Manufacturing and Meaning

A really interesting article from Aditya Chakrabortty on the decline of manufacturing in the UK, and the long-term impacts that are not just economic but also social and cultural. He argues that, in addition to jobs and income, "making things" brought a sense of purpose and social cohesion, and the "service economy" that has filled the void has been distinctly underwhelming:
 
And yet many of the arguments that preoccupy the British are haunted by the spectre of manufacturing. Angry at the overweening power of banks? Then you want a more mixed economy. Distressed at the gap between the rich and the rest of society? In the end, that will require jobs with decent wages and skill-levels, like the old manufacturing jobs. This applies to non-economic debates, too. Politicians go on about localism, without discussing what de-industrialisation has done to local economies. Pundits bemoan the loss of community spirit without considering the wrecking ball that has been put through many communities.

It's worth noting that the social history was summed up at the time by a certain Anglo-Scottish rock band.

A theoretical discussion of the same theme is offered by Dani Rodrik (a slightly more wonkish version here):

...the manufacturing sector is also where the world’s middle classes take shape and grow. Without a vibrant manufacturing base, societies tend to divide between rich and poor – those who have access to steady, well-paying jobs, and those whose jobs are less secure and lives more precarious. Manufacturing may ultimately be central to the vigor of a nation’s democracy....
 
...the service industries that have absorbed the labor released from manufacturing are a mixed bag. At the high end, finance, insurance, and business services, taken together, have productivity levels that are similar to manufacturing. These industries have created some new jobs, but not many – and that was before the financial crisis erupted in 2008. The bulk of new employment has come in “personal and social services,” which is where the economy’s least productive jobs are found. This migration of jobs down the productivity ladder has shaved 0.3 percentage points off US productivity growth every year since 1990 – roughly one-sixth of the actual gain over this period. The growing proportion of low-productivity labor has also contributed to rising inequality in American society.

The Crafts of Sibayo and Callalli: A Nice Story from the Colca Valley

When I was doing field research in Peru for my Master's thesis last year, I spent some time in a little village called Sibayo in the upper Colca Valley. Sibayo sits at 3,800 metres above sea level, but most of the surrounding district is above 4,000 metres, and, with a climate too harsh for agriculture, livelihoods are based on herding alpacas and llamas. There's a long tradition of weaving in alpaca fibre, which has recently seen a renaissance under the influence of NGOs and an unusually active municipal government. The local artisans have formed an association called Sumac Pallay (based on my intepretation of Quechua, this means something like "fine collection"). The association is in charge of quality control, sales and marketing of its members' products, which include fine hand-made scarves, gloves, and chullos (the classic "Andean" hat with ear covers).



Forty minutes walk away across the river from Sibayo, the more populous district of Callalli has its own artisans collective that has also received assistance from NGOs and has a wider range of products, extending to sweaters as well as scarves and hats in more mainstream styles that are made on small machines. The micro-industrial character of the craft association's commercial outlet has seen it dubbed the "Maquicentro" (from the Spanish maquina for machine).

Last year, I bought a few things in Sibayo as presents for people back home, including a hand-made scarf that delighted my mother. When visiting Callalli's maquicentro with an NGO from Chivay, I was unable to resist getting myself one of their premium double-layered chullos: warm and beautifully designed with a soft inner lining of baby alpaca.

Although both Sibayo and Callalli have had intermittent success selling to tourists and have even filled some export orders, they struggle to maintain links to markets and obtain the value their products merit. This is partly because their high-quality, hand made crafts get drowned in the sea of cheap mass-produced "alpaca" items sold in thousands of stores and galleries throughout Peru. A shop in the provincial capital of Chivay which the Sibayo municipality subsidized for the craft association proved a disappointment: in addition to its low visibility at the back of a narrow gallery, it was surrounded by numerous other stalls selling hats and gloves, mostly made in Puno factories and any alpaca blended with synthetic fabric, llama and sheep's wool. Casual tourists mostly aren't able to tell the difference.



As reported previously on this blog, this February I climbed Cerro Aconcagua, the highest mountain in the Andes. Included in my extensive gear collection were two warm hats: a fleece North Face beanie, and my Callalli-sourced alpaca chullo. Beyond about base camp, I found the alpaca hat to be much warmer than the fleece beanie, and as we progressed towards the summit I barely took it off. It was also so comfortable and breathed so well that I found I was still wearing it on the way out on the other side of the mountain, as the temperature ticked back up towards 20 degrees Celsis.

As we rode out the snowstorms while heading up the mountain, it occurred to me that I ought to see if I could generate some free publicity for the artisans of the Colca Valley. Not that I'm making myself out as a model, but a gringo swearing by their product as he tackled the continent's highest mountain might be worth something. In a spare moment at Camp 1, I got my tent mate to shoot a few photos (there's a whole other amusing story about what's going on the background).


After the mountain climbing was over, I headed from Argentina back to Peru for about three weeks. One of my first tasks on arriving in Arequipa was to visit Geovanna, the co-ordinator of the rural community tourism programme in the regional government's tourism office. As well as providing an overview of my thesis, I explained about my endorsement of Colca Valley headwear and gave her copies of the photos.

From there, I spent a couple of weeks in the Colca Valley, trekking, visiting NGO contacts, reporting back on my thesis findings and doing a bit of additional research. On the last Wednesday before I had to go back to Arequipa, I made a day trip from Chivay to Sibayo to catch up with some people and see how the tourism project had advanced since last year. I also wanted to buy some things from the crafts shop to take back to New Zealand. With not a tourist seen since the start of the year, the shop was closed, and it took a while to track down someone to open it up. In the end, I left with a decent haul of chullos and some excellent hand made scarves.

