All posts tagged Economy

Cuba: Can Official Labor Meet the Needs of Private Workers?

By Geoff Thale*

Alberto Yoan Arego Pulido / Flickr / CC BY-NC 2.0

Alberto Yoan Arego Pulido / Flickr / CC BY-NC 2.0

As Cuba embraces a new but still undefined economic model, it’s unclear whether or how the country’s old labor laws and regulatory systems will be adapted to accommodate the interests of employees in the growing private and cooperative sectors, or in the newly autonomous state enterprises.  The trade union structure cannot play the social role it played in the past with the emergence of businesses owned by both individuals and cooperatives, a growing role for foreign investment, and increasingly decentralized state enterprises.  During a recent trip to Cuba, our research team met with representatives and staff from a range of officially recognized trade unions.  We met with the national labor federation – the Central de Trabajadores de Cuba (CTC) – and with national and local officials from some member unions, including the national president of the health care workers’ union; local trade union officials in the hotel and restaurant workers union in the tourist sector in Old Havana; and local officials representing self-employed and small-business owners who have joined the union for retail and commercial workers.  A Labor Code approved by the National Assembly in December 2013 changed some aspects of the legal framework for labor relations.  It continued to privilege the CTC as the sole labor federation, while also taking some steps to recognize the new issues that confront workers in the emerging sectors of the economy.  It established a maximum number of hours of work (44) for private-sector employees, required the self-employed or small-business owners to pay into a social security fund and ensure social protections – health care, pensions, etc. – for employees.  And it guaranteed private-sector employees seven days paid vacation per year (though less than the one month given to state-sector workers).

Our interviews, however, turned up more questions than answers.  Newly autonomous state enterprises have greater latitude in setting wages, incentives and working conditions, but it remains unclear how these decentralized enterprises will handle labor relations issues, and what kind of negotiations might take place on compliance with regulations on workplace safety and protection, wage requirements and employment opportunities.  Indeed, it is unclear how the current worker organizations will represent workers in these decentralized enterprises.  The growth of the private sector presents another challenge.  The CTC has sought to organize the self-employed into the unions in the industries in which they are functioning – the food service and restaurant union, the retail and commercial sector union, and so on – but it is unclear how the union will represent the interests of both owners of independent small businesses – cuentapropistas – and the 15 percent of “self-employed” who are actually employees in those enterprises.  Similar queries are popping up in the cooperative sector and in enterprises run as joint ventures with foreign corporations or as wholly foreign-owned companies.

Cuba’s new labor policies are clearly a work in progress, but they signal recognition that there is an emerging stratum of non-state sector employees – and that they need social protections.  It also reflects a balancing act between ensuring stable employment and benefiting from the flexibility that private sector employment models provide.  The new Labor Code requires, for example, that employers sign year-long contracts with employees while guaranteeing them access to health care, parental leave and other benefits during that period.  New challenges will emerge, especially in terms of the structures that represent the interests of these groups and advocate for them.  But for now, there appears to be progress in establishing a system of social protections for the self-employed and for their employees under the new labor code.  Concerns about the burden of compliance appear likely to be muted for at least the near term because, as it was clear to us during our visit, the self-employed and their employees are earning substantially higher incomes than are workers in the state sector.

*Geoff Thale, program director at the Washington Office on Latin America (WOLA), in October led the research team’s fifth visit to Cuba examining the impact of economic change on workers.

December 9, 2014

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by clalsstaff on December 9, 2014  •  Permalink
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Posted by clalsstaff on December 9, 2014

https://aulablog.net/2014/12/09/cuba-can-official-labor-meet-the-needs-of-private-workers/

Mexico: Missing Demographic Opportunity

By Yazmín A. García Trejo

Javier Armas / Flickr / CC BY-NC 2.0

Javier Armas / Flickr / CC BY-NC 2.0

Mexico appears to be squandering a historic opportunity to take advantage of the “demographic bonus” represented by its surge in working-age citizens.  The Mexican government estimates that about 32 percent of the Mexican population today is between the ages of 12 and 29 years.  During this demographic bonus, a disproportionate percentage of the population enters the workforce—compared to those who are retired or nearing retirement—and drives economic growth.  Workers passing through this demographic window of opportunity are supposed to generate wealth that will help support a soon-to-be-aging population.  These opportunities don’t come around twice: age profiles in developing countries change quickly, and societies need to make the most of those few years during which the economically active population far surpasses that of the economically dependent.  The portrayal of Mexico as a young country in the media and the adoption of labor reforms in 2012 brought an initial optimism about its ability to take advantage of this bonus, but the current state of affairs casts a shadow over the potential of its young population.  According to a new report from the Organization for Economic Cooperation and Development (OECD), Education at a Glance 2014 Report, 22 percent of people between 15 and 29 years old in Mexico are neither employed nor in education or training.  These “ni-ni’s” represent a demographic bust because of a lack of jobs.

