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Tuesday, June 12, 2007
Perspectives

Latin America: Strategy for Competitiveness

Capital will go to those markets that promote education, innovation and economic freedom.
Carlos Gutierrez, US Commerce Secretary. (Photo: US Commerce Department)

BY CARLOS M. GUTIERREZ

I’ve had the good fortune of working and doing business in both North and Latin America since the 1970s. (...) I can recall what the commercial climate was like a generation ago. And I see the changes that are taking place. Over recent decades, nearly all of the Western Hemisphere has progressed in significant ways.

  • Overwhelmingly, the countries of the Americas have leaders elected by their citizens.
  • 14 leadership elections were held between November 2005 and December 2006.
  • Since 1990, growth has averaged nearly four percent for the region.
  • Nine countries in the region had gains in per capita GDP in excess of 50 percent between 1990 and 2006.
  • Inflation has come down dramatically, averaging about four percent since the late 1990s.
  • Standards of living have been rising, though unevenly.
  • Exports from the region’s countries are up over 200 percent since 1990, totaling more than $2 trillion in 2006.

There is much of which to be proud. But we can’t be complacent. Many developing countries in the rest of the world are progressing at faster rates.

The World Economic Forum’s 2006-2007 Global Competitiveness Report places only six Latin American/Caribbean countries in the top half (out of 125 countries). Five ranked in the bottom quarter.

  • Over the past 20 years, China’s economy has grown by nearly 10 percent a year.
  • In 2006, India’s economy grew by more than nine percent.
  • South Korea’s economy has recorded sustained robust growth for decades.

According to the “Competitiveness in the Americas” report ..., while many regions are increasing their share of global GDP, our region’s share declined from 34 percent in 1990 to 29 percent last year.  (...)

We in the Americas need to continue building strategic partnerships and regional economic frameworks to remain globally competitive. And we need to do this to extend the benefits of democracy throughout the Hemisphere.

Working together to promote open markets, create jobs and encourage investment is strongly in the long-term best interest of all our citizens. When countries are prosperous and peaceful, there is security, opportunity and hope. Businesses and families can plan for the future. (...)

World Bank research points out that during the 1990s, incomes in developing countries that lowered trade barriers the most, grew three times faster than incomes in countries that remained closed.

In the United States, we’ve negotiated free trade agreements with 12 countries in the Western Hemisphere.

Our regional trade agreements — starting with NAFTA, then Chile and most recently with CAFTA — have delivered results.

From 1993 to 2006, trade among the NAFTA nations climbed 198 percent, from $297 billion to $884 billion. Last year U.S. exports to Chile were up 30 percent, while Chilean exports to the U.S. were up 43 percent. And two-way trade between the U.S. and the six CAFTA countries totaled $38.2 billion. And the appetite for free trade is growing throughout the Hemisphere. Mexico now has a trade agreement with the EU. Chile has an agreement with Korea. Panama has an agreement with Taiwan. And the list goes on and on.

Countries in the Asia-Pacific are also driving toward regionalism at an accelerated pace. For example:

  • The ASEAN group is negotiating with India, Japan, Australia and New Zealand.
  • They are also considering an FTA with Korea and possibly the EU.
  • India has proposed a “Pan-Asia Free Trade Area.”
  • And Europe continues its drive toward free trade arrangements.
  • It has indicated an interest in FTAs with Korea, India and the ASEAN countries, as well as with some of the regional groupings in the Americas.

There is no turning back. As a region, we must ensure that we position our industries to be competitive in this increasingly global business environment. (..)

We recognize there is no “one size fits all” solution to regional challenges. But there are common issues that can be addressed to improve competitiveness. And there are best practices which can be shared and adopted.

Our focus ...is on four important elements of competitiveness:

First is education and workforce development. There’s no better investment than that in human capital and a skilled workforce. The Americas have made great strides in improving literacy and primary and secondary school completion rates. And college enrollment rates have increased. But there are still places throughout the hemisphere where children are not in school. This educational divide is perpetuating income inequality and poverty. Future hemispheric competitiveness depends on improving education. We need to ensure that in the Americas every boy and girl has access to a decent school.

Second is innovation. Innovation drives wealth and higher standards of living. Innovation happens when we take the discoveries made in a laboratory—in nanotechnology, biomedicine, aerospace and other areas—and introduce them into the marketplace. But innovation also happens outside of a lab. Innovations can be slight changes in a product, process or in a small business which serve to provide opportunities where there were none and allow more people to participate. Today, a piece of electronic equipment can have parts from three different continents, creating jobs around the globe where there none.