Later I walked the half hour or so across to Callalli and found my way to the Maquicentro. It was closed, and deserted apart from an NGO worker from Arequipa occupying an adjacent office. He was more than happy to find someone to open the Maquicentro, but it took us a few trips around the block before we found someone who had a key (my image from this: the traditionally-dressed señora in sombrero and skirts standing in a muddy corral conversing into a late-model cell phone as she tracked down her comadre). Eventually another señora appeared and opened up the shop for me. She explained about the trials of the wet season looking after the alpacas up in the estancia as I picked out another haul of items to complement the ones I had bought in Sibayo. Among them were another couple of versions of the hat I wore on Aconcagua, which I have officially dubbed the super-chullo.


I returned to Chivay in the usual dilapidated overcrowded minivan with my overflowing backpack squashed between my knees. After a couple more days there, I headed back to Arequipa for my last weekend before returning to New Zealand. On Monday I went to make my final reports and say farewell to Geovanna. She told me she had been in Callalli the previous Friday -- two days after me -- and had given a presentation to the artisans association. In one of her Powerpoint slides she included one of the photos I had given her of the Callalli chullo on Aconcagua. She explained that the photo had been provided by a foreign traveller who had found the hat to be exceptionally warm and comfortable in extreme conditions.

From the audience a woman got to her feet excitedly. "I sold to him!", she announced. (Nice to know she recognised me even though all gringos look alike and I had definitely shaved since that photo was taken).

Geovanna said that the artisans were thrilled with the feedback and it seemed to help drive home to them that they really do have premium products capable of being a hit in international markets. So, even if my academic research is of no practical use to people in the Colca Valley, maybe I've at least provided some useful encouragement.

Arequipita Linda

In Lima, you almost have to know what you're looking for to notice the effects of the Peru's rapid economic growth over the last few years (it's only since 2005 that the GDP per capita has exceeded that obtained in the 1970s). In Arequipa, the changes are much more obvious.

The calle Mercaderes, which runs east off the main plaza, and is the retail heart of the city for middle class shoppers, has been cleared of traffic along all its five blocks, with the sidewalks turned into flat tiles merging with the street's cobblestones. What used to be a chaotic though vibrant scene, pedestrians tipping off the pavements into the path of the congested traffic, is now an almost European-style mall.

Some of the principal avenues have been repaved with ashphalt and are near enough as smooth as those in a typical Western city, while I'm informed that upgrades for several more are scheduled. Cobblestone alleyways through the historic centre have been opened up and beautified, with the addition of bourgeois touches like flower pots and park benches.

Yet the public development is exceeded by the private. Retail has gone bigger, brighter, and more formalised. Nestled under its 6,000-metre volcanoes, Arequipa now actually has a couple of stores selling mountain gear. On the calle Mercaderes there's a menswear store, while on La Merced heading south from the plaza exotic new shops selling beds, furniture and solar water heating systems have appeared since my last visit. There's a diverse array of new cafes, restaurants, and hotels, while tourist oriented pizzerias, laundromats, alpaca-wear boutiques and, of course, travel agencies have filled in the available space on Santa Catalina, San Francisco and Jerusalen. Tasteful advertising frames most of the new businesses. Local makers of banners and signs rustically carved in wood have clearly enjoyed bonanza years.

Interspersed amongst the ubiquitous yellow 'Tico' taxi bouncing over the cobblestones are a handful of Hyundais and Toyotas and the occasional shiny 4WD. On the streets of the city, as far as I can tell, there are fewer beggars, vendors of random consumer items, or children selling sweets.

Walk from the centre into the inner suburbs and you see repaired walls, painted facades, less rubbish, even the odd private car or pitched roof. In streets such as those leading up to Hugo and Lizbeth's place there are more trees, shrubs and cacti planted along the sidewalks.

What it all adds up to is the significant expansion of that elusive entity, for Latin America, the middle class. If there's something unreflexively thought of as 'development', Arequipa has been seeing some of it. It's not as if there is exaggerated, flashy wealth sprouting up next to complete misery. Rather, the wealth seems to have been spread around moderately well -- perhaps coming down in splashes, instead of a trickle. More people have the means and the confidence to spend, and things to consume are appearing to meet their demand.

Much is still the same: the ancient, dirty kombis, the cracked and crumbling sidewalks, the pollution. But with the rough edges of decay and desperation softened, Arequipa is on its way from being a place of melancholy beauty to becoming a truly spectacular city.

I have to admit that it's surprised me somewhat. I've been used to reading the trenchant criticisms from the likes of Humberto Campodónico and other commentors, of the Peruvian government's unreformed neoliberalism and failure to take advantage of the boom times, the claimed manipulation of poverty statistics, and the lack of progress with economic diversification, health, education, pensions, or improved labour conditions.

However, the development that has occured is still consistent with those criticisms. So much money has flowed into the country, and hence government coffers, that although the adminstration hasn't done anything particularly progressive, in absolute terms it has had greatly increased resources to deploy. Arequipa is a mining region, and has benefited from the Canon Minero, a portion of the taxes paid by mining companies that goes directly to the affected regions. It's also the country's second-biggest, and most orderly, urban area, with an existing civil society and a core of educated, ambitious residents capable of developing an interconnected domestic economy if given the chance. If anywhere is going to take advantage of good times, it's here.

The question is how widepread and durable all this is. My impressions so far are all from walking and driving around the centre of Arequipa city, which has always been among the most middle class places in Peru. What is it like in outskirts and the pueblos jovenes? Have they also seen improvements? What about the rural areas? Have the beggars and street sellers really got jobs or improved their living standards, or have they been shovelled away out of sight by a government wanting to give a good impression to tourists and investors?

There's also the odd fact that for the moment, at least some Peruvians are more optimistic than those elsewhere in the world. Several people have told me that "the world economic crisis isn't really affecting Peru". Perhaps not that much so far. For one thing, at a macro level, Peru's government and major banks (like those of Chile, Brazil, Mexico and Colombia) have managed their accounts with technocratic efficency and didn't do anything stupid during the good times. There are also enough accumulated foreign reserves for the government to be able to apply an economic stimulus (through not to the same extent as Chile, which having squirreled away earnings from its copper exports, is one of the few countries to be able to act as Keynes foresaw and inject funds from its savings rather than borrowings).