The lack of employment also influences young Mexicans’ attitudes toward education.  According to the OECD, even high educational attainment is not a guarantee of employment in Mexico.  A 2012 report by the McKinsey Center for Government found that only half of educated young people in Mexico believe that their post-secondary education has improved their job prospects.  According to a National Survey of High School Dropouts in 2012, moreover, many young men leave high school to contribute to their households’ finances, and young women quit to take on family responsibilities related to marriage and pregnancy.  Once out of school, they have no option but to participate in low productivity niches of the informal economy—severely reducing the benefits that their entry into the labor market could bring to the national economy.

The fate of young people has profound implications for Mexico’s economic future.  Without a comprehensive plan to expand employment opportunities and access to higher education that enables youth to flourish and lead Mexico into a new stage of development, Mexico will find itself a generation from now with the demographic profile of a developed country—with an aging population producing less but needing more care—but with a middle-income level of wealth.  Budgets will be stretched, and social tensions could be great.  Many of the most capable young people will leave the country for better opportunities.  Young Mexicans appreciate what’s at stake and are using the tools at their disposal to make their voices heard. Lately, student movements have attracted international attention using social media, but it’s far from clear whether the Mexican government and political, economic, and social elites are listening and have the vision necessary to avoid a crisis.

November 4, 2014

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by clalsstaff on November 4, 2014  •  Permalink
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Posted by clalsstaff on November 4, 2014

https://aulablog.net/2014/11/04/mexico-missing-demographic-opportunity/

Bolivia: Evo Wins Again

By Fulton Armstrong

Photo credit: Eneas / Foter / CC BY

Photo credit: Eneas / Foter / CC BY

President Evo Morales’s landslide election to a third term – fueled by a combination of moderate policies and fiery leftist rhetoric – portends continued stability in the near term, with still no indication of how his party will continue its project after him.  Although official results have yet to be announced, and some preliminary data show Evo garnering around 54 percent of the vote, exit poll estimates gave Evo a massive lead of 60 to 25 percent over the next closest candidate, a wealthy cement magnate named Samuel Doria Medina.  Regardless, the enormous margin separating Evo from his competitors precludes a runoff race.  Doria, who also ran against Evo in 2005 and 2009, claimed that OAS praise for the elections before the polls closed was “not normal,” but he is not disputing the results and has conceded defeat.  Congratulations to Evo poured in first from his left-leaning allies – Presidents Maduro (Venezuela), Mujica (Uruguay), Fernández de Kirchner (Argentina), and Sánchez Cerén (El Salvador) – but other voices soon followed.  The victory set Evo on track to be the longest-serving president in Bolivian history since national founder Andrés de Santa Cruz lost power in 1839.  His party, the Movement Toward Socialism (MAS), is also reported to have expanded its control of the Chamber of Deputies and the Senate, although vote tallies are not final.

Evo has achieved things his domestic and foreign detractors said were impossible.  While his rhetoric has been stridently leftist and anti-U.S. – he even dedicated his “anti-imperialist triumph” to Hugo Chávez and Fidel Castro – his policies have been decidedly pragmatic and disciplined, and the results have curried favor for him among foes.  His economic czar has emphasized Bolivia’s commitment to “have socialist policies with macroeconomic equilibrium … applying economic science.”  The economy grew 6.8 percent last year and is on course to grow another 5 percent this year.  Foreign reserves have skyrocketed; Bolivia’s are proportionately the largest in the world.  Poverty has declined; one in five Bolivians now lives in extreme poverty, as compared to one in three eight years ago.  IMF and World Bank officials, whose policies Evo largely rejected, have grudgingly conceded he has managed the economy well.  Some of his projects, such as a teleférico cable car system linking La Paz with the sprawling city of El Alto, have garnered praise for their economic and political vision.  He even won in the province of Santa Cruz, a cradle of anti-Evo conspiracy several years ago.  In foreign policy, he has good ties across the continent, but strains with Washington continue.  The two countries have been without ambassadors in each other’s capital since 2008, and talks to resolve differences over the activities of DEA and USAID failed and led to their expulsion from Bolivia.

