The impact of Asia on Latin American industry

...He knows that Chinese labor costs are only a third of his costs...

...India is a chaotic democracy, where half of young children are malnourished...

...These strains include pressures in economic sectors and in markets, hut, at least in Latin America, they should also induce doubts about the usefulness of the reigning political discourse...

...In his famous "History Will Absolve Me" DISSENT / Winter 2008 n 9 IIIMEN11=11=111111111in POLITICS ABROAD speech in defense of his unsuccessful attack on the Moncada Barracks in 1953, Fidel Castro lamented, "We export sugar to import candy, we export hides to import shoes, we export iron to import plows...

...What, they ask, can they produce that will be competitive in the ferocious world economy...

...Perhaps more suggestive, ECLAC estimates that China and India have accounted for more than 30 percent of annual world economic growth since 2001...

...The fear is that El Salvador will be left with little more than its sagging agriculture and remittances from its sons and daughters who labor abroad—usually in the United States— and send money "home" to relatives...

...However, import substitution as a development model was already teetering, having been visibly linked to inefficiency, favoritism, and corruption...

...El Salvador's precarious textile industry is emblematic of a larger issue that is confounding thoughtful Latin Americans, in business, in politics, and in the academy...

...India now ranks as the eighth-largest economy in the world...

...FORREST D. COLBURN'S most recent book is Varieties of Liberalism in Central America: NationStates as Works in Progress, written with Arturo Cruz S. (University of Texas Press, 2007...

...There is admiration and respect for China's and India's stunning growth rates and for their ability to compete with firms from North America and Europe...

...There was considerable hand-wringing in the region...

...and soybeans in Argentina and Brazil...

...But China is pinching the industrial sector of Latin America...

...They are between a rock and a hard place: the rock is the high technology of North America and Europe (and Japan), and the hard place is the low labor costs common throughout most of Asia...

...These are not faring well in the face of stiff and unrelenting Chinese competition...

...And he knows, too, that the undervaluation of the Chinese currency gives the country's exporters another cost advantage in world markets, some calculating it to be 10 percent...

...There is fear that the net effect will be an unintended but very real "shove" of the region back into its traditional, colonial role of providing raw materials to power the industrial development of other parts of the world...

...Growth in Latin America all but halted between 2001 and 2003...

...A dreaded word from analyses of Latin America's colonial history is reemerging: enclaves...

...The dismantling of tariffs throughout the region has opened economies, offering opportunities but also threats from stiff competition...

...A Venezuelan colleague, Luis Figueroa, reports that every time he hears people in Venezuela claim they are going to manufacture something he tells them, "The Chinese can—or will—do it for a tenth of your cost...

...There were disagreements about who was to do what, but widespread agreement that local—national—industry needed to be fostered, nurtured, and protected...

...The other problem is related: the acclaimed "vanguard" of the Latin American economy, the industrial sector is, more often than not, one of the "losers...

...China's close-to-double-digit annual growth for more than a quarter of a century has created an economic powerhouse...

...The conclusion of the study could have come from a court official of the Spanish Empire—or the author of Imperialism: The Highest Stage of Capitalism...

...It highlights China's tremendous economic advance—and capacity for future growth, with, for example, 45 percent of its graduates in higher education being in science and engineering...

...As a Panamanian entrepreneur put it, "Business is business...

...It is huge, with many economies of scale...

...The strategy worked: goods like soap, school notebooks, building materials, furniture, textiles, and even cars and buses came to be manufactured in the region (even if the latter were only "assembled...

...As the Salvadoran businessman takes it all in, he suddenly notices that none of the workers—all women—is wearing glasses...

...The equipment is new, the technology sophisticated...

...China will progress, but will Latin America...

...In 2006, the Inter-American Development Bank published a much discussed report titled The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean...

...The president of Costa Rica's Central Bank, Francisco De Paula Gutierrez, laments, "For a number of reasons, in Latin America we have for some years all but stopped talking about development...

...There are two salient problems with this growth—and one elephant-in-the-room question...

...Disaggregated recent macroeconomic data from Latin America reveal a sharp divergence in fortunes: there are "winners" and there are "losers...

...There was, to be sure, an element of mimicry: rich countries inevitably had robust industrial sectors...

...What was wrong...

...Many in the region are doubtful, even scared...

...Hugo Chavez cuts a colorful figure and is rousing in his denunciations of el imperialismo yanqui...

