Book Launch: Can Latin America Compete? Confronting the Challenges of Globalization

Speakers:

• Jerry Haar, Associate Dean, International Affairs and Projects, Department of Management and International Business, Florida International University (Editor)
• Christopher Sabatini, Senior Director of Policy, AS/COA; Editor-in-Chief, Americas Quarterly (Contributor)
• John Welch, Senior Managing Director, Bear Stearns (Contributor)
• Lisa Schineller, Director, Latin American Sovereign Ratings, Standard & Poor’s

Moderator:

• Eduardo Porter, Editorial Board member, The New York Times

Summary

Latin America experienced significant economic growth over the last few decades, with its economies expanding yearly at an average of 5 percent. Given the region’s history, this expansion raises an important question: Will this economic growth be sustainable, allowing the region to break the cyclical boom and bust pattern that historically characterized its economy? Can Latin America Compete? Confronting the Challenges of Globalization explores this question, offering an in-depth analysis of the many challenges currently facing the region. The book’s fourteen chapters revolve around a seeming contradiction: Latin America, rich in natural resources and talent, has fallen behind economically—both in the past and in the present—and struggles to compete with other emerging markets on a global scale.

On May 9, 2008, AS/COA organized a book launch and round table discussion with editor Jerry Haar, book contributors Christopher Sabatini and John Welch, and sovereign ratings analyst Lisa Schineller. Eduardo Porter from the New York Times moderated the panel.

Microeconomic vs. Macroeconomic Policies

Panelists opened discussion by stating that macroeconomic reforms implemented over the course of the last few decades were necessary but insufficient tools to catapult the region’s level of development. Technology, infrastructure, taxation, legal, institutional, and labor market reforms are among the challenges that need to be addressed if Latin America is to compete in the global economy. Development cannot be limited to a discussion of trade liberalization and neoliberal economic reforms but must encompass microeconomic policies.

Standard & Poor’s Lisa Schineller placed emphasis on macroeconomic policies, highlighting the fact that the region’s recent economic growth has been a result of the macroeconomic policies that were developed and implemented over the last few decades. While recognizing the relevance of microeconomic issues to the development of the region and global competitiveness, she maintained that policies on the macro level serve to provide a more solid economic base and pave the way for developing customized policies.

Labor Market and Capital Market Reform

AS/COA Senior Director of Policy Christopher Sabatini analyzed the inefficiency of the labor market in the region due to labor provisions that make its fluidity virtually non-existent. These stringent regulations discourage investment and force firms to hire outside the system. As a result, informal sector jobs grew at almost twice the rate (3.9 percent) as formal sector jobs (2.1 percent) between 1990 and 2005. In order for the region to insert itself as a global competitor, leaders must find innovative ways to integrate this informal sector, which represents 53 to 60 percent of the voting population.

Panelists discussed Brazil’s maturing capital markets as a promising example of Latin America’s ability to compete. Brazil is an especially relevant case because it has pursued capital markets reform longer than any other Latin American country. In addition, the country has experienced recent economic vibrancy; since 1994, inflation stabilized, equity markets increased, and the demand for capital grew immensely. These circumstances created a dynamic market for long-term risk capital. Due to this particularly fruitful moment in Brazil’s trajectory, its progress over the next five to 10 years will be especially relevant to the region’s competitiveness in the global economy.

The Future Scenario

Recognizing the challenges lying ahead, panelists agreed that microeconomic reforms need to be addressed realistically, given time needed for implementation and resulting benefits. By addressing these issues, Latin American countries can move toward more even wealth and resource distribution while improving global competitiveness.

Competitiveness serves as a political challenge as well. Panelists discussed the importance for politicians to form new coalitions to meet the needs of the middle class, who will represent the majority of the voters and develop policies. As democracy matures in Latin America and the region plays a larger role in the global economy, reforms should be directed at the bottom rather than the top.