Sixty-plus percent in a clean election for a third term – rare if your initials aren’t FDR – signals that Evo, like Roosevelt, is a transformative figure.  No matter how brilliantly Evo has led the country, however, the big gap between his MAS party and the opposition suggests political imbalances that could threaten progress over time if he doesn’t move to spread out the power.  Evo has given the MAS power to implement his agenda, but he has not given space to rising potential successors.  He has said he will “respect the Constitution” regarding a now-disallowed fourth term, but it would take great discipline not to encourage his two-thirds majority in the Senate to go ahead with an amendment allowing him yet another term.  It would be naïve, moreover, to dismiss out of hand the opposition’s allegations of corruption by Evo’s government, but his ability to grow his base above the poor and well into the middle class suggests that, for now, the fraud and abuse do not appear to be very debilitating … yet.  Washington, for its part, seems content with a relationship lacking substance rather than joining the rest of the hemisphere in cooperating with Bolivia where it can.

Other AULABLOG posts on this and related topics:  ALBA Governments and Presidential Succession; Lessons from the MAS; and Will Bolivia’s Half Moon Rise Again?

October 14, 2014

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by clalsstaff on October 14, 2014  •  Permalink
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Posted by clalsstaff on October 14, 2014

https://aulablog.net/2014/10/14/bolivia-evo-wins-again/

Elections in Brazil: The Force of the Latin American Left

By Eric Hershberg and Luciano Melo

Aécio Neves – Senador & World Economic Forum / Foter / CC BY-NC-SA

Aécio Neves – Senador & World Economic Forum / Foter / CC BY-NC-SA

The first round of Brazil’s presidential election has set the stage for a runoff playing primarily to class differences.  By the eve of the election, polls hinted at the real possibility that the center-right candidate Aécio Neves of the Brazilian Social Democratic Party (PSDB) would edge out the other principal opposition contender, former Minister of the Environment Marina Silva.  Silva enjoyed a spike in the polls after she replaced the late Eduardo Campos, who perished in a plane accident in August, as the Brazilian Social Party (PSB) candidate.  Sunday’s results confirmed Silva’s decline, as she captured only 21.3 percent of the votes compared to 33.5 percent for the PSDB and 41.6% for incumbent President Dilma Roussef of the Worker’s Party (PT).  The PT used its potent propaganda machine to portray Silva as a potentially dangerous candidate – an indecisive leader who could not be trusted to sustain popular social programs such as the Bolsa Familia conditional cash transfer program, which has helped lift millions of Brazilians out of poverty.  Also, Aécio and Rousseff built their images upon two iconic ex-Presidents – the former on Fernando Henrique Cardoso (FHC) – seen by the middle and upper classes as the leader who managed to defeat hyperinflation and putting Brazil on track for economic growth – and the latter on Lula, Rousseff’s mentor, who is idolized among the most disadvantaged parts of Brazilian society as the President who helped the poor become less poor.

To win the runoff on October 26, Aécio needs at least 70 percent of Silva’s votes – she has only hinted at supporting him – while Rousseff would succeed with only half of that.  It is clear that Dilma and the PT will double down on their negative advertisements, now aiming at Aécio rather than Marina.  The PT’s barrage over the airwaves will highlight the risks of abandoning the course set out by Lula and followed by Rousseff.  Voters will be told that the opposition may underfund cash transfers, privatize the state oil company Petrobrás or treat it as a profit-making enterprise rather than as a development bank, thus increasing unemployment as occurred during the Cardoso years.  And the PT will no doubt remind voters of its consistent efforts to boost minimum wages and chip away at the vast inequalities that had long characterized Brazil.  Surely they will portray Neves as an elitist out of touch with the majority that has benefited from the PT’s redistributionist agenda.  Aécio and the PSDB, by contrast, will highlight the worrisome slowdown in growth under Rousseff, the failure to significantly improve public services – it was frustration over health, education and, particularly, urban transportation that drove the social protests that began in mid-2013 – and the over-regulated and over-taxed economy.  Most of all, Neves’ campaign will harp on the persistent scandals that have bedeviled the PT over the past decade and that have helped to fuel popular disdain for politicians.