...Answers are elusive...

...It is time toresume the discussion...

...Latin America is, as a region, wealthier, more developed, than China or India...

...Surely, too, ways need to be found to enhance economic opportunities for the disenfranchised, and to stimulate economic activity more generally—to encourage entrepreneurs...

...China's exports have multiplied by a factor of twentyseven since 1980, a growth that has come about in part from displacing the productive activity of other countries...

...China combines the worst of communist governance with the worst of capitalism...

...Economic growth is not everything...

...And there is no use just complaining...

...Industrialists throughout Latin America worry about their future...

...Second, China has a voracious demand for basic commodities, for agricultural goods such as soybeans and for minerals such as oil and copper...

...It is difficult to find hypotheses, let alone perDISSENT / Winter 2008 n 1 1 POLITICS ABROAD suasive answers...

...timber and copper in Chile...

...The state often assumed leadership of the economy, sometimes even producing goods itself...

...THE ECONOMIC CRISIS in Latin America of the 1980s was the worst since the depression of the 1930s...

...Some sophisticated industrial goods are produced in the region, too, such as Embraer jets in Brazil...

...It is a poor country, still seeking to recover from a devastating civil war and trying both to promote broad-based economic development and to strengthen an incipient democracy...

...It is symbolic of Asia that a popular film in India has as its hero a rags-to-riches entrepreneur (loosely based on a well-known businessman...

...DESPITE THE electoral appeal of populist discourse, a resumption of debate about development in Latin America must address "tedious" issues, such as secondary education (it is not enough anymore just to be literate), savings and investment rates, infrastructure, efficiency of public services, and cooperation between the public and private sectors...

...However, throughout Latin America there is a fear that the labor force is concentrated in sectors—like traditional agriculture—that are "losers" in the ferocious world economy...

...China, India, and other Asian countries such as Vietnam are sisters: they, too, have long been poor and trampled upon by wealthy countries...

...It was in 2004, though, that China's massive consumption of raw materials drove up prices of minerals, soybeans, and other basic commodities...

...Poverty and unemployment persist...

...12 n DISSENT / Winter 2008...

...The liberal prescription, unfettered markets, led to a marked decline in subsidies and other forms of government assistance, and, concomitantly, the lowering of tariffs and other barriers separating Latin American economies from international markets...

...Surely something can—and should—be done in Latin America to ensure that the region is more to the world economy than a mining pit, a lumberyard, and a farm...

...Oh no," he is told, "as soon as the women develop problems with their eyes we get rid of them...

...Governments, slow or unable to respond, ran deficits, contributing to a disruptive and disorienting surge in inflation...

...India is moving forward, and the catalyst is individual initiative...

...First, China has the ability to produce consumer and even capital goods with a cost and quality that Latin America cannot match...

...To be sure, many products continue to be produced locally, from tortillas to cement...

...What does Asia's ascendancy mean for Latin America...

...Imports, especially of consumer goods, were obstructed by high tariffs and other barriers, while subsidies were offered to stimulate local production...

...Still, when you grow by 10 percent for seven years you double the size of your economy— and that creates interesting possibilities for addressing poverty and inequality...

...These exports, in turn, could be traced to the "boom" in China (and to a lesser extent, in India...

...China is now reported to threaten not just Latin America's textile and "light" manufacturing, but more sophisticated rubrics such as machinery and industrial supplies...

...El Salvador is not known as a "worker's paradise," far from it...

...Even with its stunning economic growth to date, China's per capita income is still only comparable to that of one of Latin America's poorest countries—Bolivia...

...Half the country's exports are textiles, overwhelmingly produced in maquilas—assembly plants...

...The film, Guru, includes a passionate speech where the entrepreneur, born and raised in a village, says Indians are not going to be held back by their long-held poverty and status as a lowly "third world" country a foot is in the door and the door is going to be pushed open...

...AN ANECDOTE from business circles in Latin America tells of a textile manufacturer in El Salvador, who, reeling from Chinese competition, travels to China and visits the sprawling plant of one of his competitors...

...The first, and most obvious, difficulty is 10 n DISSENT / Winter 2008 POLITICS ABROAD that the commodity-driven growth is spread unevenly...

...Alternatively phrased, perhaps, Why can't Latin America compete against Asia...

...He returned to report to his colleagues: "We have to have the Chinese as clients—not as competitors...

