The quote below by Richard Wolin in the May 21, 2012 issue of The Nation explains the relationship between education and social inclusion.
"For the first time, men and women of diverse social backgrounds were afforded the opportunity to cultivate the knowledge and self-understanding necessary to surmount the oppressive constraints of class, race and gender."
The reference is to the GI Bill that paid for WWII veterans to attend college in the U.S.
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Brazil is now the sixth largest economy in the world. Brazil is enjoying an economic boom, in part due to the reasons discussed in this presentation. The prosperity is flowing down to the middle class. AP reports that Brazilian tourists spent $5.9 billion in the U.S. in 2010. Many would say that the Brazilians, bolstered by a strong currency, saved the retail industry in Miami the last 2-3 years.
Despite the wide reaching economic prosperity in Brazil, there is one area that concerns me. Imports to Brazil have always been tightly controlled in order to protect local industries. This strategy may have been effective when Brazil was a struggling third world country, but today Brazil is emerging as an economic powerhouse with international political aspirations.
Latin Business News reports that Brazil has requested that Mexico reduce auto exports to Brazil by 33% or $1.4 billion this year. If Brazil is going to aspire to a position of international leadership, it should be fostering more trade in LATAM. Such an approach to trade would increase its political clout.
If Brazil were to expand its political influence, especially in LATAM, such an approach would force the U.S. to pay more attention to LATAM. More attention from the U.S. would theoretically foster greater economic development in LATAM and benefit Brazilian exports.
Time reports that Bolivian coca growers are switching to coffee, helped in part by a US AID program. As pointed out in the article, for poor farmers it is simply an economic decision. Coffee is a more valuable crop than coca when coffee prices exceed about $3 per pound. Coffee prices have been rising steadily since 2003, as shown in the chart below.
Source: Wolfram Alpha
Venezuelan President Hugo Chavez is speculating that the U.S. has developed the technology to cause cancer in leftist leaders in Latin America, according to this article from the BBC. The most recent head of state to suffer from cancer is President Cristina Kirchner of Argentina, who underwent emergency surgery recently for thyroid cancer. Chavez went through chemotherapy for an undisclosed cancer earlier this year.
While Chavez is renown for his baseless speculations, a negative view by the U.S. government of leftist governments in LATAM is widely believed in the southern hemisphere. Given the strategic importance of LATAM to the U.S. as a market for exports and as a source of natural resources, perhaps it is time for the U.S. to give a priority to better relations with the countries of LATAM regardless of where they lie on the political spectrum.
The election successes of leftist governments across Latin America is a trend that will not be reversed for a long time. As long as Gini coefficients remain high, oligarchies control the economies and indigenous peoples are discriminated against, populous, leftist governments will continue to have electoral success.
This story was inspired by a story in Latin Business Chronicle, which provides an excellent daily English language summary of LATAM events. Unfortunately, I cannot find a link to the email subscription I receive.
Arnon Kohavi, an Israeli venture capitlist, tried to start a venture fund in Chile according to this story in TNW. After six months he pulled out. His reasons, as reported in TNW, are below:
"I took off because it will take longer for Chile to reach the tipping point. Good will from the government and a few people isn’t enough to re-create what places like Silicon Valley, Israel and Finland have.
The heart of the problem is Chile’s dramatic generation gap, between young entrepreneurs and the old generation. The Chilean society is less dynamic than Asia or the US; a handful of monopolistic families control the country, and won’t move.
Worse, these families don’t care about anything (the young, the poor…) besides their money. They don’t have to: the country’s natural resources (copper, etc.) are a disadvantage here, because it means the rich don’t need to work hard. The Asian model is better, because it focuses on exporting manufactured goods.
Chilean family offices may still give money to Endeavor, but for them it’s not about entrepreneurship – it’s just a way to brush their ego, and they only do it because it is all conducted in Spanish.
I know people were disappointed when I left, and the Chilean government would have supported my fund, but I also wanted a commitment from the elite, and it didn’t happen. Yet, I’d be happy to come back and do business when the country is ready."
I suspect the same result would have happened in ten other countries in LATAM. Organized and supported entrepreneurship struggles in most of LATAM with the exception of Brazil. I am working with a group to organize a high tech entrepreneurship center in Colombia that is supported by the private sector, municipal and state government and local universities. With such widespread support maybe we will do better.
The LA Times reports today that Venezuela has arranged a new loan for $4 billion from China, secured by future deliveries of oil. Loans of this type with China now total $30 billion. A few observations:
Much speculation surrounds the new administration of President Humala in Peru. One of the early decisions by Humala was to decentralize the management of education to the regional level in Peru. This approach is in sharp contrast to the former President, Alan Garcia, who used a federal or centralized approach to education.
The regional approach in Peru is very similar to Brazil where states have managed education since the abolition of slavery in the late 19th century. This is also the approach used by the world renown education system in Finland where cities exercise most of the power.
One of the advantages of a regional approach is that it better enables the matching of the curriculum to the local culture and language. Peru has about 60 indigenous languages and ethnic groups.
This working paper from Harvard Business School may support President Humala's decision through an analysis of the better performance in education by Brazil compared with China, India and Russia.