The election results in Brazil are likely to become increasingly polarized in terms of class.  Dilma appears poised to prevail in the poorest states of North and Northeast, where Bolsa Familia and other cash transfer programs, subsidies, wage increases and Lula’s image are compelling.  In turn, Aécio should come out ahead in the richer states such as São Paulo, which offer the largest pool of voters and where highly educated and middle- and upper-income Brazilians are concentrated.  We make divergent predictions: Hershberg anticipates a PT victory, since for all the speculation about the travails of the Latin American left, it has built very substantial foundations of support in societies that credit the left with finally making some advances to tackle Latin America’s yawning inequalities.  Warnings that Aécio represents a return to elite rule will resonate among the PT’s electoral base, and the PT’s success will be nourished by its powerful organizational capabilities.  Melo, by contrast, anticipates a PSDB triumph.  In this scenario, the corruption, disappointing growth rates over the past two years as the commodity boom has slowed, and widespread frustration about the quality of public services will generate an anti-incumbent dynamic that will bring to an end a dozen years of PT rule.

October 10, 2014

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by clalsstaff on October 10, 2014  •  Permalink
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Posted by clalsstaff on October 10, 2014

https://aulablog.net/2014/10/10/elections-in-brazil-the-force-of-the-latin-american-left/

Argentine Debt and the U.S. Dollar

By Leslie Elliott Armijo

Images Money / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Multiple economic and political challenges have called into question the future status of the U.S. dollar as the world’s dominant reserve currency, but backlash from Argentina’s recent spat with the United States over defaulted bonds appears to be fueling interest in reforms that may have beneficial implications.  According to the IMF, some 61 percent of the world’s known foreign exchange reserves held by central banks around the world remain in low-yielding dollar-denominated assets, mainly U.S. Treasury bonds.  The United Nations Conference on Trade and Development (UNCTAD), China, and heavyweights in the Global South, including Brazil, are calling for international trade agreements that would give emerging economies “policy space” – allowing national governments to impose capital controls, fund exports, subsidize local industry, and keep financial services national.  Private U.S. banks, however, claim that continued U.S. dominance of world capital markets – a crucial pillar of continued reserve currency status – requires ever more open trade in financial services.  The BRICS complain about the U.S. government’s “exorbitant privilege” as the reserve currency country, with some of the sharpest complaints coming from joint statements by Brazil, Russia, India, China and South Africa. Chinese officials, though, worried about their own large dollar investments and ambivalent about the implications of renminbi internationalization, more than once have pulled the group toward a softer tone.

Argentina’s ongoing sovereign debt negotiations provide a different window onto the dollar’s reserve currency status.  Like most countries, Argentina has held a large chunk of its government’s savings in the U.S. and hired private U.S. financial institutions as its international bankers.  Today it is trying to extricate itself from U.S. markets and do its saving and financial intermediation elsewhere. Iran and Russia are doing the same, but Argentina has no foreign policy quarrel with the Obama Administration – and is not subject to U.S. financial sanctions over nuclear or military adventurism.  Buenos Aires is among those who chafe at U.S. power through the dollar, but it is primarily motivated by the U.S. Supreme Court’s decision in July to let stand a lower court judgment in favor of investors holding bonds from Argentina’s $82 billion sovereign debt default in December 2001.  Although 92 percent of the original bondholders accepted the Argentine government’s restructured (lower value) bonds in 2005 and 2010, New York Federal District Court Judge Thomas P. Griesa ruled that Argentina’s failure to settle with the holdouts means that any U.S. financial institutions, or their international affiliates, that intermediate funds enabling Argentina to stay current on payments to the majority will themselves be in contempt of court.  This has sent Argentina into “technical default.” Argentina is suing the U.S. in the International Court of Justice (whose jurisdiction the U.S. refuses to recognize) and in the court of global public opinion – pushing, for example, a recent proposal for global financial reform before the U.N. General Assembly. It has also welcomed an $11 billion currency swap agreement with China, and Chinese state banks have since pledged $6.8 billion in new infrastructure loans.  Some observers speculate that the very first loan of the New Development Bank, newly organized by the BRICS countries, could go to Argentina.

The Argentine bond case harms the perceived fairness and credibility of U.S. financial markets and, by extension, the strength of the U.S. dollar because the recent legal judgments seem capricious to many.  Senior figures at the IMF have long supported the routine inclusion in all international sovereign bond issues of a so-called “collective action clause,” which would make any restructuring accepted by two-thirds of bondholders binding on all.  The European Union already has ruled that sovereign bonds issued within the EU, including many for troubled Eastern or Southern European governments, must contain such clauses.  Moreover, the International Capital Markets Association, representing more than 400 of the world’s largest private investment institutions, has just issued a position paper endorsing obligatory collective action clauses, placing it on the same side of this issue as non-governmental organizations advocating financial architecture reform such as the New Rules for Global Finance and the Jubilee Debt Campaign.  This would give taxpayers in emerging economies – the ultimate backstop of the creditworthiness of their governments – the same bankruptcy rights as firms and households.  It is not in the interest of Latin American and other emerging economies for U.S. currency and financial dominance to end anytime soon – a tripolar reserve currency system based on the dollar, euro, and reniminbi does not yet appear able to sustain the worldwide growth and prosperity of recent decades and may in fact entail significant risks – but fairer rules for sovereign financing would benefit everyone.

