For A Few Dollars More

La Republica has a graphic illustration of the struggles developing countries like Peru have had to advance over the last thirty or so years.

The table shows Peru's real per capita GDP, measured in 1994 soles, from 1967 to 2006.



As can be seen, current income per person is only a little higher than it was in the mid-60s, and has just crept above the previous high point in 1975, at the end of the presidency of nationalist General Juan Velasco Alvarado.

Each successive president has a small claim to fame. Alan Garcia's previous term saw a minor peak in 1987, before GDP crashed amidst hyperinflation. Alberto Fujimori introduced the 'Fujishock' of neoliberal reforms in 1990, but even amidst the sell-offs and influx of capital of the mid-90s, his best year was not even as good as Garcia's.

It's quite intriguing that after fifteen years of neoliberal policies, per capita income has only just surpassed what it was at the end of seven years of rule by the Soviet-aligned nationalist Velasco. However, as columnist Humberto Campodónico points out, in these last years of strong growth, wage and salary earners' share of GDP has dropped from 25 to 21.8%.

The True Spirit of Christmas

One of the reasons for the success of Christianity in general, and Catholicism in particular, seems to be that as it spread it didn't insist on wiping out every aspect of local religions, but creatively absorbed some of their stories, ceremonies and symbols. It's well known that Easter and Christmas are derived from pagan festivals that pre-exisited Christianity.

A whole lot of extra layers were added as Catholicism spread though Latin America. To this day the old traditions such as voodoo in the Caribbean and earth-worship in the Andes happily co-exist within and alongside Christian contexts. I recall in Guatemala there was a local 'saint' called San Simon who was also the capricious Mayan god Moshimon. People brought offerings of cigars and alcohol to the 'saint' in his church niche in return for spiritual favours.

In western culture we prefer an acknowledged duality -- we gorge on chocolate at Easter and expect presents at Christmas, while occasionally piously reminding ourselves of the 'true spirit' of these occasions. Ironically, the historical process is being repeated, as our new universal religion (capitalism) absorbs the trappings of our older ways.

In Colombia the traditions are still blended more seamlessly. Here, we teach children that the legendary Norse figure of Santa Claus will deliver them gifts at Christmas. In Colombia, the tradition is that it's the Baby Jesus who brings presents. Children are expected to write letters to the Baby Jesus, informing Him what they'd like for Christmas.

You'll excuse my flippancy in noting that as one part of an omniscient Holy Trinity, He will definitely know whether you've been naughty or nice.

Of Dogs and Demagogues

While commending Peruvian president Alan Garcia for engaging directly with the public in written form, I have to join many other critics in finding his arguments distinctly lacking and his style dogmatic and bullying.

At best, his 'dog in the manger' article amounts to a grand statement of faith in the tenets of neoliberalism, about ten or fifteen years out of date. At worst, it's an apology for a continuation of the 'open veins' economy -- sucking out the country's natural wealth for the benefit of foreigners and a small local elite.

The first major problem with Garcia's article is that he offers nothing really new. Peru's president could be channelling the International Monetary Fund as he stresses need to establish (large-scale) private property rights and declares his faith in the transformative power of 'investment'. But Peru has already had at least ten years of neoliberal orthodoxy, and five years of steady economic growth, little of which has so far trickled down to ordinary people.

It was impatience with this state of affairs that drove the 2006 election. Garcia was elected to deliver a stronger State and enact social democratic reforms. His slogan of 'responsible change' captured rather well the national mood for improving the lot of the majority, while maintaining a cautious faith in free-market fundamentals.

On the campaign trail, Garcia promised to finish the stalled General Labour Law, end large-scale employment outsourcing, establish royalty payments for mineral resources (whose soaring prices are giving mining companies bonanza profits), and review the trade agreement with the US 'line by line' to strike a better deal for Peru.

These are politically difficult tasks, and the current government can't be entirely blamed for not having made much headway with any of them. But instead of explaining how the same objectives can be achieved gradually or through different means, Garcia seems to have tossed aside any ambition for the government to play a role in building a fairer society.

