The Future of the Americas Conference
Monterrey, Mexico
January 10, 2004
Remarks by Alan Stoga, President, Zemi Communications

I am honored to participate in this meeting and I want to add my congratulations to Governor Natividad and the three universities of Monterrey for their foresight and effort in organizing it.

I have listened carefully to my colleagues on this panel and to the speakers yesterday, all of whom have provided insight into the many challenges facing this Summit and, more importantly, our hemisphere.

I would like to begin my remarks by giving you my sense of where we are, why we are where we are, and what lessons we might draw as we think about the future of the Americas. I will leave most of the solutions for the discussion period.

The reality is that the past two decades have not been good to the Americas:

• Most of the countries of the region enthusiastically participated in the efforts to restructure, refinance, and service their international debts (in some cases, repeatedly)–from Brady to Baker to Rubin. (It’s interesting that U.S. Treasury Secretaries lend their names and their legacies to solving debt crises, rather than to producing sustainable growth and development. You have to go back to Secretary Marshall–of State, not Treasury–for a memorable exception.)

  Yet most of the countries of the region continue to suffer from substantial debt overhangs–domestic or international–operate under the need to maintain primary budget surpluses to service those debts, and are experiencing net financial capital outflows.

• Most of the countries of the region signed on to the Washington Consensus–certainly with varying degrees of actual implementation. To one extent or the other, almost everyone embraced open markets, privatization, market driven incentives, and the other elements of the formula that were supposed to localize the benefits of globalization.

  Yet, most of the countries of the region have experienced deepening poverty, increasing unemployment, growing income inequality, and little, if any, per capita growth. And, by almost any measure of competitiveness, the region is falling behind, and not just to the Chinese.

• Most of the countries of the region have enthusiastically bought into free trade, despite what happened recently in Cancun. Indeed, one of the few reliable growth businesses in the hemisphere has been the production of multilateral and bilateral free trade agreements or customs unions; virtually every country has negotiated at least one and some–Chile and Mexico seem to be the champions–pride themselves on many. From Mercosur and NAFTA to a web of bilaterals inside and outside the Americas.

  Yet, all of these agreements have produced much less economic growth and development than predicted by the negotiators and their economists. And, with respect to the mother of all trade agreements in the Americas–NAFTA–we are all familiar with the World Bank’s recent study that, after ten years, NAFTA produced net positive benefits for Mexico–but not much.

• Most of the countries of the region have foresworn authoritarianism, sent their militaries back to the barracks, and embraced democracy.

  Yet, politicians and political institutions are held in the lowest regard virtually everywhere. Opinion polls like Latinobarometro consistently discover a popular willingness to forego democracy, electoral participation is falling, and democratically elected leaders have been threatened–or actually driven from office– from Venezuela to Bolivia to Argentina, and countries in between.

• Most of the countries of the region have enthusiastically participated in the construction of a regional architecture that involved, not just the old institutions of the IDB and the OAS, but the new interactions that were birthed at the original Summit of the Americas in Miami in 1994. In fact, another growth industry in our region has been summitry and the bureaucratic infrastructure that sustains it. Just since the turn of the century we have had the Millenium Summit in New York, the Summit of the Americas in Quebec in 2001, the UN Development Summit here in Monterrey in 2002, the participation of the Presidents of Mexico and Brazil in the Lyon Economic Summit in 2003, and next week’s extraordinary summit. Never mind WTO summits, Rio Group summits, UN special issue summits, hemispheric meetings of trade ministers, foreign ministers, education ministers, their deputies, their specialists…on and on. You wonder when they govern.

  Yet, the political tensions between the United States and almost every other country in the Americas, as well as tensions within the region–think Colombia and Venezuela, think Bolivia and Chile, among just the recent headlines–are growing, not abating. And the capacity of the region to define and execute projects at the regional level–the FTAA is an example–is declining.

