn to modernize into investor friendly policies such as exist in Hong Kong, for example, where incomes are comparable to high and growing quickly.

I agree Latin America should use policies that other countries used to grow rapidly, although there is still a lot of improvement left to make in highly-educating the people so they will know what that actually means. Of course, latin america is not alone, lots of non-economists throughout the world and a few far-left economists spread complete lies and fabrications contrary to what the fact-based science actually suggests should be done.
In Latin America, however, a bad past and bad neighbors makes the reform work and the right debate and better educatio even more important...

4:52 PM  
Anonymous Anonymous said...

As for Spain actually having "Mileuristas" these are new jobs making the economy bigger, would it be wise to shrink Spain's economy by banning low-paying jobs and leaving those people to starve or to stop immigrating to Spain for those very jobs?

Just like in the US, the economy even easily provides jobs for poor uneducated immigrants (as well as educated ones from countries with years of bad economic policies that have left the people so poor as to leave to rich countries for their lowest-paying jobs.

Mileuristas are free to move to a shrinking economy if they do not like the job opportunities in a growing Spanish economy.

5:01 PM  
Anonymous Anonymous said...

It could seem he have many points of disagreement. However, look back. We agree in independent and technically driven central banks. We agree in education. We also agree in micro-credits. It seems we disagree in free trade; however, if we could have the exact papers of TLC negotiations, we could find many convergences. You prefer to give clear right-tendency pro-US economies as good examples. I really do not care, long time ago I realized that sometimes some things work, sometimes they don’t. What I wanted, by mentioning left-tendency non-pro-US economies as counter examples, is to give a more balanced point of view. (I believe ideologies are the food of small brains, I prefer facts and scientific/technical analysis). Moreover, I remember the education proposal from Bill Clinton when he was President; the same speech given by a non US-friendly Latin American President would have been qualified as leftist and socialist (some extreme nuts would even have said communist).

For the comparison between Brazil and Mexico, I still believe Brazil is doing better. Five of the seven points I mentioned are realities now: biotechnology (that is one the reasons why Brazil is more competitive in agriculture than the US, while Mexican agriculture was severely damaged by the free trade agreement), alternative energy (it covers 30% of the country’s demands and can sustain its growth; Brazil want to export the technology to Africa and the US… don’t you remember the alternative energy agreement announced by Bush), aeronautics (for more than ten years they have been selling planes, even to Israel), prestigious medical research (do a search in PubMed and compare the results when you type Brazil and Mexico; The Pasteur Institute in Brazil has more than few decades making top research), and finally the two small nuclear submarines built by Brazil. However, I have no interest in saying one country is doing better than the other (I really want to believe in the future progresses of Mexico; it does not hurt anybody, it can improve everybody’s economy). Let’s expect somebody (like Mr. A. Oppenheimer) can offer us a good analysis; telling us which are the good examples of each country.

I do not believe state-owned companies are per se less efficient; Petrobras (Brazil) and Andinatel (Ecuador) are good examples of what I am saying. I believe lack of competition is what brings inefficiency; most estate-owned companies fall into this, as do monopolies (private sector). An environment that provides competition without over-protection to estate-owned companies is always desirable. Here we can enter a foolish discussion: Are state-owned companies good or bad? I have to say that it depends on conditions. Sometimes the Estate has to intervene to ensure access and improvements of services and goods; sometimes it is just another burden. (India is a good example)

For banks, once again you fail to know the real situation in the countries we are talking about. I am going to say narco-dollars and economic crisis; excellent combination for monopolies (chose the Andean country). Add the upper-floors deals with international bank corporation and you will easily recognize: international corporate business and external debts for the multinationals, middle and small clients for the local narco-extortionists. The competition you talk about is a nice dream (there are many books that explain the benefits of monopolies and oligopolies… their perfect environment exists when demand is not elastic). My father and godfather worked for many years as bank directors, in those times big bosses agreed the rates from first world countries; nowadays, they like to visit once or twice a year the country they financially control. They have never competed, that would be stupid is the demand of money is always growing.