* Leslie Elliott Armijo is a Visiting Scholar at Portland State University and a Research Fellow at CLALS.  She has just published The Financial Statecraft of Emerging Powers: Shield and Sword in Asia and Latin America (London: Palgrave, 2014).

September 23, 2014

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by clalsstaff on September 23, 2014  •  Permalink
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Posted by clalsstaff on September 23, 2014

https://aulablog.net/2014/09/23/argentine-debt-and-the-u-s-dollar/

Resources and the New Developmentalism

By Paul A. Haslam*

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Resource nationalism is driving the most significant shift in Latin American development policies of the past decade.  It is rarely talked about yet is constituting a new developmental model that is being adopted by governments of diverse ideological inclinations.  It has involved reforming taxation regimes dating from the 1990s to extract more “rent” from natural-resource intensive industries; strengthening and extending state capacity; using rents to support social spending by the state, including anti-poverty programs; and – most importantly – linking resource abundance with industrial policy.  It is the basic framework of the post-neoliberal development model, and examples are many.  The splashier headlines in the past decade focus on various instances of nationalization, including the expropriation of YPF in Argentina (2012); Venezuela’s erratic nationalization program; and Bolivia’s dramatic military occupation of foreign-owned gas facilities in 2006 – all intended to achieve these goals.  Early this month, the provincial government of San Luis, Argentina, presented a project-law to create a new provincially owned mining company, San Luis Minera (SAPEM) – joining many fellow provinces that have created or breathed new life into state-owned enterprises (SOEs), particularly in the mining sector.

By and large, these enterprises exist to associate with multinationals, following the trail blazed by Argentina’s YMAD (in Catamarca) and Fomicruz (in Santa Cruz) during the dawn of Argentina’s mining boom in the late 1990s.  The SOEs typically offer the rights to prime potential lands claimed by the state, handle the administrative and regulatory requirements of the province, and in some cases, negotiate the social licence with nearby communities.  In exchange, they get a small net profits interest (typically around 8-10 percent), which results in rent for the province.  The multinational does everything else: raises the money; plans, builds and operates the mine, and sells the mineral.

These are not the rent-seeking policies typical of low-capacity governments.  The enduring principles of the liberal regime (such as low royalty rates) have pushed revenue-hungry governments to explore creative options such as these to capture rent from their mining sectors.  The new SOEs are also an institutional innovation that aims at leveraging natural resource wealth for economic development, as governments also expand resource-funded social spending.  One of the objectives of Morales’s “nationalization” of Bolivia’s oil and gas resources, for example, was to “revitalize” the state-owned YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) as an engine of development.  Nor is this “resource nationalism” exclusively a project of the left: Chile increased royalty rates in a “Special Tax” on the mining sector in 2005, and Colombia and Peru have hiked taxation on mining as well.  Brazil has continued to use of SOEs like PETROBRAS.  It’s still an open question, however, how successfully the rents generated by this new model can be combined with industrialization or development strategies that deliver enduring benefits. 

*Dr. Haslam teaches at the School of International Development and Global Studies, University of Ottawa, Canada.

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by clalsstaff on August 19, 2014  •  Permalink
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Posted by clalsstaff on August 19, 2014

https://aulablog.net/2014/08/19/resources-and-the-new-developmentalism/

Drug Dealing in Costa Rica: A Perverse Path toward Social Inclusion

By Rodolfo Calderón Umaña*

Antonio / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Antonio / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Central America’s emergence as a principal transit route for illicit drugs from South America to the U.S. has given rise to local retail markets supplying users within the region.  A study of three Costa Rican communities – one in greater San José and two along the Caribbean coast – highlights several factors that determine the scale and consequences of these local markets.  Among the most important are the high levels of social exclusion experienced by households in these localities and residents’ motivation to become involved in the business because it offers resources (money, power and prestige) that cannot be achieved through the legitimate channels of education or quality employment.  Other factors include the proximity of the communities to drug trafficking routes and the extent of previously existing demand from local consumers.