...Correlation was confounded with causation...

...What does Latin America need to stimulate its economic development...

...The growth of exports lagged at only 2.1 percent, but that was just as well—participation in the international economy was judged to be pernicious and so best minimized...

...And his charity is welcome throughout the region...

...Just as important, though, even within those countries that produce valued commodities, there are other sectors that have either not fared well or have only slightly benefited from a "spillover...

...What amazes him the most, though, is his visit to the floor of the Chinese textile plant...

...Yet in both countries and elsewhere in Asia, too--something is afoot...

...Economies cracked...

...Maybe, though, it is time in Latin America to rethink ensconced views of entrepreneurs— and of economic activity in general...

...Many Latin American countries— those producing these desired commodities—have benefited handsomely...

...There was, moreover, ample evidence of what had stimulated it: an 18 percent surge in exports...

...As those within the industrial sector understandably worry about their livelihood, others in Latin America are returning to an intellectual— and policy—debate that dates back at least to the 1950s: the role of industry in national development...

...Indeed, the country's textile sector is said to be in crisis, and textiles are the backbone of El Salvador's "industrial" sector...

...A successful Peruvian entrepreneur, Juan José Grandez, traveled to China, looking for opportunities...

...Jefferson would be dismayed...

...Countries most vulnerable to Chinese competition include Mexico (which has an export mix similar to that of China) and El Salvador, Honduras, and the Dominican Republic (which depend heavily on the manufacture and export of textiles...

...He asks, "How is it that none of your employees wear glasses...

...Winners are concentrated in enclaves, such as, for example, Peru's mining sector...

...The study is long on challenges and short on opportunities...

...The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that the average annual growth rate of gross national product (GNP) in the region was 5.6 percent between 1945 and 1980...

...The Cuban Revolution stimulated a vigorous debate throughout Latin America about how to spur economic development...

...The "motor of development" was now to be the private sector, and the route to growth—and prosperity—was through exporting, both "traditional" exports (for example, bananas and copper) and "nontraditional" exports (such as asparagus and doors...

...Marx would be aghast...

...indeed, they were sometimes called "industrial countries...

...Still, there is little doubt about the inadequacy of current political discourse and debate in Latin America...

...Before an answer could be found, in 2004, growth resumed...

...Figueroa says, "Today in Latin America you are either producing raw materials or you are in `services'—and for many Latin Americans, the service sector amounts to little more than hawking something on the street, maybe even something imported from China...

...Some countries, primarily those in South America, have something to offer: oil in Venezuela and Ecuador...

...With the calamity, both political regimes and intellectual paradigms lost their legitimacy...

...production fell...

...The implied suggestion: Latin America cannot compete...

...In 2005, the Chinese economy overtook the United Kingdom and France to rank as the world's fourthlargest (surpassed only by the United States, Japan, and Germany...

...zinc, silver, and fishmeal in Peru...

...The growth of China and India, however, creates strains in other parts of the world...

...ECLAC reports that in the first decade, from 1990 to 2000, the strategy worked, more or less: growth averaged 3.3 percent per year—good, but not enough to address the region's poverty and stark class divisions...

...A Latin American counterpart to Guru is inconceivable—entrepreneurs in the region work under a cloud of suspicion, and sometimes even disdain...

...Annual growth for the region was just over 1 percent throughout the decade, lower than the growth of the population, and so per capita income declined...

...Import substitution" became fashionable...

...Latin America has abundant resources and only a fifth the population density of Asia...

...Still, the low labor costs of China and India pose a stiff, persistent, and frightening challenge...

...THE HAUNTING question is, Why are China and India growing between two and three times as rapidly as the countries of Latin America...

...The report states, "The greater opportunity for other countries may lie in their capacity to supply new demand segments of the Chinese production apparatus (for instance, providing raw materials . . .), and buying increasingly sophisticated (and probably more affordable) finished Chinese goods...

...It is an enormous boost to have sectors that fare well...

...Foreign capital was welcomed as a stimulus for growth...

...Industry was held to be the "vanguard" of the economy, an incubator of talent and technology and a catalyst for broad-based economic development...

...Other countries, primarily in Central America (as well as Mexico), do not have much to offer...

...What causes unease, though, is the perception that China—and, in time, India, too—is pinching Latin America with two "claws...

...But he has no plan to stimulate economic growth neither does anyone else...