I think smaller countries, such as Uruguay, can be very successful with a centralized management of education. Larger countries, particularly those with rugged, remote regions such as Peru, may be better off with a decentralized approach that gives more authority and resources to regional, state or city governments.
I spend a lot of time in Mexico. I have probably made ten trips there in the last two years. One of the things that always impresses me is the initiatives at the state level to correct social problems. Certain private sector companies also make significant contributions to social problems.
Friday I moderated a panel at the Latin American Business and Finance Conference in Miami. One of the panelist on the corporate social responsibility roundtable was an executive from Grupo Bimbo. Bimbo, headquartered in Mexico, is one of the largest consumer products companies in Latin America and well known for their breads, cookies and confections. Bimbo is completing a wind farm in the state of Oaxaca (wa-ja-ka) that will produce sufficient electricity to power all of the Bimbo plants (20+) in Mexico.
Maybe a reader can correct me, but I cannot think of a U.S. multinational that could claim that they use renewable energy to power all their plants in the U.S..
A little news from Mexico this morning.
Remittances from Mexican workers in the U.S. reached a five year high in September and totaled $2.08 billion, accorrding to a story from Mexico in Bloomberg. While a cheaper peso accounts for some of the increase, Mexican workers in the U.S. are also moving into better paying jobs in the service sector. The move to service sector jobs is due in part to a decline in traditional jobs in fields such as construction.
If Mexicans are moving into the service sector in the U.S., perhaps we should consider more outsourcing to Mexico.
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November 4th I will be moderating a panel on corporate social responsibility in Latin America at a new conference in Miami. Sponsored by the Colombia University Business School (my alma mater) alumni in South Florida, the Latin American Business and Finance Conference brings together thought leaders from across North and South America to discuss a wide range of themes in business, finance and economic development. Conference details are here.
Miami should expand its role in the thought leadership of LATAM. UM and FIU have several organizations that contribute to a better understanding of a wide range of topics in LATAM (but more conferences raise the profile of Miami even further). Two organizations that are particularly noteworthy are the Center for Hemispheric Policy at the University of Miami, which hosts high quality monthly events, and the Institute for Public Management & Community Service at FIU which focuses on the issues of the cities and states in LATAM and also hosts a great annual conference now in its 12th year.
Another upcoming conference is the 2011 Americas Venture Capital Conference, November 16-17, sponsored by FIU and the Pino Center for Entrepreneurship (where I am on the Board). This conference focuses on bringing together LATAM entrepreneurs and funding sources. Now in its second year, details for this premier event are here.
Take advantage of these events to expand your knowledge of Latin America. Please share this post on FB, Twitter, etc. so that more people realize that a great deal of though leadership on LATAM comes from right here in Miami.
Recently I wrote a very popular post on Brazil--ABDI Presentation on the Future of Brazil--that discussed a government presentation on the competitiveness of Brazil. A friend sent me some similar statistics on Mexico.
Based on statistics from the International Monetary Fund:
The Secretaria de Desarollo Social, a minister level position responsible for social development in Mexico, provides the following statistics:
The middle class in Brazil is roughly the same percentage as the poor in Mexico. Herein lies the problem for Mexico, for its people and its economic competitiveness. A large middle class is required to truly build a modern country.
Some additional statistics on poverty and social issues in Mexico are here. (Spanish)
Image credit: Wikipedia
This week I spoke in Mexico City in Spanish about One Laptop per Child to USEM (Spanish link; English link). USEM is an organization of business owners that use Christian principles for social good and has 26 chapters throughout Mexico. The members support a wide range of social projects related to children, family, education, entrepreneurship and the environment. It is especially enjoyable to speak to like minded people and I would like to thank USEM for the opportunity to speak to their members.
The members of USEM recognize that to achieve social change there are three requirements:
Implicit in my three requirements for social change is a recognition by USEM that the private sector cannot wait for the government to address all the social issues.
USEM is the Mexico branch of Uniapac, a worldwide organization of business owners in 25 countries devoted to social change through Christian principles.
Today I am speaking in Spanish at an FIU conference for 500 Mayors from across Latin America. A summary of my comments follows:
As reported in Big Think, South America's most centrist governments are merging their stock markets. Peru, Colombia and Chile have announced the merger of their stock markets to improve market liquidity and access to capital for local companies. In the run up to the Peruvian presidential elections, this announcement and its timing raises interesting issues for front runner Ollanta Humala. Humala is backed by former President Lugo of Brazil and President Chavez of Venezuela and would be expected to be against such a pro-business merger. Comments against the merger would increase concerns in the business community and abroad about a future Humala government. My guess is that Humala will remain silent on the issue until after the elections.
I will be speaking at the conference on Poverty Alleviation in Latin America sponsored by the Center for Hemispheric Policy at the University of Miami on May 18. More details are here. Santiago Levy from the IDB is the featured speaker. The Center is under the direction of Susan Kaufman Purcell, with whom I shared a panel in February.