Worse than Garcia's ideological swing is the weakness of his excuses for not doing more. When he says that there is no money to meet demands for a health and social security safety net he conveniently ignores the fact that Peru has the lowest tax take in Latin America, notably lower than comparable market economies like Chile and Colombia. He completely dismisses concerns about the environmental impact of mining as 'last century' but presents no plan for an independent environmental authority that might be trusted to assess the real impact of individual mining projects.

The second major problem with Garcia's rhetorical positions is that they're divisive and antagonistic. The ongoing poverty and exclusion, especially of those in the rural south of Peru, means democracy remains extremely fragile. Strike and marches are commonplace. Nationalist leader Ollanta Humala is always ready to stir up trouble, and memories linger of his brother Antauro's aborted 'uprising' at New Year 2005.

You'd assume that a social democrat with ambtions to statesmanship would try reaching out to those who voted for Humala and convincing them that more can be achieved through democratic reform than by constant fist-shaking. Instead, Garcia chooses to blame and browbeat. His tirade about the 'idleness' of the land, forests and oceans appears to imply that the occupants are themselves idle, and to be blamed for their own poverty. He accuses dissenters and and environmentalists of being 'old communists', brushing aside the same genuine concerns about the environment and labour rights that led US Democrats to insist on changes to the US-Peru trade deal.

Finally, and most seriously, Garcia offers nothing positive. There are no case studies of successful small business or communities; no empowering vision of how ordinary Peruvians can develop their unique skills and traditions into valuable niche industries -- indigenous textiles, jewellery, crafts, eco-tourism, wine and pisco, highland crops and health foods being just a few contenders.

There is dismissal of any other form of ownership other than large scale commercial property. Garcia is probably right in saying that there needs to be more medium-size farms with the ability to invest in modern production. But he fails to describe how ordinary Peruvians might make such advances themselves through co-operatives, better access to credit, or his own government's Sierra Exportadora programme. The suggestion seems to be that small landowners should just sell up to foreign investors and join the migration to the already-overcrowded cities.

The only mention of a positive example is the town of Ilo, which Garcia says is 'the most advanced in Peru' thanks to 'mining and fishing'. This is disingenuous. Ilo's progress has come after 20 years of co-ordinated community action, battling with the Southern Peru Copper Corporation to clean up the town's contaminated air and beaches As late as 1997, sulphur dioxide emissions around the town were fourteen times the level recommended by the World Health Organization.

A further irony lies in the countries he holds up as examples of progress: Germany, Japan and Korea are all relatively resource-poor nations that got where they are today through the hard work and ingenuity of their people, rather than by exploiting mines and forests.

With deep divisions that go back to the Spanish conquest, Peru desperately needs constructive leadership that convinces people they are capable of improving their own lives. Technocratic previous president Alejandro Toledo was a failure in that respect -- muddling his way to a historically low approval rating of 7 percent. Alan Garcia is a much more populist figure, with a gift for appealing directly to the public. It's a pity, then, that in this case he has wasted his considerable rhetorical talent by delivering a message that is anything but unifying.

Categories: Alan Garcia, economic development, Peru, el perro del hortelano, Amazon

Alan Garcia's Dog in the Manger

It's always good to see governments be open with the public about the vision that drives their policies and actions. It's also relatively rare that they attempt to persuade by written arguments that can be analysed and critiqued. For this reason, it's quite impressive to see Peruvian president Alan Garcia publish a lengthy op-ed in Lima newspaper El Comercio, in which he argues that Peruvians opposing greater exploitation of the country's natural resources are 'dogs in the manger' who are impeding progress.

So I've translated the entire article and posted it below. Even for those who aren't especially interested in Peru, this is an interesting contribution to the debates about economic development, environmentalism, sustainability and democracy. This is not to say that I agree with all or even most of Garcia's argument: in many respects it's disappointing, out of touch and even perplexing in its choice of theme. In another post I'll discuss some of these criticisms.

