Latin American Conferences (Harvard & Babson)

Latin American Conferences    (Harvard  &  Babson)

We have been asked for our thoughts on Jon Weber’s presentation at the Babson College Entrepreneurship Forum held on April 24th, 2009. Having attended the other Latin American Conference at Harvard on March 7th, I can declare that Weber´s talk will not only tear down the false hopes of many of the “wishful thinkers” that were in the Forum at Babson, but would have also brought down to earth those that attended the conference at Harvard, had they heard him!

Weber was brilliant in describing the situation throughout the Americas. In the context of the present world economic crisis and in spite of Latin America´s ample experience in getting through crisis, there is very little that can be achieved today, if any. The combined problem of discouraged first world investors and the traditional lack of capital throughout the Americas, south of the border, make up a very gloomy picture. 

Focusing on entrepreneurship without fixing the structural economic and political traditional problems in the region first is incorrect. Under the pretext of free enterprise and entrepreneur self-righteousness, what most likely will be fomented is not wealth producing, job creating chains of production but enterprises that exploit the prevailing situations and abuse low paying wages. Financial services high margin provider risk takers, jump to the opportunities granted by the circumstances, swapping and barter trading debt in original currencies, taking advantage of local exchange controls or lack of foreign currencies in the region. In both cases interesting margins are indeed made outside the region, maintaining poverty inside those nations.

Business obstacles were dully diagnosed by Weber, and he knows them well, he has lived through the problems and it shows he has had his share of frustrations as well as successes. One must be a bit of three things, a little masochist to withstand the state of affairs, naïve like the organizing Forum students or worse a clever unscrupulous businessman to reject that a new order is needed to bring wealth and well being to the impoverished local population. Weber pointed out the problems gracefully without annoying anyone, quite an achievement in itself!

Yesterday’s world status is presently distorted, to say the least, a new set of ideas and a fresh approach is essential. Maybe, Jon Weber, starting from his personal experiences, could very well be in a position to point out that the traditional way of thinking in the United States regarding Latin America must now be different. The program of these conferences should be focused on what changes are needed and not on the rosy wishes of some Latin American kids studying business in American Colleges!

For traditional even historical reasons the United States has always kept all Latin American countries at arms-length. There has never been a proactive, effective and long lasting policy towards the region. Perhaps the historical differences in culture between England and Spain and Spain with England, have prevailed through time. Anglo Saxons in Spain and also in Spanish speaking countries are still today not fully accepted and in English speaking countries the Spanish are not fully trusted, there exists an enduring dislike of each other and a Spanish inferiority complex inherited and strengthened by Latin Americans.

On the other hand the United States has kept up in close touch with its primary interests, in Europe, but also since the end of World War II, in Asia. Europe is the psychological natural place for most Americans; after all, their forefathers migrated from there. Migration from Spain to the Americas was not to the USA but to Mexico, Central and South America. In effect this fact has most likely kept our differences alive. The United States therefore puts very little attention to the region.

American economic, cultural and political influence after the two World Wars expanded and transferred great wealth to the United States. In the late 1940’s, 1950’s and even 1960’s all good products, equipment and in general all quality merchandise had the “Made in USA” stamp. The United States concentrated in developing its internal market and the internal markets of defeated adversaries and allies and supplied them.

This expanded demand for USA made goods, services and investments, forced the American standard of living up and created a prosperity never seen before. In contrast the Soviet Union instead of developing its economy, internal markets and production chains, concentrated in expanding its influence by means of political coercing. The strength of developed internal markets is clearly appreciated by this comparison. Latin America became a supplier of raw materials to the growing USA market. To my knowledge, for instance, there has never been a Latin American manufactured brand, circulating the world markets.

Each nation in Latin America is different, but not in race, or religion, or social structure. It is different from the others in its political controlled environment and the degree of economic development. The structure in each country is designed to favor a few, generally those in power and their buddies.

The system was established by a few outnumbered conquistadors controlling vast territories and a great number of indigenous populations; the scheme has now been enriched and expanded in various effective modern manners. Revolutions after revolutions have not changed the condition. Democracy is valid only amongst the elites, changing hands from one elitist group to another and leaving the poor masses under their control. There are exceptions where the original settlers found very little native population like in Chile and Argentina, but they also found it convenient to adopt the same social structure of favoring the few in control.

The same families in most Latin American Countries seem to rise in controlling situations, time and time again, they are or have been the ruling politicians, or military or clergy or bankers or industrialists, and they have shown a unique ability to chamaleonize according to the prevailing circumstances. Perhaps being the educated and trained population the rest needs them, accepting them and because they are anyhow accustomed to them…

The other important elite are the ex-patriot executives living in Latin America, running subsidiaries and absorbing the privileges that have been designed by and for the mentioned elites.