At some stage, however, the world situation is going to affect Peru. The downturn of soaring mineral prices that have driven much of the economic growth, lesser demand and lower prices for the 'non-traditional' agricultural and garment exports, and fewer tourists arriving, will mean that the boom will end and export-led growth will likely slow dramatically. That's when it will become apparent just how much progress has been made with important but less visible things like the improvement of education, the recovery of civil society, the establishment of basic infrastucture in rural areas, and the integration of these areas into the wider economy.

In Arequipa, I see the growth in retail and services as being driven by an expanding middle class, rather than being just the rosy flush of a transient mining and tourist boom. But so much is directed at the international tourist that the concerns I outlined in this post still hold. Since I was last here, the number of travel agencies has increased significantly again, while tourist numbers or destinations haven't really changed. What will happen when all those people who have sunk loans or savings into their shiny new offices come up against the reality of fierce competition for dwindling numbers of clients?

Peru has seen booms before, often based around a single raw material, and generally dissolving into thin air leaving little more than social dislocation and a damaged environment. This time, will the development stick? Or will the raised expectations of the last ten years make the come down even harsher and more destabilising?

Imbalances and the Global Crisis

A number of erudite commentators point to 'underlying economic imbalances' as a major factor in the current global crisis. They argue that the situation where some parts of the world produce and save more than they consume, while others live beyond their means, has helped create the conditions for the financial speculation that has led us to the present meltdown. Paul Krugman makes a case something like this here and here.

When boiled down to its bare bones, the argument goes more or less as follows: China keeps selling things to the West and saving the money. It then lends that money back to allow Westerners to continue their spendthrift ways and put it on the tab. But this is unsustainable, and eventually all that debt has to be unwound. A solution would have to involve Western consumers being more prudent and creditors like the Chinese spending more.

The way it's described makes it sound like millions of thrifty Chinese shopkeepers being tight with their cash and refusing to spend on luxuries. Easy for readers to visualize, but surely this isn't the reality? China is an authoritarian state, with the exchange rate controlled centrally, and if the earnings from exports are banked, this is not done by individual workers but by the government and corporate elites. Surely the problem isn't that the Chinese masses prefer holding US Treasury bills to consuming goods and services, but that they are paid much less than the real value of their labour? 'China' might save too much, but it's questionable whether Chinese do.

Meanwhile, the situation of China has a flow-on effect on the rest of the world. Thomas Pogge argues here that by winning the race to the bottom in terms of labour and environmental standards, China has restricted the potential for export-led growth in other developing nations. So those who control China's economy could be denying not only their own citizens, but those of other countries, the possibility to consume in line with their productive ability.

If imbalances in the real economy are behind the bursting financial bubbles, would it be suprising if these were in turn underlaid by imbalances of power and resources that are essentially political?

Peruvians to Get New Zealand Working Holiday Visa

Peruvians between the ages of 18 and 30 will soon be able to apply for a one-year New Zealand Working Holiday Visa, according to representatives from the New Zealand Ministry of Foreign Affairs and Trade (MFAT) and the Peruvian Embassy in New Zealand. Sources say that a formal agreement is likely to be signed by New Zealand and Peruvian government representatives at the APEC meeting in Lima in November.

The Working Holiday visa allows young people one year in which they can combine travel in New Zealand with part-time work. New Zealand has extended access to this visa to most European and other OECD countries, as well as other Asian and Latin American countries including Chile, Argentina, Mexico, Uruguay and Brazil. The number of places available for each country has typically been 200, but may be increased depending on demand. Chile is now allocated 1,000 places, after the number of applicants consistently exceeded the available visas.

In order to obtain the visa, applicants have to show evidence of sufficient funds (currently $4,200 NZD), a return ticket or funds to purchase one, travel insurance, and medical clearance (specifically a TB-free certificate). They are also not allowed to bring dependent children with them and are only allowed to use the visa once.

People with Working Holiday visas in New Zealand often end up fruit picking or working in the hospitality industry. This may mean some hard work, but wages are usually high enough to save money to travel further, and most Latin American backpackers say they have a good time in New Zealand.

Categories: Working Holiday Visa, Peru, New Zealand, Latin America, backpackers

Radical Solutions?

Before I started a Master's in Development Studies, I was already interested in questions about development and mused frequently about them on this blog. After one-and-a-half semesters of fairly intensive studying and reading, it's interesting to look back at how my understanding and views have changed.

In deleting some emails, I came across a mini-rant (pasted below in italics) I'd sent to my US-based sister about the trade deals with Peru, Panama and Colombia, which were at the time a topic of discussion in both the mainstream and grassroots media there.

These were my thoughts a year ago:

I am on balance a supporter of the FTA for Peru because of the commercial opportunities it offers. However, a rudimentary examination of the existing agreement demonstrates that Peru, Panama and Colombia are being forced to suck eggs in order to get their deals. The US has been using its weight in the bilateral negotiations to impose conditions it can't get through the WTO (esp. with regard to intellectual property). This has little to do with the appropriateness or plausibility of these conditions for the country (US-standard copyright protection in Peru within 3 years, yeah right) but rather with a wider agenda.