Translation note: I've kept it pretty literal, so it has a slightly awkward feel in places. Garcia uses in several places the expression 'poner en valor' (literally to 'put into value'), which I understand has no real English equivalent, being a Spanish transliteration of the French phrase 'mise en valeur'. I've generally translated this as 'to make productive'.

By Alan Garcia Perez, President of the Republic

There is great demand for legal titles to family homes. Every Peruvian knows that a legalized property that can be sold, mortgaged, or passed on through inheritance, can improve their situation. But Peru as a whole has the same problem and doesn't know it. Many of her goods can't be made productive, can't be sold, invested in, or made to generate employment.

There are millions of hectares for forestry that are idle, millions of hectares more that communities and local associations haven't cultivated nor will cultivate, as well as hundreds of mineral deposits that can't be exploited and millions of hectares of sea that are never commercially fished. The rivers that run down either side of the cordillera are a fortune that goes to the sea without producing electrical energy. There are, as well, millions of workers that don't exist, although they labour, since their jobs don't provide them with social security or a pension for later on in life, because they don't contribute what they could to building national savings.

So there are many unused resources that aren't tradeable, don't receive investment, and don't generate employment. And all that because of the taboo of left-behind ideologies, because of idleness, indolence, and the law of the dog in the manger who prays: “If I don't do it, let nobody do it”.

The first resource is the Amazon. It has 63 million hectares and abundant rainfall. Within it forestry could be established, especially in the 8 million hectares already destroyed – but for that, property rights are required; that is, a secure plot of land of 5,000, 10,000 or 20,000 hectares, since on smaller areas of land there won't be formal, long-term investment with high technology.

At present the only concessions that exist depend on the will of the Government and the bureaucrats who can [later] modify them. For this reason nobody invests, nor creates one job for every two hectares, as should be the case; nor is there wood processing or furniture exporting. For the most part, these concessions have only served to extract the finest wood, deforest and abandon the land. In contrast, formal property ownership by large collective businesses like pension funds will allow long-term investment, from planting through to harvesting, years later.

Those who are opposed say that property rights cannot be granted in the Amazon (and why so in the coast and the sierra?). They also say that granting property in large lots would give profits to big business; sure, but it would also create thousands of formal jobs for Peruvians who live in the poorest areas. It's the dog in the manger.

Let's respect the virgin native forests, but let's start with the 8 million hectares that have been turned into deserts and destroyed in recent years by the scorched-earth concessions, the [cultivation of] coca and indiscriminate logging. There, a million jobs can be created, as well as employment in the manufacture of furniture.

It's an embarassment that Chile exports US $2 billion in wood without having a hectare of the Amazon, Uruguay $1 billion, Brazil $8 billion, while Peru barely exports $200 million.

The same is true in a second area – the land. For there to be investment, secure property rights are needed, but we've fallen into the trap of granting small plots of land to poor families that don't have a cent to invest, so apart from the land, they have to ask the State for fertilizers, seeds, and irrigation technology as well as guaranteed prices. This 'minifundista' model without technology is a vicious circle of misery. We must support medium-sized properties, and an agricultural middle class that knows how to obtain resources, find markets, and can create formal employment.

But what do we see in this country? When someone sees a beautiful beach, someone else already claimed it years ago and hasn't invested a cent to make a nice swimming area, so it will stay for decades more without value. The hills that surround Lima are like that – where investment could work miracles. So are all the cement quarries claimed but never worked.

In addition, there are true peasant communities but also artificial communities that have 200,000 hectares on paper but only use 10,000 hectares while the rest is idle property, 'dead handed', while its inhabitants live in extreme poverty waiting for the State to bring them help instead of making their hills and land productive, leasing them, trading them. Because if this land is unproductive for them, it would be productive with a high level of investment and the know how that a new buyer brings.

But the rhetoric and deception says that these lands can't be touched because they are sacred objects and that this communal organization is the original organization of Peru, without realizing that it was a creation of Viceroy Toledo to round up the indigenous people into the unproductive lands.