It seems that it is in the interest of these groups, the national and the ex-patriot resident elites, to keep things as they are. They are the private sector of each country that colludes with the government in power to keep things as they have always been. How else could the PRI last for over 70 years in Mexico and a so called communist regime last so long in Cuba and a new “elected forever” socialist regime arise in Venezuela. All have stolen the political power from a weakened elite prevailing at the time of their grabbing the reins of government, but their sole ambition has been to sit in the chair of power and accumulate riches.          

The most important reason for the United States to seek a new approach and to change its way of thinking urgently towards the region is the biggest world migration recorded in history, coming from Latin America to the United States, Mexico leading the way.

The so called Hispanic or Latino minority is now a significant political force in America and becoming stronger every day. However the Immigration Reform as is presently envisaged will fall short of what is truly needed, as it only looks inside the politics in the United States without considering the reasons and conditions in the labor expelling neighbors. But of more importance is the fact that there are now over 20 million Latinos, legally or illegally living presently in the USA and pretending they do not exist is not a solution, they are here because they were and are needed! One reason could well be the aging American population and because they have so far not truly competed with the established work force. They have been ignored and maybe received following the American traditions of accommodating immigrants.

Slowly by outsourcing production to cheaper labor places the United States has corroded its industrial strength but kept high its population’s standard of living. For years we have observed that salaries in America were high and everything else was cheaper than anywhere else, generally speaking. The recent past 20 or 30 years of economic progress have also contributed to a very wasteful society. Certainty in comfort and well being became important factors in obtaining votes. Productivity was lost in manufacturing; it was actually expelled to other countries and only kept in high tech areas.

To keep the present structure strong and the standard of living high, the United States has needed cheaper products, produced in countries that keep their population earning powers low, except for the ruling elite. Productivity is not the main concern in this game. This is why Globalization was invented. Life is not the same to a working man in America or Western Europe than for the workperson in Asia or Latin America.

So no wonder, the population in the third world starting with Mexico has discovered that the only present chance for prosperity is moving north! The same is valid for Eastern Europeans or North Africans migrating to Western Europe.  How will these migrant populations act once gaining what they most want, remains to be seen but surely significant change is in sight.

And where are the Dollars that have been paid to Latin America for those imports of manufactured goods and raw materials? The answer is very simple: Back in the USA! Every Central Bank in Latin America has extraordinary foreign currency reserves today, deposited in US Treasury instruments. Not as huge but exactly like China! And in identical manner as Iraq…The proceeds of exports comes back to the United States rolling over export orders and financing them in every round. Profits made by Latin entrepreneurs are deposited in the safer financial world of America.

A very contrasting state of affairs indeed; validating our remark that the expected Immigration Reform will be born obsolete…! The exporting countries maintaining a poor, low paid working class, in some cases close to slavery standards, but very high foreign currency reserves! While the standard of living increases in the USA by the effect of what it seems a never ending supply of cheaper and cheaper goods and profit repatriation.

It is nothing else but a gigantic ponzy-scheme!

Before something that cannot be controlled happens, our suggestion is for the United States to take the lead in reforming its own internal production chain including manufacturing in its neighbor countries starting with Mexico and Canada, to raise the standard of living on both parts of the equation by stimulating demand for a greater supply from the region.

This new supply chain can then be extended to other countries in the Americas; the only countries that are becoming diversified presently are perhaps Brazil and Chile. Productivity will be the main measuring rod allowing production to be competitive with other regions in the world. Increasing the standard of living in the Americas by productivity seems to be the most desired path to take. Currencies will circulate within the region decreasing outside dependence and increasing well distributed wealth.

There are plenty of funds immediately available to be put to work in truly producing wealth investments, presently sitting in the US Treasury, as foreign reserves, right now only increasing the mentioned ponzy-scheme to a dangerous point.

Putting those reserves to work will be the main factor in decreasing poverty and increasing consumption. North America, starting with Mexico, is today a market of close to 500 million people and apart from having all the natural resources that would be needed in its territory, it has the technical ability, ample proven skills as well as a strong labor force and available starting funds to carry these ideas through. If a plan is deployed, then when other countries in the Americas are incorporated the market will increase accordingly.

Inducing centers of higher learning to design possible plan alternatives to carry out these ideas would be a desirable first step… Jon Weber an alumnus of both Babson and Harvard can suggest the organization of this Forum at either institution or a joint Conference, perhaps.

Although historically natural for Spain, the region is too large for them to make the same impact as the USA would, it is far and there is no meaningful migration from the region to Spain.

However the existing Spanish investments in Latin America are a great source of strength for Spain which has become the second largest foreign direct investor in the region after the United States. The main Spanish known corporate investors are: Santander (now also present in America), Telefonica, BBVA, Repsol, Endesa, Iberdrola, Gas Natural, and Union Fenosa.

Spanish investments however tend to help keep the status-quo in place, to be free and allowed to transfer profits to Madrid and will not become the required agent of change to bring wealth to the region, after all they are credited in having invented the prevailing centralized repressive systems…

Víctor E. Treviño

   Entrepreneur