So, if the formula of (economic reform + democracy + free trade + debt renegotiation + diplomatic interaction) was supposed to produce a hemisphere of growth, development, global competitiveness, peace, and prosperity, there is only one conclusion: It failed. Every one in this room probably has a different explanation for the failure. Mine include:

• Washington’s arrogance, unilateralism, and lack of engagement;
• The absence of social and legal reforms in the Washington Consensus;
• The lack of adequate funding for the multilaterals and the hard headedness of the IMF;
• Failure of countries to complete key reforms in labor, capital markets, regulation, and other areas;
• No real commitment to rule of law or sanctity of contract in too many countries;
• Financial crises and declining capital flows;
• Demagogic politicians that put their own political futures ahead of their countries’ development; and
• Corruption that not only saps resources, but peoples’ support for the system.

You can choose one, all, or none of the above. But, regardless of your preferred explanation, the reality is that–despite all the efforts of all the well meaning people over the past years–most Latin Americans and most Latin American countries are not much better off than they were at the start of the free market modernization process.

A sidebar: as a social scientist by training, I used to take comfort in the argument that things would have been worse, absent all the reforms and all the efforts of the past years. But that is a theoretician’s argument that has no relevance in the real world. No voter cares that his poverty and lack of opportunity would have been even worse if Pedro Aspe or Domingo Cavallo or Pedro Malan or one of the other great technocrats had not made the difficult changes they made. All they care about is their own present day reality–which is my explanation for the evident rise of left and right wing populists in many countries of the region.

For me, that has been a sobering and frustrating realization, and I think it should be one that informs our discussion in this meeting and, more importantly, in the more formal discussions among the heads of government that will be convened on Monday at CINTERMEX.

The issue before this panel is growth and development beyond trade agreements. Let me summarize what I have been trying to say so far in the form of "Eight Lessons Learned."

1. Free trade agreements, on balance, produce economic benefits for participating countries. But the social and political disruption they produce can, also on balance, outweigh the economic results.

   Put another way, free trade should not be an end in itself, because–if the fall-out is badly managed–the costs threaten the benefits in the real world.

2. A free trade agreement without economic reform will not produce sustained economic growth, but economic reform without free trade can produce real growth.

   Without debating relative degrees of reform and openness, China, India, Korea, and Malaysia are all poster children for this theorem.

3. Savings rates are more important than debt ratios, since they provide the basis for financing future growth.

   The progressive drying up of international capital flows into Latin America–portfolio flows as well as direct investment flows–means that countries’ abilities to mobilize their own savings have become one of the keys to their future growth. That is why Mexico, which in spite of all of the failure to energize the structural reform process has continued to broaden and deepen its capital markets, is looking at a more robust medium term scenario than most of the other countries who are coming to Monterrey.

4. Democracy is a good in itself, but it is not necessarily conducive to economic and social development.

   Unfortunately, there is even a chance that–at certain stages of development and certain moments in time–democracy and growth might be in conflict. As a committed democrat, I find this profoundly troubling. However, I am not prepared to argue that the transition to democracy is antithetical to growth–although it is clear that the Chinese, among others, believe that, at the least, there is no causal link between political freedom and economic growth.

5. The worst fall-out from globalization has been the export of a business model that essentially assumes industrial country factor endowments of abundant capital and scarce labor.

   The most important corollary to this is that the U.S. experience and U.S. model are largely irrelevant to most countries, particularly most countries in the Americas. Good intentions notwithstanding, exporting American style business management is as bad an idea as trying to export American style democracy.

6. Countries that see their competitive advantage as stemming from their ability to be the low cost regional or global manufacturing platform are doomed to poverty.

   This is the irony of those here in Mexico who bemoan Chinese competition in the production of shoes, toys, television sets, etc. On the one hand, they are fighting a battle they cannot win, since once China entered the WTO, their sheer numbers guarantee that their wages will always be lower; on the other hand, they (as well as the textile and other protectionists in my own country) are fighting a battle they should not want to win. It is like a parallel universe where they have re-imagined the popular TV game show as, "Who Want to be a Pauper?"

7. Countries who seek to position themselves as the global providers of knowledge-based services are doomed to intense and endless competition. But that is the nature of the 21^st century economy.

   Two examples. First, over the next three years, a major New York securities firm plans to replace its team of 800 American software engineers, each of whom earns about $150,000 per year, with an equally competent team in India earning an average of only $20,000.

   Second, within five years the number of radiologists in the United States is expected to decline significantly because M.R.I. data can be sent over the Internet to Asian radiologists capable of diagnosing the problem at a small fraction of the cost domestically.