I reckon if the US really wants to support development in the Andean countries, it should do the following:

1. offer unilateral tariff reductions on all products for a 10--15 year period (similar to the Andean Trade Promotion and Drug Eradication Act, but with more certainty)
2. trade partners required to move towards international/WTO standards on labour, environment and intellectual property (i.e. NOT US-level standards for the latter); milestones to be met to ensure continuation of tariff-free access after 5 and 10-year review periods
3. reduce or freeze direct-to-government aid (including export subsidies disguised as aid), but offer technical assistance especially in local government, law enforcement, education, infrastructure development, agricultural productivity, distribution, marketing, etc. Foment partnerships between schools, universities, police departments, public service, small NGOs, churches, etc. Loans available for insfastructure conditional on robust analysis of the viability of the project.
4. trade partners remove or reduce tariffs on all or most non-agricultural products; non-complementary agricultural products to be left alone for the first 5 years
5. investment protections in place but trade partners allowed to place 'development' conditions such as use of local products or technology transfer
6. legalize cocaine, but slap on big import and sales taxes; coca leaves can be imported tariff-free

The last one is only partly in jest. At present, cocaine is one processed, added-value product that is highly profitable and makes its way easily into US markets (despite all attempts at law enforcement). It's also inevitably associated with significant violence and corruption. What needs to happen is the opposite of the historical: developing countries have a chance to produce and market added-value, mainstream products, while drug-related activity is disincentivised through making it uncompetitive. Such an approach would see all the cocaine labs move inside the US, where their activity would be tightly regulated by ATF officers...). Meanwile, Peru, Bolivia, and Colombia would fill US health food stores with a range of coca teas, sweets, oils, and essences. Groups like the FARC, Shining Path (now moprhing into narcotrafficking operations in Peru), paramilitaries lose their funding and much raison d'etre, either disappearing or being forced to become normal political entities.

Many weighty articles and long perambulations through the thickets of economic history, sociology and politics, I've become much better informed, feel more able to engage in debate, but my views are not a million miles away from what they were then.

Overall, I'm even less sure about the net benefit of the US-Peru trade agreement than I was, in part because I've been made aware that the link between overall economic growth and benefit for the majority is even more tenuous than I realised; in part because of gaining a greater understanding of just how one-sided and hypocritical the conditions in the trade agreements are (and how few of them are even about trade).

As I've learnt recently, suggestion 3 above is just a partial version of what's been on the agenda for international donors for a while through the 'good governance' agenda and the OECD's Paris Declaration on aid effectiveness. There's been a commitment to phasing out 'tied aid' (i.e. exports subsidies disguised as aid) and 'technical assistance' is a major buzz phrase in the aid community (along with its sibling 'capability development'). However, this does still seem to suffer from the longstanding high-handedness of development assistance, and mainly be aimed at bureaucratic elites.

If we do care about 'institutions', a nice alternative approach would be for some kind of properly-funded 'adult exchange programme', where the likes of police officers, petty officials, local council members, etc from developing countries could spend a three-month sabbatical in the equivalent department in a rich country -- and vice versa.

Suggestion 6 is of course mostly flippant, but I'd still be interested in people's reaction to it. The drug trade is not a good thing -- but at the end of the day it's just another manifestation of the inexorable market logic that is elsewhere trumpeted as the solution to everyone's problems. It's rarely mentioned even by liberal commentators, but there's little that's more perverse than a social problem in the rich world being tackled by spraying poison all over environmentally fragile land in a much poorer country.

Categories: development, Latin America, trade, cocaine, coca, Peru, Bolivia, Colombia

Why a US--New Zealand FTA Is Unlikely

Struggling to find time for getting any original thoughts on to the blog at the moment, but this is a very interesting and readable paper that dispels a few myths and sets out some complicated arguments very succintly.

Trade Agreement in the Final Stretch

After many doubts and delays, there's now a better-than-even chance that Peru's free trade agreement with the United States will be ratified in the near future. According to statements made by US officials to the Peruvian media, the House Ways and Means Committee is set to hold a hearing on the 25 September, after which the agreement would be voted on sometime in October.

Of the four trade deals negotiated by the US government before President Bush's 'fast track' authority expired in June, Peru's will be the first to go to a vote, and the most likely to be approved (the others are with Panama, Colombia, and South Korea). But with some Democrats still unconvinced about the Peruvian government's commitments to enforcing labour standards, there may be yet be stumbles as the agreement goes through Congress.

When I last posted on the topic, Republicans and Democrat leaders had stuck a deal to allow the Peru and Panama agreements to be considered if their labour and environmental conditions were strengthened. Amendments were drafted, and swiftly accepted by Peru's congress. A deputation of US representatives was to visit Lima to offer 'technical assistance' to ensure that Peruvian labour and environmental standards were on the road to acceptability.

That visit in August -- where Democrat Charles Rangel met with president Alan Garcia, representatives of all political parties, and labour unions -- produced warm words and grand statements. Garcia said that the agreement could be the start of a 'new New Deal' in international commerce. Rangel opined that it could be a 'flagship' agreement, noting that 'for the first time, workers' rights will be a part of trade agreements -- to be enforced'.

But not everyone was convinced about the Peruvian commitment to improving labour standards. On the campaign trail in 2006, Garcia had promised the elimination of 'services', companies that provide outsourced labour to other businesses. But a year later Garcia had changed his tune, proposing that such companies merely be regulated rather than eliminated. In August the government announced a law would be prepared with the aim of reducing the number of employees contracted through 'services' from 20% to 10% of the workforce.

According to American magazine Inside US Trade, some Democrats are also unimpressed that their concerns about outsourcing and union rights are being addressed through a series of governmental Surpreme Decrees -- which can be modified later -- rather than through the unfinished General Labour Law. The latter is currently stalled after being negotiated over the last five years. The two largest Peruvian labor federations, CGTP and CUT, have sent an open letter to congressional Democrats asking them to vote 'no' to the trade agreement.

Nevertheless, a hearing of the Senate Finance committee on September 11 on the Peru deal met with few objections. The American labour federation AFL-CIO is agnostic about the deal and has decided to neither promote or actively oppose it, but to concentrate their efforts on opposing the Colombia and South Korea agreements. AFL-CIO policy director Thea Lee said that the new labour and environmental conditions "represent significant progress in crucial areas we have fought to achieve for many years".