In China corrupted people is killed (good medicine against undevelopment)… I will not be stupid and deny that free trade agreements helped China’s development. However, it only happened after long-term policies. Moreover, China is somehow cheating with its undervalued currency… What I want to say is that free trade does not always bring competition; sometimes it generates predation (destroying jobs sectors). Free trade is a tool that can be useful to make markets and providers more competitive; moreover, it can enhance better services. However (and this is the main reason I started posting), we cannot just say free trade is good or bad as we were kids. It has its pro and cons, depending on conditions. Protecting markets can make goods more expensive, however the money that remains (it is not exported in exchange of the goods imported) increase the job demands in other sectors (increasing the usefulness of that money up to five times; look at the UN or the World Bank studies about money rotation). Today’s conditions with high commodities prices allow South American governments to expend, which can push by inertia the whole economy of the country unless it is too opened and money leach to other countries (by the increase of importations). At the moment US markets (to sign free trades) are not attractive because of the devaluation of the dollar (Do you remember the Argentinean crisis? Brazil’s devaluation destroyed Argentinean economy). Knowing if free trade is good or not needs accurate and complete analysis to be made for each sector.

I want also to point out the difference between TLC and real free trade agreements. Once again, I will give an Ecuadorian example. Many FAO reports demonstrated that bad nutrition is one big reason for undevelopment: weak children, bad students, more diseases, and even lower IQs. You will find also that our bad nutrition comes mainly from the lack of proteins (eggs, milk and meat). I have always promoted free importations of milk and meat; I know our reality, and it is almost impossible that we can become as competitive as Argentina, Brazil, or the US (We would have to create specific races of cows and to cure many tropical diseases). However, when the TLC negotiations took place, meat and milk were left apart. Pronaca is the company that monopolizes the sector (30-60%, depending on the type of meat), it belongs to A. Noboa (the richest man in Ecuador) and to a very rich family of Jewish people. The excuse given was that it was an important agricultural sector because it covered hundred of thousands of hectares; of course it did: farms of thousands of hectares were each cow has more than four hectares. These people, the owners of Pronaca have enough economic flexibility to receive the hit of free importations (A. Noboa has at least one hundred enterprises); Pronaca does not have a big amount of workers either. Ecuadorian society cannot stand anymore bad nutrition; I was, and still I am, for free importations of protein sources like milk and meat. In contrast, I was against the rules for medicines included in a TLC that wanted generic medicines to disappear. As you can see TLCs benefit those that can lobby with US politicians and diplomats, not real free trade or the society. Allowing free importation of meat and milk could directly benefit 3 millions Ecuadorians (most of them children). I will always fight for royalty-free medicine.

At the end, the problems come from the lack of true and honesty in the topics we talk about; for example, I have a couple of diplomas (obtained in the Université Libre de Bruxelles and in the Katholieke Universiteit Leuven… Ah! I was forgetting a post-graduate diploma obtained in the University San Francisco de Quito in administration) that proves I have some education. I voted for Correa, as did 68% of the population. Do you really believe we are all so uneducated? (Look at the statistics, the opposition got more votes in provinces –where the education level is lower- than in cites).

About Latin American Presidents, Ortega I don’t know. However, if what I hear in the news is true, we all should be careful. The problem is that I do not believe what I hear in the news, thus I remain neutral. Chavez is dangerous, but because of the mentally limited opposition. For example, they call him dictator, which is false; he was elected and has an important democratic support. However, he plans to allow (via Constitutional reform) indefinite re-election. In the US, or in Ecuador (the country I live), indefinite re-election is forbidden, and there are many theoretic and pragmatic reasons for doing so. Where are the thinkers explaining why indefinite re-election is dangerous for democracy?... In exchange we have a bunch of liars telling thrillers. (In Spanish we have the word “cuco” to frighten people; in American English you have communism).

The stock market is not the lotto?... Interesting, I got tired of trying to understand some neural networks to help me to decipher the patterns. Of course, I am not a specialist in stock markets; for those that are like me, investing in the stock market is the lotto. When I mentioned the stock market, I wanted to touch middle-class people that invest just because somebody is telling them it is a good investment (In fact, it is not the lotto, it is mysticism). In South America, when you learn to differentiate public sector from private sector, you will be able to find good niches of investment. For example, in real state, if you buy an apartment of a house in the big cities, you will never get less than 8% from the rent (all taxes together are at maximum 0.4 %, it depends on the city). Moreover, the demographic push (rate of births) and the rural exodus increase pretty fast the value of real state properties (My sister and I are trying to build a matrix that can predict accurately the value increase). There are better examples of investment (like planting trees for industrial exploitation) but it is too hard to explain them in few words.

(Spain you really know nothing about, but there is no meaning in arguing).

Finally, stop calling leftist those that do not share your points of view (it might work with uneducated US citizens, not with educated people). You are not the one who had to discuss against the conservatives of “La izquierda democrática”. You can hardly know what is fighting against brain-washed communist if you did not study in a university ruled by the MPD (that has an extreme wing called Marxist Communist and Leninist Party). You are not the one that actively opposes all kind of subsidies for being unhealthy to competition and economy. You are not the one that went one week ago to pay his electricity factures and had the courage to destroy the inappropriate propaganda (promoting the elimination of the Congress) left by the syndicalists of the electric company.