One of the most significant characteristics of local drug markets in these communities, as elsewhere, is that they are socially and territorially bounded because trust is the key factor shaping relationships between suppliers, sellers and consumers.  Some local suppliers maintain direct ties to cartels, but they operate their businesses independently.  Youth are assigned the most vulnerable tasks and are thus disproportionately represented among those arrested and convicted of crimes.  Violence serves as the principal instrument for controlling and regulating the drug trade, and the result is that for youth in these settings violence becomes normalized as a routine form of behavior.  This spawns a generalized climate of fear and insecurity, and the typical response of community residents is to retreat from public space and to isolate themselves inside their homes.

These findings support calls for new responses to the drug trade at the community level.  Central American governments, encouraged to a significant degree by U.S. programs, have tended to emphasize repressing and “combatting” the scourge of drug trafficking, yet where this approach has been implemented – particularly in Central America’s Northern Triangle — social problems have only gotten worse.  In Costa Rica, it’s not too late to undertake a comprehensive strategic review of policies in this domain and to bolster programs to stabilize affected areas.  Particularly if designed and implemented from the bottom up, programs can identify and reach out to vulnerable residents before they are drawn into drug micro-markets as vendors, consumers, or both.  Vocational training programs matched to real employment opportunities are absolutely fundamental – to reduce residents’ social exclusion.  Our research findings indicate that enhancement of public spaces where community residents can congregate and initiatives focused on building trust between communities at risk and representatives of the state can also be highly productive.  Costa Rica is at a critical juncture: it can either sustain and expand the participatory policy frameworks that buttress community cohesion and resilience or run the risk of falling into the devastating spiral of delinquency and violence that has plagued its neighbors in the Northern Triangle.

*Dr. Calderón Umaña is a researcher at FLACSO-Costa Rica.  The study is being conducted by FLACSO-Costa Rica with funding from the International Development Research Centre.

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by clalsstaff on August 11, 2014  •  Permalink
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Posted by clalsstaff on August 11, 2014

https://aulablog.net/2014/08/11/drug-dealing-in-costa-rica-a-perverse-path-toward-social-inclusion/

Mexico and NAFTA: Lessons Learned?

By Robert A. Blecker*

Photo credit: Alex Rubystone / Foter / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Photo credit: Alex Rubystone / Foter / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Twenty years after the North American Free Trade Agreement (NAFTA) went into effect, it is clear that the promises made by Mexican President Carlos Salinas and U.S. President Bill Clinton – that the accord would make Mexico “a first-world country” and halt the migration of Mexican workers to the United States – have not been fulfilled.  In Salinas’s famous words, Mexico would “export goods, not people.”  But the number of undocumented Mexican immigrants in the United States rose by a conservatively estimated 3 to 4 million during the first two decades of NAFTA, and millions more were apprehended at the border and deported.  The reasons why immigration flows accelerated post-NAFTA are not hard to discern.

  • NAFTA fostered integration of Mexican industries into global supply chains targeted at the U.S. market, accelerating Mexico’s transformation into a major exporter of manufactured goods.  Nearly one million manufacturing jobs were created there in the first seven years of NAFTA (1994-2000).  But this job growth was offset by similar job losses in agriculture, and manufacturing employment has fallen by about a half million since 2001.  The net increase in manufacturing employment from 1993 to 2013 was only about 400,000, less than half of the annual growth in the Mexican labor force.
  • Real hourly earnings in Mexican manufacturing were no higher in 2013 than in 1994, and Mexico’s per capita income has stagnated relative to that of the United States.  In 2012, typical Mexican manufacturing workers received only 16 percent as much per hour as their U.S. counterparts, down from 18 percent in 1994.  Even adjusted for the lower cost of living, workers without a college degree in Mexico still earn only about one-quarter to one-third of what they can earn by moving to the United States.

The benefits of NAFTA for Mexico have been attenuated by several factors.  First, Mexican export industries still largely follow the maquiladora model of doing assembly work using imported inputs, so their value-added is only a fraction of the gross value of their exports and they have few “backward linkages” to the domestic economy.  Second, the Mexican government has frequently allowed the peso to become overvalued, making Mexico less competitive and driving multinational firms to locate in other countries.  Third, the tremendous penetration of Chinese imports into all of North America (Canada, Mexico and U.S.), especially since China joined the World Trade Organization in 2001, has displaced significant amounts of actual or potential Mexican exports.  A revaluation of China’s currency, rising Chinese wages and increasing global transportation costs have recently led to some “reshoring” of manufacturing to Mexico, but employment in Mexican export industries has grown only modestly as a result.