Political analysts say that 60 to 120 congressional Democrats are likely to vote in favour of the Peru agreement, meaning that it would pass with a considerably more comfortable margin than the Central American FTA, which passed by 2 votes with just 15 Democrats in favour. But after all the twists and turns that have occurred so far, nothing is certain yet.

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

One Step Closer

The Peru-United States free trade agreement, on which I've previously posted here, here and here, moved one step further along last week, but now will probably not be passed by the US congress before the end of the year.

On Wednesday 27 June, the Peruvian congress passed amendements to the original agreement which had been negotiated by US Democratic leaders with the Republican administration. But according to Bloomberg News, Democrats have now put off voting on the Peru (and Panama) agreements until those countries 'revamp their laws to comply with [the amendments'] new labor and environment standards'.

The final text of the amendments had been agreed only a few days before the Peruvian vote. Activists who had previously criticised the lack of transparency of the deal were not impressed with the results. Consumer-rights group Public Citizen issued a press release stating that:

The legal text of changes to several Bush-negotiated NAFTA expansion agreements released today confirms that the essential changes listed by labor unions, environmental, consumer, faith and family farm groups as necessary to avoid their opposition to the free trade agreements were not made.

Frustratingly, neither the groups making criticisms nor the official sources such as the US Trade Representative's Office have posted the actual legislative text. I've posted a comment on blogger David Sirota's website, asking him to link to the full text.

Nevertheless, it appears a majority of the Democratic caucus agrees with the criticisms, which is what has caused the decision to delay the vote. According to the news feed, 'it is now planned that Rep. Charles Rangel, chairman of the House Ways and Means Committee, will lead a delegation of lawmakers to those countries in August to help them with the changes'.

It's unclear how this 'help' will be given, nor what actual legislative changes Peru and Panama will have to make. The intentions may be good, but it all seems a little overbearing and patronising.

The terms of the debate also remain US-centric. While most of the attention from the American NGOs and grassroots Democrats has been on labour and environmental standards (with some attention to the onerous intellectual property requirements of the original agreement) there's been very little mention of what is probably the biggest concern in Peru -- the destablising effect of the agreement on small agricultural producers. No US politican has suggested any strategy to mitigate or assist with those issues.

As an interim measure while things are sorted out, the US Congress extended its unilateral trade preferences for Andean nations (also including Colombia, Ecuador and Bolivia) for another eight months.

Meanwhile, agreements were signed with Panama, South Korea, and Colombia in a last-minute flurry of activity before expiration of President Bush's 'fast-track' authority to develop trade agreements without congressional input. The Panama agreement looks set to follow a similar course to Peru's, but Congress is unlikely to consider the Colombia one in the near future, while the there is broad opposition to the South Korea deal, including from Hilary Clinton.

Then, when the Bush fast-track authority expired at midnight on 30 June, the Democrat-controlled congress refused to renew it, meaning that the US is unlikely to start any new trade negotiations until at least after the November 2008 presidential elections.

Predictably, the likes of the Heritage Foundation lamented the imminent disappearance of fast-track authority, asseting that:

Freer trade policies have created a level of competition in today's open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment...

...These agreements play a critical role in maintaining American competitiveness and economic prosperity, spreading freedom around the world and fostering economic development in poor countries.

However, there's a growing body of opinion from many sides of the ideological spectrum that such statements are, at best, gross oversimplifcations. This is something I'll explore in some future posts.

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

I Wasn't Making It Up

A study by the International Labour Organization of 50 countries indicates that more than a quarter of the world's workforce works more than the ideal maximum of 48 hours.

Top of the list of the most overworked countries is...Peru. Yes, despite the popular perception of layabout Latinos, the study found that 50.9 percent of Peruvians work more than 48 hours per week.

Well it's striking that Peru is in very first place, I'm unsurprised that it's there or thereabouts. As I've described before, long, arduous working hours are the lot of the majority in Peru. The working week is six days long, with very few exceptions. And the most common work day is 10--12 hours in length, rather than eight. For those that must reply on informal work to get by, the day is as long as it takes to scrape together the required handful of soles.

The BBC report on the study says that:

The ILO blames the growth of service industries, such as tourism and transport, plus an expansion in informal working arrangements, for the excess of global working hours.

In general this is probably true. In the case of Peru specifically, another important reason is, ironically, the sheer lack of jobs. People who are employed in any kind of stable arrangement consider themselves fortunate, and are not in a position to demand kinder working hours or conditions. And many people are employed by small businesses that are themselves struggling to get by in the oversupplied marketplace. The hours worked by employees are driven by the hours the business needs to operate to break even.

This rather puts into context the concerns about labour standards in the trade agreement that Peru has recently negotiated with the United States. As reported in a previous post, a key element of the compromise reached by Democrat legislators and the Republican executive to allow the agreement to pass was a requirement for parties to ratify ILO labor standards. This didn't satisfy many grassroots Democrats, who angrily questioned whether the standards will be enforceable.

But while the criticisms were at times coated with a veneer of internationalism, they were, understandably, really about US internal politics and concerns. Not a lot of the critical reaction was motivated by an appreciation of Peru's position (or that or Colombia or Panama, about which I know a lot less).

Now, I fully agree that it's a good thing to have labour standards written into agreements. Jobs created by trade should be decent ones, and the right of workers to share in the benefits of increased commerce should be fundamental.

But Peru has already signed up to all the ILO principles and standards, and the general ideological mood -- unlike in the US -- is that they are fully desirable. For the meantime, however, these are less relevant than the need for more and better jobs.

It's true that the US State Department found that in Peru the existing labour regulations are poorly enforced, up to 30,000 people do forced labour, and tens of thousands of children are working.

