No mention of Latin America in the 3rd Presidential Debate

            After watching the debate the other night, I recall Mitt Romney briefly mentioning the importance of the Latin American economy. Yet that was all that was mentioned about Latin America.   We’ve heard so much rhetoric about “being tough on China,” but nothing has been said about the optimistic economic ventures that lie ahead with Latin American countries like Mexico.  It’s odd that one of the most vital aspects of U.S. foreign policy was not even considered a topic of discussion in the debates.  Just to give a ball-park figure of our trade involvement with Latin America, the U.S. exported more to Mexico than to Russia, India, and China combined in the past year.  Other sources claim that roughly six million American jobs depend on trade with Mexico.  HSBC has recently reported that by 2018, Mexico will overtake Canada and China in becoming America’s main source of imports.  Looking more in depth into the topic, I came across an article in The Economist that pairs well with our recent reading about the Mexican Tequila Crisis in Paul Krugman’s The Return of Depression Economics.  The article, “From Tequila Crisis to Sunrise,” describes how the Mexican economy has steadily grown in the past few years and how Mexican banks have become stronger and much more reliable.  This sort of news is a significant departure from their bad reputation in the early 90s when they lost financial credibility by completely botching the devaluation of the peso.  Today, the tables have turned. According to the article, “The countries’ changing fortunes are partly due to slowing growth in China, a big buyer of Brazilian commodities and bitter rival of Mexican manufacturers.”  Pairing that with an increase in Chinese wages, and the rising cost of shipping across the Pacific Ocean, Mexico has become progressively more attractive to foreign investors.  Not only have Mexican banks become profitable due to the promising economic environment, but they have also become increasingly stronger and more responsible.  For example, the Mexican government has taken measures to restrict foreign financial institutions in Mexico, like Spain’s Santander, from transferring capital out of their Mexican subsidiaries to address problems in their home countries, according to a recent Fox News Latino article.  The banks also have extremely strict credit-scoring process for interested borrowers.  These sorts of measures would certainly be reassuring for an economist like Krugman who blames the tequila crisis of the early 90s on Mexican policy errors.  Now that Mexico is attractive again for foreign investment, it seems that this time around they have their heads on straight, and hopefully we won’t see another  tequila crisis as long as they keep their currency stable.

The one thing that is holding them back however is the violence of the drug cartels.  According to Jorge Sicilia from BBVA, without the violence and influence of the drug cartels in the region, the Mexican economy would have grown at a rate 1% higher than the rates of the past few years.  The cartels are a parasite to the growing economy, as they extort Mexican businesses and deter tourism to areas like Acapulco with their public displays of violence.  During the debate, had more time been allotted to the topic of Mexico and the Latin American economy, or had Romney pivoted like he does so well when asked about what loopholes he'll close in his tax plan, I think it would have been an advantage for Romney.  It would have given him the opportunity to elaborate his “Campaign for Economic Opportunity in Latin America,” and it would also have provided fodder for criticizing Obama over the disastrous Fast and Furious gun-walking scandal.  Unfortunately, the only sound byte I heard regarding Latin America was during a brief tangent from Romney: “The opportunities for us in Latin America we have just not taken advantage of fully. As a matter of fact, Latin America's economy is almost as big as the economy of China. We're all focused on China. Latin America is a huge opportunity for us.”   
So what have we learned from these debates?  The military has fewer horses and bayonets, Mitt Romney has binders full of women and he also loves teachers, Big Bird, and the economic opportunities in Latin America.  Seriously though, If Romney wins he will initiate CEOLA within his first 100 days in office.  If that's the case, I’m interested to see how trade relations between the U.S. and Latin America further develop in the years to come. 

