By Robert L. Scheier
The more than 700 attendees at the MIT Latin America conference March 10th in Cambridge heard a lot of upbeat talk about economic prospects for Latin America in general, and emerging markets throughout the southern hemisphere.
But they also heard warnings that Latin America is not doing enough to educate its people, reduce the power held by established elites, and improve labor productivity in the event that commodity prices (whose rise has helped fuel much of the Latin American growth) begin to sag.
Several former government finance chiefs painted a rosy picture of strong Latin American economies trading among and investing in each other, rather than relying on North American or European capital. Pedro Aspe, co-chairman of Evercore Partners and former treasury secretary of Brazil, said that the bulk of trade and investment will be among southern hemisphere countries, with the largest share of outside investments in Mexico already coming from Brazil, Colombia and Chile.
However, New York University Professor Ann Lee, author of What the U.S. Can Learn From China said that China’s government understands that in order to continue its growth it “must get away from relying on cheap labor” and start innovating the way countries such as Germany, the U.S. and Japan do. That means investing in education, raising the social stature of teachers, and making it possible for students to graduate college without massive student loan debt.
As China moves away from manufacturing into more knowledge-based services, this will reduce its need for natural resources. And this, says Lee, is where Latin America could suffer. “Latin America has had tremendous growth, but 90 percent of its exports are in resources,” she says, which is why it’s time “for Latin America to join China in investing in education…creating a culture that values innovation.” However, that will be a challenge for many Latin American countries, she said, where elites who are “threatened by competition” will resist such spending.
Christian Deseglise, managing director of global asset management at HSBC, agreed with this pessimistic outlook, saying exports of natural resources such as oil and food have given Latin America “the best five, six seven years of the last 40 years,” but that the productivity of Latin America has not increased and is falling behind that of other regions such as Asia. For that reason, he said, “the conditions for long-term growth in Latin America have not really improved.”
One informed player in the natural resources world – Roger Agnelli, former CEO of mining, steelmaking and energy giant Vale – dismissed fears of a boom or bubble in commodity prices. He told the conference that ongoing urbanization, as well as the development of much-needed infrastructure in countries such as China and India, will continue to drive demand for (and robust prices for) natural resources. His concern, instead, is that “commodity producers are not investing enough to meet future demand.”
Yet another shot across the bow of Latin American competitiveness came from serial entrepreneur Andres Barreto, the co-founder of tablet publishing platform Onswipe and music streaming side Grooveshark, in a panel on Latin American entrepreneurship. Rather than dealing with the paperwork and delays of incorporating in their native countries, he recommends Latin American startups to incorporate in the business-friendly state of Delaware, get an American lawyer to handle the paperwork and get an American bank account so they can quickly accept payments on-line and start making money.