But all this happens in an environment where people feel they have little choice. The government could certainly be more active in enforcing the employment regulations. But there's little it can do about the children sent off to wander the streets at all hours selling sweets and shining shoes. It's not multinational corporations exploiting these kids, but their unemployed mothers sending them out to help ends meet (you might ask where the fathers are, but that's another story altogether).

Peru is not Colombia, where trade union leaders have suffered the unfortunate setback of being frequently murdered (in part due to the real and imagined connections of trade union leaders with the FARC). Peruvian unions do exist, exert some muscle, and from time to time have some success in winning concessions. There's no question that the lot of miners, for example, could be greatly improved. But the most arduous conditions and worst abuses are suffered by those who can't count on a stable job, or have to work for themselves. I can't give you the stats at this point, but I would guess that the physical risks faced regularly by a Lima taxi driver would make a New York policeman blanche.

Only when there more genuine, decent sources of employment will the negotiation of a fair balance between employer and employee become the critical issue. Finding ways to raise productivity, add value to primary products and improve internal communications and infrastructure is vital to development. All these things happen in the presence of the kind of opportunities offered by stable access to large markets, which is what a trade agreement secures.

While countries like Peru shouldn't have to suck eggs and accept conditions as over-reaching as the intellectual property requirements in the original US deal, there would be very few who would argue that they'd be better off with no trade deal at all, or with an indefinitely stagnated one. In the absence of a trade agreement, extractive industries like mining and forestry (not to mention the drug trade) will carry along happily, there being generally few trade barriers to raw materials. And well-meaning people will continue to have little chance of influencing the labour standards in those industries.

Activists might beat up on Democrat leaders like Nancy Pelosi and Charles Rangel for 'selling out' to the Republicans, but themselves have few constructive suggestions for how to support responsible development in countries like Peru. Say what you like about Pelosi and Rangel, but you could credit them with being influenced at least in a minor way by what is really needed for Peru to improve the living standards of its people.


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

Trick or Trade? Uncertainty Remains on US-Peru Trade Deal

With flak coming from all corners of the political spectrum, the Democrat-Republican deal to allow the US-Peru trade agreement to pass must have got something right. Or perhaps its most salient feature it that, for now, its details are unclear.

In a previous post I linked to an outline of the deal. A fuller summary can be seen here. To retirate, the key points are that:

• parties to trade agreements with the US will be required to adopt and enforce the five basic standards in the 1998 International Labour Organization declaration, and the labour sections will be subject to the the same dispute resolution mechanisms as the rest of the agreement
• parties must ratify and enforce seven key multilateral environmental agreements, and the environmental sections will be subject to the the same dispute resolution mechanisms as the rest of the agreement
• intellectual property requirements are softened to allow earlier availability of generic medicines to US trade partners
• Peru is specifically required to crack down on illegal logging of mahogany

In the Times Online, columnist Irwin Stelzer blustered that this represented "the end of free trade as we know it". He lamented that:

We can sue our trading partners if they violate the agreement, and they can sue us. For example, if some country such as Panama decides we are violating trade-union rights here at home, they can bring a suit to press Congress to change the law.

Stelzer failed to mention that , in requiring wholesale adoption and implementation of American trademark, copyright and patent laws, the original agreement cut across national sovereignty in far more significant ways.

At the other end of the political spectrum, US netroots activists were furious with the secretive process that had been followed and bemoaned that drafting of the actual legislative language would be delegated to the Bush White House. They also cast doubt on how enforceable the labour and environmental conditions would be.

Blogger David Sirota lambasted the press for applauding the deal when they hadn't seen the all-important legislative language. He pointed to similar, unfulfilled claims about labour and environmental standards being made in relation to the North American Free Trade Agreement (NAFTA) more than ten years ago.

However, a blogger identifying himself as DemHillStaffer claimed that "we defeated the Bush trade agenda and got 100% of what Democrats have been demanding for years". He asserted that the labour and environmental standards will be "FULLY enforceable and subject to the same dispute settlement procedures as every other part of trade agreements, including investment, and intellectual property...EXACTLY what Democrats demanded before the election".

In a later update, Sirota reported the White House as saying that labor and environmental standards would not be written into the core text of trade agreements, "but instead will mean merely unenforceable NAFTA-esque 'side agreements' or even weaker 'letters' of understanding".

In fact, this is something Peruvian representatives were saying at least a week ago.

Somewhat missing in all this angst was what Peruvians might think about the deal. Alan Garcia's government has been presenting the trade deal as a sine qua non for the country's development, by supporting export-led growth and creating much-needed jobs.

But while Peru's televised media has repeated this line, it is far from a universal viewpoint. In La Republica, columnist Javier Diez Canseco launched a scathing attack on Garcia, whom he characterized as 'Toledo II' (previous president Alejandro Toledo, who was a cheerleader for the free trade deal, and who helped the outgoing Peruvian congress controversially push the agreement through on the eve of last year's election).

Diez Canseco pointed out that Garcia had raised significant concerns about the trade agreement during his election campaign and promised to "retire his signature [if Toledo signed the agreement] and review it line by line". But now in government, Garcia had allied himself with "the powerful business Right" and become a "yes man" for the agreement. To the Democrats proposal that Peru's trade preferences be unilaterally extended for two years while issues were sorted out, Garcia "remained mute".

With ratification looking imminent, the attention in Peru has turned back to the impact of the trade agreement on agriculture. The most prominent concern in Peru has been that the FTA will allow an influx of subsidised American products which will push out small farmers - who will then have the option of joining the influx to the already overburdened cities, or perhaps turning to growing coca.

The government has suggested that a system of compensation will be put in place for farmers affected by the trade deal - particularly producers of corn, wheat, and cotton. But La Republica reported that the agricultural subcommission charged with developing such a system had not yet determined which products would be significantly affected, let alone worked out how to implement such compensatory subsidies.