   Think about the current so-called "jobless" U.S. recovery which saw the economy grow more than 8% last quarter, but produce no jobs.

   If the United States–with its intrinsic advantages–is going to have to run this hard to generate employment for its educated middle class, imagine the challenge facing the rest of the Americas (other than Canada) where the average number of school years completed is less than the minimum needed to create the opportunity to escape poverty.

8. Political instability inevitably overwhelms whatever benefits might be produced by free trade or even free market reforms–and tends to produce a vicious cycle of poverty and dislocation that is likely to make all best the efforts of the economic reformers irrelevant.

   Venezuela, Peru, Ecuador, Bolivia today. Central America in the 80s. Political stability is a necessary pre-condition to good economics and to good economic results–and significant parts of our region seem to be endemically unstable.

So, to return to the topic in front of this conference, I believe in free trade. Unfortunately, I am also beginning to believe that all of the bureaucratic effort and all the political will that goes into negotiating and ratifying new free trade agreements–and, in particular, that is now being consumed by the FTAA–is effort and political will that would be better spent focusing on the root causes of poverty, economic stagnation, political alienation, and instability in the Americas.

Let me put this in an even more impolitic way. I think that free trade negotiations that promise more than they deliver in the real world produce more damage than benefit. At the least, they distract policy makers from far more important issues. I think we should, perhaps temporarily, abandon the FTAA effort and refocus the energies of the governments of the region on more urgent challenges.

The problem, of course, is that movement toward the FTAA has become the benchmark of summitry in the Americas and even of perceived economic progress–when the real benchmarks should be growth and development.

Finally, let me turn briefly to the Summit of the Americas.

Yesterday, Mr. McLarty reminded us about the promise of the inaugural Summit of the Americas in Miami and the enthusiasm that accompanied the negotiation, ratification, and launch of NAFTA. That summit and NAFTA had a profound impact on the dynamics of the Americas.

My own involvement in economic summitry actually predates his, although my impact was a fraction of his. When I was in government as a very junior Treasury officer, I wrote briefing papers for the very first industrial country economic summit in France in the mid seventies. So, I grew up with the summit process and I believe that there can be real value created when the heads of government sit together to identify problems and make the difficult political decisions that can only be made by presidents working together.

Nevertheless, I have doubts about the Summit of Monterrey. "Growth with equity, investing in people, and improving democratic governance," around which the summit agenda is built, are all critical topics. But they lack urgency and are divorced from the brutal economic, political, and social realities that grip our hemisphere. More words and more empty commitments will not produce the economic and social momentum so urgently needed.

The fact is that most of the summit participants know what needs to be done to reignite growth and development in their countries, even if the lack the political will to make it happen. The creditor countries–the United States and Canada–do not need to offer more lectures on the evils of corruption or the benefits of building viable political parties. Instead, they need to open up their markets–unilaterally, not as part of a negotiation process–and find ways to help generate the substantial financial resources the region needs to resume growing.

There is only way for the Summit of Monterrey to have as great an impact as the first Summit of the Americas 9 years ago. The presidents of the countries of Latin America would have to throw away all the work and words of the bureaucrats and commit themselves to a very simple target: at least doubling the per capita growth rate of each of their countries during the next three years, while laying the basis for sustained growth in the following years.

This would require different things in different countries, none of them easy, but none of them mysterious. It would also require President Bush to clear away the international obstacles to growth which, among other things, means reducing U.S. agricultural subsidies and forcing long overdue changes in the international financial architecture.

In short, I would like for the summiteers to forget bureaucratic processes and photo opportunities, and instead focus on the variable that matters: doing whatever it takes to produce real, sustained per capita growth. My fantasy is that President Bush would come to Monterrey, announce that he is submitting legislation to cut in half the country’s outrageous agricultural subsides, declare that he is prepared to bet his re-election on its passage, and challenge his fellow presidents and prime ministers each to undertake one similarly dramatic, unilateral pro-growth initiative.

I know that is not going to happen, but imagine how that would transform the dynamics and the reality of the Americas. Then we would have a future worth entering.

Again, I thank the organizers of this meeting for their hard work in organizing this conference and I thank you for your patience in listening to me. I look forward to your comments and your questions.

Thank you.