You reap what you sow...just sow more

I just read an article today on Reuters that directly ties to Kate’s blog-post about Africa’s resource curse.  The article highlights a recent study by The International Maize and Wheat Improvement Center that found that countries in Sub-Saharan Africa are only producing 10-25% of its wheat production potential.  As Kate noted, resource-rich African countries have failed to make a large dent on their poverty levels.  But the article I read points to brighter futures as long as some of these agriculturally rich nations take actions to increase potential wheat production.  It would be a big step forward towards self-sufficiency as it would help curb starvation, limit political instability, and avoid the price shocks of global wheat imports.  As the report estimates, in 2012 African nations will have spent approximately $12 billion on wheat imports.  This is great for American farmers, considering a significant amount of crops like wheat and corn are exported to Africa, but this places impoverished nations in a tight spot when the prices on these imports spike unexpectedly.  Especially this past summer, record level droughts in the Midwest spiked food prices internationally.  I remember various news sources predicting food riots and political instability in impoverished nations that rely on the US for food imports, a la the bread riots of years previous in Mozambique. As the IMWIC suggests, many Sub-Saharan African nations do not need to subject themselves to these sorts of peril.  As Bekele Shiferaw, a lead author of the study notes, “If Africa does not push for wheat self-sufficiency, it could face more hunger, instability and even political violence.”  Rather than spending the money to import the crop themselves, countries like Rwanda, Burundi, Ethiopia, Kenya, Madagascar, Tanzania and Uganda could take the money spent on imports and invest in fertilizer as their natural resources have the proven biological capacity to produce high yields of wheat production.  Essentially, why rely imports with unstable prices when you can reap the benefits of local wheat production?  The study points to 2008 as a perfect example when Zambia and Rwanda were able to dodge international price shocks because they were able to sufficiently produce domestic crops. 

Though the biological potential is there, infrastructure is the one thing that stands in the way.  According to Hans-Joachim Braun, the director of the IMWIC’s wheat program,  “The big issue is the road infrastructure. It doesn't help very much if the farm is far from the cities.” 

As noted by Stiglitz in Making Globalization Work, Africa was unfortunately bypassed by the Green Revolution of the late 20^th century, due to “widespread corruption, insecurity” and “a lack of infrastructure” (42).  It is within this issue that Kate’s blog-post comes into context again.  If they decide to do so, how will these nations finance projects to improve their infrastructure?  Is their path to agricultural self-sufficiency contingent upon foreign direct investment in infrastructure?  If so, there is the possibility of continual inequality and corruption due to opaque policies and a lack of international governance.  In the years to come, it will be interesting to see how these Sub-Saharan African countries will go about obtaining complete self-sufficiency in wheat, if they choose to do so.

Patents, Monopolies, and New Growth Theory

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I think our class discussion on Tuesday regarding Stiglitz’s view of patents connects well with Peter’s blogpost a few weeks ago about Paul Romer’s New Growth Theory.  Stiglitz mainly dedicates his discussion of intellectual property rights in Chapter 4 in Making Globalization Work, but in Chapter 7 he refers to it again when discussing the ills of multinational corporations.  He criticizes Microsoft’s monopoly power in PC operating systems, claiming it to lead to higher prices and less innovation.  On this notion, Romer would disagree.  In a 1999 Wall Street Journal article titled “Wealth of Notions,” Romer highlights some key aspects of his New Growth Theory, using Microsoft as a prime example.  He notes that Microsoft Corp. invested hundreds of millions of dollars to develop the first copy of Windows software.  The next copies after that cost virtually nothing in comparison.  Essentially they’ve built their own platform that allows for immeasurable amounts of innovation in the future.  Yet unlike Xerox Corp. or Apple Computers who adapted their own innovative platforms but set prices very high, Microsoft sold their technology at comparatively lower prices.  Romer would agree with Stiglitz when it comes to limiting patents.  Romer acknowledges that knowledge-based economies tend to produce quasi-monopolies like Microsoft, but with limited patents they have to face what Romer calls “their inevitable comeuppance,” and what economist Joseph Schumpeter called “creative destruction.”  Essentially, with a shorter window of patent protection, Microsoft faces the possibility of other firms innovating off of its original operation system platform.  The looming effect of this competition would spur a quasi-monopoly like Microsoft to innovate faster.  In comparing Romer and Stiglitz’s deliberations regarding patents, innovation, and mutli-national corporations, its apparent that economic growth and efficiency, especially in the knowledge-based economy, hinges heavily upon the transferring of ideas between multinational corporations.  In Stiglitz’s view, these ideas need to be made freely available especially for developing countries to flourish in this global economy.