In the real world, sometimes it is good to do business with the US, sometimes it is not; sometimes free trade improves competition, sometimes it destroys competitors. Our major disagreement is that you prefer to believe in heroes and devils, that economy can be simply divided in absolutes good and bad. I have no problem in accepting that US economic policies (like those in Bill Clinton’s administration) can show good examples… Can you accept that a socialist country like Sweden can give good examples? Or, that a non-US free-trade partner like Brazil can give good examples?... When I gave the examples of what are South American countries doing right or wrong, my criteria were not biased by my likings/feelings. I try to remain objective and be honest; and thus Colombia, Peru or Chile can be good examples for some topics.

Once again we are deviating from the real topic: Does it worth competing with Asians countries for the devaluating US market? (Don’t forget it has strong social and political costs) I believe there are better options that accepting today’s US conditions.

4:45 AM  
Anonymous Anonymous said...

So many good and interesting points to respond to... I must admit that there is definitely thoughfulness and insight in your responses. Of course, the main disagreements remain.

My major thesis in my comments has not been simply that having some pro-equality, mixed economy politics is bad wheareas total laissez-faire, conservative capitalist policies is the only good choice and that it only comes from pro-US, conservative governments. Instead, my thesis has been that "leftist" governments in Latin American (Chavez, Morales, Correa, Ortega, Kirchner) have been making some major economic policy blunders and they have been advertising unscientific, populist lies.

In fact, I believe that Brazil and Chile's presidents are examples that support my point. I did not include them as causing bad economies so much as I have given Mexico's Calderon the credit he deserves for making progress himself by implementing pro-growth reforms. Brazil's Lula and Chile's Bachalet, on the other hand, have been less active. However, I do not call them bad examples at the level of Chavez, Morales, Ortega, Kirchner, and Morales (and you have to admit, you guys had two bad choices in Ecuador, the rich industrialist/populist or the quasi-socialist pro-chavez economist... either way you were getting a mixed bag)...

The way that Bachalet and Lula support my point (besides the fact that I think they are overall ok despite their ideologies and not bad leaders) is that they reject the same populist lies that the Chavez and his group of Bolivarian recruits pervade. Lula and Bachalet have been for restoring investor confidence, have supported the free markets, have paid back their debts honorably (soothing investors from pulling their money out), and Lula in particular reduced investor's fear at his first election and kept Brazil from crisis by making pro-market statements and policies early on.
However, I too prefer numbers and facts over ideologies. I will not count them as victories by anti-market leftist politicians because they are pro-market leftists.
With other leftist presidents, I see a pattern of irresponsible far-left populism. Irresponsible populists make the voters happy for a few years, but make the country worse off in the long-run.

An irresponsible populist, for example, might take over a few companies, thereby earning more government revenue to make voters happy by spending on hand-outs and services, but rarely investing in multi-year projects such as early education (and even on R&D and other research, as you brought up). Chavez took over oil companies (stole property and went back on the country's prior word, hurting reputation, reducing investor trust & confidnece, etc) and he spent the money spreading populism in other countries. He tried to the control the economy by forcing prices for food to be at a low maximum price, and therefore less companies produced or sold it and there has bee scarcity and shortage of basic foodstuff as well as unofficial price increases in the black market.

Ortega in Nicargua presides over policies that require automatic pay increases that drives companies away (see oppenheimer's earlier article) and he scares investors away with pointless speeches about the evils of capitalism... it may get him votes, but what good does it do his country when investors are afraid to bring companies, jobs, monies for loans and investments...

Correa won't stop talking about how he may not repay bonds which are basically loans to his government and nation, and he seems to insist on restructuring debt and on changing the constitution. This may all let him gain greater power and funds in the short-term, but later interest rates will rise as less lenders want to lend to Ecuador without higher returns due to the risk demonstrated by Mr. Correa's views. This means less funds in teh future and greater difficulty securing loans. I will give him the credit that he seems to have continued paying so far, but if I were investing in Ecuadorian debt, I would be tempted to take my money out and place it in a safer country... depending on how good the increased payments from interest make the benefits...