In any case, with specific regulatory change required of Peru at least in respect to mahogany logging, and many rank-and-file Democrats apparently wanting the new conditions to be written into the agreement itself, it's hard to see how only "process" remains for the agreement to enter into force. There may yet be an opportunity for Diez Canseco - and other Peruvians angered by the lack of transparency in trade negotations - to see "a national and congressional debate on the issue".

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

Peru - US Trade Agreement Likely to be Ratified

The free trade agreement between the United States and Peru now looks certain to be approved by the US Congress before its August recess, after Democratic legislators and the Republican administration reached an agreement that will also set a framework for future US trade agreements, including those that have recently been negotiated with Panama and Colombia.

The Democrat-Republican accord that opens the way for ratification was announced last Friday 10 May by House Speaker Nancy Pelosi, who called it "a new day for our trade policy".

Pelosi stressed that "we have certain principles which we must accept the foundation of how we talk about trade...labour standards form a core element of our agreements".

The stronger labour and environmental standards that Democrats had been arguing for are now likely to be included in annexed letters to the main agreement, meaning it will probably not have to be renegotiated, or re-ratified by Peru's congress. These new policies include requirements that US trade agreement partners adopt and enforce five core International Labour Organization labour standards and seven major multilateral environmental agreements. Intellectual property-based restrictions on generic medicines are also softened, and Peru is specifically required to act against illegal logging, particularly of mahogany. A summary of the key adjustments to US trade policy can be read here.

If ratified as expected, the agreement will come into force towards the end of 2007 or early in 2008. Until then, Peru's existing trade concessions under the Andean Trade Preferences and Drug Eradication Act (ATPDEA) will be automatically renewed.

Peruvian sources credited the recent visit of President Alan Garcia to Washington with helping convince US legislators of the importance of the trade agreement to Peru's development.

In a forthcoming post, I'll summarize the key issues and controversies of the US-Peru trade agreement.

Categories: free trade, Latin America, Peru, FTA, TLC

In Peru, Working Hard is Not Enough

On the suburban block in Arequipa where Hugo and Lizbeth live, there's no fewer than six family-run grocery stores. That's six on the one block, not the whole street.

There's also a constant stream of yellow "Tico" taxis buzzing by. According to Hugo, there are 40,000 taxis in Arequipa. With a population of around 1.3 million, that means a remarkable ratio of approximately one taxi for every six families.

Taxis and grocery stores provide just two examples of Peru's overcrowded economic geography, where too many service and retail providers compete to supply a limited market. Regardless of how hard they work, the pickings are stubbornly slim.

This situation stems from the Peruvian economy's inability to provide more than 30 percent of its people with formal employment. By necessity, the others become self-employed entrepreneurs. But most don't have the ability to accumulate capital or invest in something risky and innovative. So they must scramble to carve out a share of the limited internal market for basic goods and services.

Fifth-form economics tells us that supply increases to meet demand. But what this means depends on where you are. In Western countries, the decision to 'supply' is usually based on whether an enterprise can turn a decent profit. In Peru, the threshold is much lower, based on the need to simply subsist. So, wherever there's a stable, predictable demand for a good or service, the market is not just supplied, but saturated.

Meanwhile, other costs don't go down. Most taxi drivers, for example, have to work hard just to cover the rental of their vehicle and keep it gassed up. With a typical taxi shift running from around 7:00 am to 7:00 pm. it's effectively only around 2:00 pm that drivers actually start earning money for themselves.

And taxis or corner stores are fairly high up the complex hierarchy of service providers. At the bottom are the people, mostly children or the very old or disabled, who sell sweets two or three at a time out of big bags. This is effectively indistinguisable from begging.

Then there are the itinerant vendors who peddle cigarettes and gum from trays hung around their shoulders. Success is graduating to having a trolley which is parked on a street corner and adds cookies, potato chips and bottled drinks to the inventory. At night, these "carritos" sell hamburgers, hot dogs, herbal drinks and anticuchos. Other people carve out a little retail niche by buying and reselling popular items a few at a time. In tourist areas they wander along vending t-shirts, crafts, paintings, sunglasses; on the market streets it's nail scissors, cutlery, photo albums, shoelaces, or anything else that can be moved.

All this is great for the consumer, who has a choice of products at her fingertips most hours of the day and night. But the majority of hopeful entrepreneurs are barely getting by.

And being skilled is no guarantee of breaking out of the rut. In a turnabout that would make the Western householder chortle with irony, tradesmen wait around on the street to be hired. You can wander down to the corner and find an electrician, carpenter or builder for as little as 15-20 soles per day ($5-7 USD).

The phenomenon of chronic service oversupply continues up into an industry that in theory should be turning a decent profit - tourism. When I first arrived in Arequipa in April 2004, I estimated there were about 90 agencies selling the same things - the Colca Canyon, Misti, Chachani, and city tours. By March 2007 the number had risen to about 120.

What hadn't changed was the number of tourists. Even within Peru, Arequipa struggles to attract its share; the regional government, which has done little to effectively promote the area, estimated in 2006 that just 14 percent of visitors to Peru make it to Arequipa.

No one was offering anything very different or innovative, and the conditions for tourism hadn't changed. The road into the Colca valley was as potholed and arduous as ever. The same two bus companies offered the same crowded, uncomfortable service up into the sierra.

In such a static market, the growing number of providers produces a predictable result - intensifying competition on price. Relatively few of Arequipa's agencies actually operate the tours, which involves organizing transport, food and guides for the tourists. But the craft shops, internet cafes and hotels that throw in a desk and a sandwich board advertising "Colca, Chachani, Misti" are happy to clip the ticket, and shave a few dollars off the margin of the eventual operator.

And even among the operators, there's little compunction about joining the race to the bottom. Costs are squeezed by hiring a less experienced guide, providing less food for the tourists, or simply by taking a loss on the first few sales in order to get a group together.