The third area is mineral resources, of which Peru has the greatest riches in the world, not only for the quantity but also the variety of minerals, so that if there's a drop in price it can be compensated for with other products. However, barely a tenth of these resources are being exploited, because here we still debate whether mining techniques destroy the environment, which is an argument from last century. Of course it destroyed [the environment] in the past, and the environmental problems of today are basically because of the mines of yesteryear, but currently mines exist alongside cities without problem. And in any case it depends on how strict the State is in the technological requirements placed on mining companies and in negotiating greater economic and labour participation for the regions where the mines are.

When I go to the city of Ilo and see its urban development, which is the most advanced in Peru, I know it's the product of mining and the fishing industry, and it pains me to compare this with the town of Ayabaca, which has more mineral resources than the Cuajone mine in the south, but lives in great poverty. And it's there that the old anticapitalist communist of the 19^th century disguised himself as the protectionist in the 20^th century, and changed his shirt once more in the 21^st century to be an environmentalist. But always anticapitalist, against investment without explaining how, with a poor agriculture, a leap forward can be taken to greater development.

And against petroleum they've created the figure of the 'isolated' jungle native; that is, unknown but presumed [to exist], because of which millions of hectares must not be exploited, and Peruvian oil must stay in the ground while the world price of oil is US$90 a barrel. It's preferable that Peru continues importing and improverishing itself.

A fourth area is the oceans: Japan has fewer marine riches but eats five times more fish per capita per annum than Peru, because it has developed its aquaculture. But here, whenever it is proposed to grant an area of sea for an investor to put their fish farms, this is opposed by the local small-scale fishermen who see the birth of more modern competition and say that it will block their free access and pollute the ocean, while others invoke the Sacred Sea of [Peruvian war hero Miguel] Grau, instead of accepting this activity that could generate hundreds of thousands of jobs.

In addition, Peru has enormous riches from the rain that falls in the cordillera. It's calculated that 800 billion cubic metres of water annually flows down in the rivers that head towards the Pacific and the Atlantic. Of that which goes to the Pacific, we use a small amount for agriculture and electrical generation, but with the water that goes to the Atlantic, we do practically nothing.

How to make the most of it? Now that the price of oil keeps going up, we must think about electrical generation that is renewable, almost inexhaustible, and clean. And to think about its use and sale in continental terms. Large electric plants on the Marañón and in the rapids of the lower Urubamba would allow us to sell energy to Ecuador, Colombia, Chile and Brazil. For this it would be necessary to obtain large amounts of private or international capital that needs long-term security to invest billions and be able to achieve a return on the investment. But the dog in the manger says: 'Why are they going to make money from our rivers? Better that the regional government does it' But they don't say with what money.

In fifth place, people's own labour is not made productive for those who work. Informal employment is dominant, which is work not incorporated into the economy and without legal status; it doesn't provide social security because payments are not made, and it doesn't contribute to any pension system. To give value to this work and benefit the individual, the logical thing would be to make progressive advances so that the employees of small business, who number in the millions, have in the first place the fundamental minimum rights – health insurance, a pension, and an eight hour day. That's more than they have now. This would strengthen the pension fund and health insurance fund.

But the demagogues oppose this progressive access, saying: “Full rights must be given immeidately to all the employers of small family or informal businesses”. But they don't know (or perhaps they do) that the only thing they'd achieve is that the small businessman, unable to pay these costs, would close the business and lay off lots of employees, so the cure would be worse than the sickness.

There are also others who say: “If it's not possible to provide workers all the fringe benefits and 30 days holidays just yet, the State should provide full health cover and a minimum pension without them having to contribute. But it turns out that these are the same ones who are against investment in forestry because the jungles are sacred, against opening more mines because Peru should only be agricultural, and that don't want aquaculture in the oceans. And so, without investment, without jobs created, they think that the State is a bottomless well from which all resources can eternally emerge, and they end up saying: “Cut the work day to 6 hours, pay more salaries, even if Peru doesn't produce any more”.