The increased integration of North American industries through NAFTA has proved to be a mixed blessing for Mexico.  U.S. booms have helped Mexico grow, but only for temporary periods, and being dependent on the U.S. market has held Mexico back since the U.S. financial crisis of 2008-2009 and the ensuing “Great Recession” and sluggish recovery.  Of course, NAFTA is but one of Mexico’s constraints.  The country’s restrictive monetary and fiscal policies, frequent currency overvaluation, monopolization of key domestic markets and inadequate investments in physical and human capital have also held it back.  The Mexican economy still suffers from a profound dualism, in which only about one-fifth of all non-agricultural, private-sector workers are employed in large, highly productive firms, while the vast majority are employed in small- or medium-sized enterprises with low, stagnant or even falling productivity.  Mexico’s experience under NAFTA certainly argues against portrayals of international trade agreements, such as the proposed Trans-Pacific Partnership, as panaceas for the economic ills of Mexico or any other country.  Whatever one thinks of the “reform” agenda of President Enrique Peña Nieto – which is focused on areas such as energy, education, and telecommunications – these reforms are unlikely to help Mexico break out of its slow growth trap if the foundations of the country’s trade and macroeconomic policies remain untouched.

*Dr. Blecker is a professor of economics at American University.

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by clalsstaff on July 29, 2014  •  Permalink
Posted in Mexico, North America, United States
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Posted by clalsstaff on July 29, 2014

https://aulablog.net/2014/07/29/mexico-and-nafta-lessons-learned/

July 19th Anniversary and the New Nicaragua

By Rose Spalding*

Photo credit: Globovisión / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Photo credit: Globovisión / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Daniel Ortega’s political rebirth has produced a remarkable partnership with the Nicaraguan business sector.  Thirty-five years ago, when he and the Nicaraguan revolutionaries ousted dictator Anastasio Somoza, a U.S. ally known for corruption and human rights abuses, they clashed with the business sector, the Catholic Church leadership, and a heterogeneous band of counterrevolutionaries armed and financed by the Reagan administration.  Ortega lost elections in 1990 but made a remarkable return to power in 2007, ushering in the “second phase of the Sandinista revolution.”  Unlike during his first term, he undertook to collaborate with COSEP, the Nicaraguan association of business chambers, and gave its members, perhaps more than any other group, regular access to high-level officials and a palpable voice in shaping legislation.  According to José Adán Aguerri, the current president of COSEP, 77 out of 81 of the Ortega government’s economic laws have been produced in dialogue with the business association.  These involve wide-ranging negotiations on minimum wage increases, tax reform, housing development, social security expansion, investment incentives, and other issues.

This partnership has contributed to economic growth and direct foreign investment.  The World Bank reports Nicaragua’s economic growth was 5 percent in 2012 and 4.6 percent in 2013, compared to 2.6 percent and 2.4 percent for the Latin American region as a whole.  According to CEPAL, foreign investment in Nicaragua reached $849 million in 2013, a level that was second only to the $968 million reported for 2011.  Nicaragua’s investment promotion agency, ProNicaragua, documents strong investment in tourism, agribusiness, textiles and outsourcing services.  The extractive sector is also growing rapidly.  Responding to strong commodity prices and a cordial reception in Nicaragua, Canadian gold mining company B2Gold recently announced a planned investment of $289 million to expand its operations in La Libertad.  Nicaraguan investors have developed new initiatives, including a major tourism project orchestrated by Carlos Pellas, the country’s richest man.  The relationship has benefited from the ALBA agreement Ortega signed with Venezuela President Hugo Chávez in 2007.  Venezuela assistance has totaled $3.4 billion in loans, donations and investments in the 2008-2013 period.  These funds regularized Nicaragua’s precarious energy supply and subsidized transportation, housing, microcredit and public sector wages, providing a general economic stimulus from which elites also benefitted.  Announcements of a projected $40 billion investment in an interoceanic canal reinforce the image of a new development era in Nicaragua.