A couple of years back, Lizbeth employed a woman called Yunisa in the Incaventura agency After a while, Yunisa quit and started her own agency. She installed herself in the corner of a crafts shop, half a block further up the calle Santa Catalina. Her sales tactic? She waited until tourists came out of the Incaventura office, having had the tours explained to them. Then she sent one of the three or four girls that hung round her office to run after the tourists, bad mouth Lizbeth, find out what price they had been offered, and undercut it.

Little encapsulates the Peruvian economic situation better than these "jaladores" (literally "pullers"). Normally students or otherwise unemployed young people, they are paid purely on commission, but this hardly dents their eagerness to work. They are often bright, articulate, and may even speak some English. But with a limited pool of possible sales to be made, any hard-won income is earned directly at the expense of each other.

In fact, in some places, so intense is the competition to "jalar" a tourist that it's to the mutual detriment of all. In central Cuzco the tourist is assaulted at almost every step by people promoting tours, bars, and restaurants, or selling crafts, jewellery, and clothing. It makes for a somewhat hostile environment, which doesn't encourage visitors to stay around and spend more of their money. Often their response is to retreat to the sealed-off, foreign-owned venues where they won't be hassled.

Tourists themselves hardly help the situation. They come with the expectation that Peru is a cheap country, and expect to have amazing adventures for orders of magnitude less expense than what they would pay for a similar experience in a developed country. In Arequipa, many are happy to cruise from agency to agency, looking for the cheapest offer. They assume that if someone charges them a few dollars more, they are being ripped off. I wonder whether their attitude would be different if they knew that the $2-3 USD they just bargained off a tour price had come at the expense of a couple of meals worth of wages for the guide, or the meagre commission of the girl who works in the office, or the profit margin of the agency which is used to pay its rent and employment costs?

Despite its diminishing returns, tourism is still seen as a bright propspect by many. These days, I instinctively groan when another young student tells me enthusiastically that "one day I'd like to open an agency of my own". How many more do we need, I ask?

Some people have bright ideas, like Tessy and Rafael who are saving to set up a hotel and tourist operation in Cotahuasi, picturesque location of the world's deepest canyon. But for now it's not viable; the destination is poorly promoted, and it's 11 juddering hours away from Arequipa on a mostly unsealed road. Few visitors make it that far.

The well-meaning outsider is tempted to question why more Peruvians don't band together to produce something of higher value, and to criticize the unfortunate habit of ripping off or undercutting one's neighbour. But once you appreciate the lack of confidence created by an unstable history, unhelpful government, and inadequate infrastructure, the tendency to grab at what's going becomes more understandable. So, until Peru can find ways to allow ordinary people more of a chance to get a slice of the economic pie, its citizens are condemned to continue the current vicious circles, scrapping over stale crumbs from the crust.

Categories: Peru, Arequipa, economics, tourism

Señor Garcia Goes to Washington

Prospects for ratification of the Peru-United States free trade agreement (FTA) inched forward last week when Peruvian president Alan Garcia met with George W Bush and Democrat and Republican legislators during a trip to Washington DC.

Democrats continue to insist on changes to strengthen the labour and environmental conditions of the agreement. But they look set to reach a compromise with Republicans that will allow the agreement - which has already been approved by Peru's congress - to be debated and passed by the US Congress before its August recess.

Garcia's meeting with Bush was full of hearty cordiality, as they discussed both the trade agreement and measures to counter narcotrafficking. Bush said that Garcia was "a good guy, and he gives good advice" ('escape to Colombia at the end of your presidential term to avoid investigation', perhaps?).

But in a later meeting, Democrat Senate leader Harry Reid continued to press for changes in environmental and labour sections of the FTA, as did congressman Bill Pascrell who said there was still much to be improved in these areas before he would be convinced to support the agreement.

On day two of his visit, Garcia met with Charles Rangel, chairman of the Ways and Means committee, one of the two committees charged with reviewing the trade agreement. Rangel declared that the chances of congress ratifying the agreement were "better than good" but could not specify a timeframe. He stressed the need to continue work through details with the Republicans and the executive branch.

Accompanying Rangel was fellow Democrat Sander Levin, who had previously expressed misgivings about the trade agreement after a four-day fact finding mission to Peru.

While there is general consensus that the FTA will help produce the economic growth needed for Peru's development, critics say that it will hurt small rural producers that will have to compete with imports of subsidized American corn, rice, cotton, sugar and beef. They also worry that stricter enforcement of intellectual property law under the agreement could restrict Peruvian access to modern medicines.

Levin would like to see the US use its influence to support more stable, equitable growth when negotiating trade agreements with developing countries. He has argued that countries should be held to International Labor Organization minimum standards, rather than merely enforce their own laws, which may fall short of ILO standards. He also asserted that "it's necessary to assure access to generic medicines for Peruvians".

Garcia also met with congressional majority leader Nancy Pelosi - who reiterated her conditional support for the agreement - as well as Charles Cresley and Max Baucus from the Senate Finance Committee, the other body required to review the FTA. The Peruvian leader assured the press that he was confident of a way ahead. He stated that "it's a matter of process, rather than of reopening the negotiations".

By the end of the trip, Garcia had met with 43 representatives from the Congress and Senate, and declared that he was "leaving satisfied". Later, Peruvian chancellor José Antonio García Belaunde announced that there were "rumours" in Washington that Democrat and Republican leaders would soon sign a pre-agreement that would allow the agreement to be ratified by Congress before August.

But meanwhile, nationalist members of Peru's congress were planning to travel to the US with the aim of convincing US representatives not to ratify the agreement. They claimed to represent the "98 percent of business people who have been completely excluded from the negotation of this agreement". In an open letter to Harry Reid and Nancy Pelosi, they argued that the trade agreement as it stands will exacerbate rural poverty and force poor farmers to turn to the illegal cultivation of coca.

(quotes as reported on Peruvian current affairs show 90 Segundos)


Categories: free trade, Latin America, Peru, FTA, TLC