The creation and marketing of new products, processes and technologies is essential to maximizing productivity and keeping a nation on the cutting edge of global competitiveness. In the United States, intellectual property accounts for over one-third of the value of all publicly traded U.S. corporations. This is an amount equal to almost half of the U.S. GDP. Today, China and India are rapidly commercializing technological advances, educating highly skilled workforces, and offering world-class research opportunities.

In our region, there are examples of addressing these competitive challenges. One response is the technology village that CREATE Tech Village Corporation is establishing in Santiago, Chile to generate new U.S.-Chile research and academic partnerships. We need to do more.

The third element important for competitiveness is small business and entrepreneurship. Small businesses employ a large share of workers in the region.  The Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal assesses a business climate based on: regulations; trade; fiscal policy; monetary policy; property rights; corruption; and labor conditions. Higher levels of per capita GDP are typically associated with higher levels of economic freedom. Businesses must have the freedom to grow, trade, and create jobs to drive national prosperity.

I recently heard President Bush tell the story of an indigenous farmer in Guatemala. This man was struggling to feed his family. But he saw an opportunity in trade. He organized an association of small farmers to grow high-value vegetables to sell overseas. They took out a loan to build an irrigation system. And eventually they were selling their crops to large companies like Wal-Mart Central America. Today, Labradore Mayas’s internationally sold vegetables support more than a thousand jobs.

Many a success story starts as a dream. We need policies that will encourage and enable the dreamers and risk-takers to create new businesses and jobs, and to have the open markets to sell their goods and services throughout the hemisphere.

The fourth and final element is global supply chain strategies. No economy can be truly efficient if it imposes barriers that slow the movement of goods. Companies must become competitive by ensuring they are using the most streamlined processes, advanced technologies and efficient networks. Governments must ensure these businesses can compete globally by reducing technical, infrastructure and regulatory burdens that inhibit progress.

Efficiency and transparency in customs processes, licensing procedures and regulatory requirements will enable businesses to plan ahead, work effectively in multiple markets and succeed on a global scale.  Physical infrastructure is another area in which governments can help promote efficient supply chains.

China has recognized this reality. Investment in China’s transportation infrastructure grew at an annual rate of nearly 19 percent during 2001-2005. That included:

  • More than 215,000 miles of new roads, including 15,000 miles of new expressways;
  • Over 900 new berths at ports adding 540 million tons of handling capacity; and,
  • 4,000 miles of additional railway.

These investments have paved the way for rapid growth.

Western Hemisphere countries can benefit by developing adequate roads, ports and other infrastructure and communications investment that allows companies to move goods, services and ideas cheaply and efficiently.

We are seeing it happen in “Highway 2000” in Jamaica, “Transmilenio” in Colombia, and Peruvian Customs Outsourcing.

Partnering in regional and global production enhances the comparative advantages and economic prospects of all countries and firms.

Today, every country in the world is competing for capital. Between 1991 and 2005, the Western Hemisphere’s share of world foreign direct investment declined slightly from 29 percent to 27 percent.

Capital will go to those markets that promote education, innovation and economic freedom. Capital will go to those markets that welcome trade and investment, the foundation of growth. When you have growth, everything is possible.

Our vision for the Western Hemisphere is one of growth and prosperity. Growth empowers people with the tools to take ownership and improve their lives. It promotes trade and investment. It encourages economic expansion.

Growth strengthens the delivery of true social justice, which we believe is about giving everyone an equal opportunity to succeed.

However, there is a competing vision, one that:

  • Spreads poverty, not prosperity.
  • Empowers governments, not people.
  • Discourages creativity, individualism, free speech, and free markets.

We have the opportunity now to continue with the progress of recent decades. We have some of the best minds in the Western Hemisphere here to share their expertise, experiences and success strategies and to grow their businesses.

In strengthening partnerships and competitiveness in the Americas, we can extend greater opportunity into every home, reduce need and hopelessness, and raise living standards for all of our citizens.

That is the true social justice.

Carlos M. Gutierrez  is the US Commerce Secretary and a former Chairmand and CEO of Kellogg Company. This column is based on his remarks to the Americas Competitiveness Forum in Atlanta, USA on June 11, 2007.

 

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