The business-government relationship reflects mutual accommodation by Ortega and business leaders.  Nicaragua lost several decades of economic growth during the 1980s and the “contra” war, so upon his return to power Ortega put a premium on promoting growth, tread lightly on issues of tax reform, and eagerly pursued foreign investment.  He met repeatedly in closed sessions with business leaders and called for a “grand alliance” of government, business and workers to combat poverty, promote investment and create jobs.  A formal consultation mechanism brought together leaders from COSEP and the government, such as Bayardo Arce and Paul Oquist, for regular policy discussions.  Offering a stable economic environment and generous investment incentives, a non-conflictual labor force with the lowest wages in the region, a relatively low crime rate, and receptivity to business initiatives, Ortega won over business allies.  The business interests of current and former Sandinista leaders, some affiliated with COSEP, reinforced the collaboration and helped convince a new generation of business leaders to put aside traditional hostility and preoccupation with injuries of the revolutionary 80s.  They accepted the government’s legitimacy and bolstered its domestic and international credibility.  Enthusiastic about the growth of the Nicaraguan economy, economic elites also downplayed lingering questions about deficits in democratic institutionality and accountability.  But the heightened concentration of political power under Ortega and the weakness of other state institutions mean that economic rules are vulnerable to shifting political winds, and questions remain whether this development approach will resolve the problem of widespread poverty.  Even as the government-business relationship warms and the economy grows, these social and political concerns continue to bedevil the country.   

*Dr. Spalding is a professor of political science at DePaul University.

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by clalsstaff on July 22, 2014  •  Permalink
Posted in Nicaragua
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Posted by clalsstaff on July 22, 2014

https://aulablog.net/2014/07/22/july-19th-anniversary-and-the-new-nicaragua/

Nicaragua’s Canal: Great Leap (of Faith) Forward?

By CLALS Staff

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

The Nicaraguan government and a Chinese telecom tycoon took a big step on Monday toward the country’s long-held dream of having its own canal, but their prediction of supertanker traffic starting as soon as 2020 seems a bit far-fetched.  The project will cost $40 billion and, according to government officials, will create 50,000 jobs immediately, 1 million jobs over the life of the project, and will help lift another 400,000 people out of poverty.  President Daniel Ortega’s supporters claim the economy – currently projected to grow at 4.5 percent a year until 2020 without the project – will grow as much as 15 percent a year with it. The Chinese company, HKND, will enjoy a 100-year lease on the canal, with 1 percent of it reverting back to Nicaragua each year.  The proposed route for the canal is 278 kilometers long – about three times longer than the Panama Canal – and will be deep and wide enough to handle ships much larger than the “New Panamax” vessels.  Officials say the canal would “complement” the Panama waterway, which they say will be overcapacity even after its current expansion, and will save shippers some 800 miles on their way to the U.S. east coast.

Opposition from some politicians and environmentalists has been strong.  According to media reports, Nicaragua’s Supreme Council for Private Enterprise (COSEP) and other business organizations are generally positive but skeptical, with one leader calling Monday’s press conference “just an initial flow of information.”  Congressman Eliseo Núñez of the Independent Liberal Party (PLI), however, has been widely quoted as calling Monday’s announcement a “propaganda game” and blamed the media for generating “false hopes for the Nicaraguan people.”  Former Vice President Sergio Ramírez says that handing over national territory for development is a violation of the country’s sovereignty, and other critics claim the project violates 32 provisions of the Constitution.  Concerns about damage to Lake Nicaragua, an important source of fresh water that is already polluted, remain. Chinese investor Wang Jing told the press that avoiding environmentally sensitive areas was a major factor in determining the route, and he has promised that a full environmental impact study will be conducted before construction starts.  Opponents of the project doubt he will make the report public.

Ortega’s statement last year that a Nicaraguan canal “will bring wellbeing, prosperity, and happiness to the Nicaraguan people” may well be right – if the project gets off the ground and so many jobs are created.  However romantic that vision is, construction is still far from certain to begin this December, as claimed, or even within the next year or so.  Wang says that he has lined up “first-class investors,” but none has been identified yet.  In addition, criticism of his business record – opponents say his telecom company is poorly run – has hurt his credibility. And accusations that he’s a stalking horse for the Chinese government, which he says has had “no involvement,” will be difficult to dispel in view of Beijing’s other interests in the region and in shipping.  Equally troubling, as the ongoing expansion in Panama has shown, the shadow that corruption and inefficiency cast over any major project tempers optimism and argues against premature celebration.

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by clalsstaff on July 9, 2014  •  Permalink
Posted in Asia-Pacific, Nicaragua
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Posted by clalsstaff on July 9, 2014

https://aulablog.net/2014/07/09/nicaraguas-canal-great-leap-of-faith-forward/

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