Argentina's Kirchner promised a new economic model. What did he really do? He is benefiting from high commodity prices, but he has also been artificially stimulating the economy by chosing a short-run trade off of higher inflation and lower unemployment which will eventually mean both normal unemployment and the same high inflation. In otherwords, good for the short-run election of his wife, bad for the nation in the long-run. Mexico's PRI previously did the same thing in 1994 that was one cause that led to the tequila crisis.
As for a devaluating US Dollar being bad for trade partners, it is a very different situation that the Argentianian crisis being worsened by the Brazilian devaluation. Remember that the Argentian peso was tied to the dollar, therefore Argentina put its credibility on the line by putting a 1 for 1 permanent conversion as its policy. When Brazil devalued and its exports became cheaper than before, Argentina was tied up and prevented itself from devaluating its own peso so it could trade 1 to 1 to the dollar. It had promised that it would. When its debt grew and exports suffered, it was headed for problems.
While the US devalues now, its trade partners can do the same. The only countries that will face difficulties will be those that ties themselves 1 to 1 between their currency and an appreciating currency like the Euro AND directly compete with the US for exports... I don't know of any actual examples of countries that would suffer from trade with the US... this is basic economics, trade agreements can allow the US to depend on the other country for certain good that country makes cheaper or better and that country uses these funds to buy imports from the US as well which it cannot produce as cheaply or as well itself. They both benefit from their own comparative advantages. The consumers benefit from more choices and more affordable goods, businesses benefit from cheaper supplies and components/goods and technology transfers... it is one reason Mexico is now one of the top economies in latin american and venezuela and argentina are not.

Ecudor's Correa has a choice and I do not have confidence that he will choose the science and numbers of economics because he gets assistance from Chavez and promises easy solutions. He is not likely to want to trade with the US. He is likely to challenge the investors he should be welcoming, take over foreign companies, default on loans, and leave Ecuador in debt, inflation, and a with a worse reputation and higher interest rates.

I believe that Mexico and Columbia will do a better job with their nations' finances because they work with investors and pursue modern economic policies even if they are not popular changes.

Don't get me wrong, trade does not cure everything overnight, but it is a net benefit. Even if some companies and some unions suffer, most members of a country are not working for the affected company and most companies benefit from being able to provide services overseas withou barriers, so in both countries most people and companies immediately benefits. As the country gets more benefits from trade over time, even more people benefit.

I commend you for fighting the Communist propaganda.

It seems we will agree to disagree on some major points on free trade agreements (for example, I think that Mexico's growing industrial sector and shrinking agricultural sector are signs of modernization that follows the path of industrialized countries, and not a sign of falling behind Brazil in agricultural production... a tough country to compete with in agriculture when you consider Brazil's arable land)...

I think that you are too skeptical of the bitter medicine of free trade. It seems almost expected in latin american academia to be against free trade still. Meanwhile, in Europe, Asia, and the US, the anti-free trade has been limited to extremist groups and unions/companies that want protection. The economics-educated intellectuals tend to support free trade in most of the world.

I do agree though that there are good examples of good policies in many countries of different political views. The pattern of bad economic policies in the left-leaning populist leadership are what I criticize.

There is sufficient evidence that government-run enterprises lead to inefficiency, lower quality, higher costs, etc. As you mentioned, it is like any other monopoly. Sure some public companies are better than others, such as Brazil's oil company being better than Mexico's, but they are all poor subsitutes for private companies in terms of productivity, efficiency, quality, etc. That is one reason communism failed, along with lack of incentives in their controlled economies, lack of freedom, lack of rewards and creativity... etc.

I may not be an expert on Spain, but I know enough to discuss their recent economic performance and policies and I believe I am correct in praising their direction and you are being too harsh by focusing on the fact that low-wage jobs are one of the reflections of their growth.

As for banks and interest rates, I maintain that there are many banks that countries and people can go to, and the interest they charge are generally fair for the risk they incur. If they could always just charge whatever they wanted because of a collusion, interest rates would not be so fluid in international markets and so well reflect expectations of a country's risks and future performance... I think small banks with small customer may sometimes overcharge, but interest rates for a countries private and public loans and such are largely reflective of the market rates.

I agree in the existence of relatively good investments in latin american private sectors, certainly, but they come with their risks. I would have more confidence in Korea's future performance than in Venezuela's. Not by my choice, but by realities and expectations, I would expect oil prices to decide Venezuela's future, while Korea continues to invest in its people and in the future.

That is a lot to cover for now, we both have a lot to say. I will leave the intersting comments for you.

Not that there is time to always post, but here is one more good place to post which has a lot of people gathered from a blog by "ceci" which was mainly on Mexican politics but also other topics:
http://www.arielorellana.net/forums/

5:53 AM  

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