As a final point, I could add that neither are the brains of our students and childrens made productive. Education is delivered in the majority of cases to pass with an 11 [out of 20] instead of promoting excellence and to aim at an 18. A group of bad teachers and bad bureaucrats refuse to be evaluated in order to hide their mediocrity and so the system carries on producing worthless results. And the same ones as always say: “Give me more, without me changing or making any effort”. So, they are allies of informal mining, clandestine logging, peasant poverty, informal employment and lack of merit or effort.

Faced with the philosophy of the dog in the manger, reality tells us that we must make productive the resources that we don't use and work with more effort. We have the example of successful peoples: the Germans, the Japanese, the Koreans, and many more. And this is the bet for the future, the only thing that will make us progress.

Categories: Alan Garcia, economic development, Peru, el perro del hortelano, Amazon

House to Vote Today on Peru Trade Deal

The United States House of Representatives, the lower chamber of Congress, is set to vote today (Wednesday 7 November) on the trade agreement with Peru. Peruvian representatives are hoping that the agreement will pass by a greater margin the US-Chile trade agreement, which was ratified in 2003 by a margin of 270 votes to 156.

The vote is expected to occur in the afternoon, after Congress receives the visiting president of France, Nicolas Sakorzy.

Update: the US House of Representatives eventually voted on the Peru trade agreement on the morning of Thursday 8 November. The vote passed 285--132. Breakdown by parties was:
Republicans: 176--16
Democrats: 109--116

There were eight abstensions from each party.

Categories: free trade, United Statess, Peru, FTA, trade agreement

Fireworks in Welllington

From the November 5 Guy Fawke's Day display over Wellington Harbour, taken from the top of the cable car.

Getting Real about Climate Change

Writing in the New Zealand Herald, economics columnist Brian Fallow comes close to summarising, in punchier and more coherent form, my own, dilettante-ish musings on climate change issues. Namely:

1. The obsession with the 'costs' of responding to climate change by moving to a lower-carbon economy fails to pay enough attention to the potential gains, some of which may be very large for the countries, companies and individuals who can come up with new technologies or ways of doing things.

2. As also argued by the likes of Bjorn Lomborg, developing countries have other important priorities to do with improving the material wellbeing of their citizens. Although developing countries will have to be brought within an emissions-reduction framework in the medium-term, rich countries need to do more, earlier. To take the attitude of 'we won't commit to anything until China does' is at best hypocritical.

3. The distinction, beloved by the likes of the Business Rountable's Roger Kerr, between the 'bureaucratic regulations' of Kyoto, and 'technological solutions', is a false one. The Kyoto targets and their associated bureaucratic systems are what incentivises the development of new and innovative technologies, by setting the market conditions in which innovations are rewarded. Picking winners, such as subsidising ethanol made from corn, is the real example of bureaucratic meddling, apparently intended more to protect current interests than to address the problem.

FTA for Peru by 15 November

In following the progress of the US-Peru free trade agreement, I've learned a bit of POLS 101 stuff about how a trade deal passes into US law. First it has to be subjected to a 'dummy vote' by the Senate Finance Committee and House Ways and Means Committee. It's at this point that the President prepares the bill that will be voted on by Congress to formally ratify the agreement.

This bill is then passed to the same committees for a formal vote, before finally going to a vote in full sessions of both the House and Senate.

The process thus has six stages in total. The Peru agreement has now passed through the first four of these stages, which is to say that, following approval in the dummy committee votes, an implementation bill has been introduced into Congress and has been passed (with unanimity) by both committees. Although the 'fast track' authority of President Bush was ended on 1 July 2007, trade agreements signed prior to this point are subject to the fast track rules. This means that once the relevant committees report back on the bill, both chambers of Congress have 15 days to vote.

By this logic, the Peru trade agreement should go to a full vote by 15 November, since the final committee vote (that of the Ways and Means Committee) occurred yesterday. The agreement will need 218 votes to pass in the House. Peruvian news sources report their officials as estimating that it will have at least 300 in favour.

Categories: free trade, United Statess, Peru, FTA, trade agreement