The World Bank issued a note in January 2011 on its evaluation of a two year program in Colombia for the use of computers in schools. The purpose of the program is stated below:
"The program’s stated goal was to train teachers to use computers in specific subjects, with a focus on incorporating the computers into classroom teaching of Spanish and math."
The findings from the study were:
"Students in schools that received the computers and teacher training did not do measurably better on tests than students in the control group. Nor was there a positive effect on other measures of learning."
"Researchers did not find any difference in test scores when they looked at specific components of math and language studies, such as algebra and geometry, and grammar and paraphrase ability in Spanish."
The interesting fact about the study that was overlooked in the report conclusions was:
"About 66 percent of students in schools in the program reported using a computer in the previous week, compared with 41 percent of students in the control group"
No where in the report does the World Bank question the methodology used in Colombia. Instead of questioning whether occassional use of a computer is an effective educational method, the report merely points out that the program showed no positive results. Colombia has long operated computer labs and consistently derived no positive effect on the students from such an approach.
When is a development bank going to tell Colombia to stop wasting money on computer labs and other limited access approaches to computing. Sadly, Inter-American Development Bank is supporting a new bid this month by the Colombian government to expand the computer lab approach with 80,000 additional computers.
As long as development banks continue to support failed methodologies in education there will be no improvement in student performance. It is time for development banks to support either 1:1 computing approaches or online approaches such as Kahn Academy.
The views expressed herein are my personal views and do not reflect the views of any organization with whom I am affiliated.
One of the major problems in Latin America is a high drop out rate amongst students, which in some countries begins with graduation from primary school. In classic economic development thinking this problem has many dimensions:
As you can hopefully see, this drop out problem can be analyzed in quite a complex way and the solutions developed typically incorporate this complexity to be responsive to all the objectives.
On the other hand consider the simple but elegant solution used by Mexico City’s Education Secretary Mario Delgado Carrillo. Mexico City pays a student $45 per month to stay in school and up to $65 per month if their grades are As or Bs. Payments are direct to the student through a bank card. In the program's three year history the drop out rate has decreased from 20 to 6 percent and grades have also improved.
Milton Friedman would be proud of this use of student self-interest to solve a problem. I particularly like the concept of meritocracy in higher pay for better grades.
I found the example of Mexico City in a story in the Miami-Herald by Andres Oppenheimer.
The two previous posts on economic development are here and here.
The views expressed here are my personal opinions and do not reflect the views of any organization with whom I am affiliated.
Mexico City image credit
This is the first in a series of posts on economic development, which was prompted by this post on multi-lateral banks.
Many people criticize academics for their pointless theorizing. I think there are three types of theories, all of which are very different, and not all types of theories deserve criticism:
While I have not finished researching economic development theory, I do believe the matrix is representative of the current theories on economic development. If you want to know why foreign aid has no meaningful effect or why multi-lateral banks are only effective in building financial systems, imagine trying to design and manage a development project with this complexity of objectives.
I will eventually present a theory of economic development that might be workable, but you will need to be patient.
(I have intentionally not footnoted where the exhibit above came from because I have no intention or desire to possibly embarrass in any way the people who prepared it, given the subject of this post.)
The views expressed here are my personal opinions and do not reflect the views of any organization with whom I am affiliated.
I travel alot for One Laptop per Child and frequently meet foreign government officials and university administrators. After discussing the benefits of primary school education through OLPC, the discussion invariably turns to whether OLPC can help to foster entrepreneurship in their country. The discussion turns to entrepreneurship for two reasons:
As I read Daniel J. Isenberg's article in Harvard Business Review "How to Start an Entrepreneurial Revolution" I find that I agree with some of his findings but generally I disagree with his conclusions. Isenberg's conclusions about an environment that fosters entrepreneurship in foreign economies are:
My conclusions to foster entrepreneurship are based on ten years working in Indonesia (a hot bed of entrepreneurship despite a then authoritarian government), eleven years of working with entrepreneurial clients in the Caribbean and Central America, five years of teaching entrepreneurship to many foreign university students and eighteen months representing OLPC. My conclusions are:
1. Capital is King. Many entreprenurs around the world can build $3-10 million companies through Isenberg's "stress the roots" approach, but they cannot achieve "world class" status for lack of access to capital. I was lucky to build a billion dollar publicly traded company in Indonesia, but the reason, in large part was that I was better able to access capital than my competitors. I recently lectured a group of Haitian entrepreneurs through a program spons0red by Digicel Group, Dennis O'brien's telecommunications company. This very optimistic group of Haitian business owners cited access to capital as their biggest problem despite the total devastation of their country by an earthquake. Financing techniques for entrepreneurs was the subject of the lecture.
Isenberg cites the successful Israeli example of combining government funds with management of the monies through professional venture capital and private equity funds. I like this example, which has been used in Florida where some government pension monies are under the management of Hamilton Lane to invest in early stage companies. (Florida, a state with a population of almost 19 million, at last count had less than ten "real" venture capital firms.) I would encourage a portion of the monies in such approaches to be specifically earmarked for "seed" investments and for the VCs not to be disguised private equity investors.
In Indonesia one of the largest untapped pools of capital was the reserves of the local insurance companies. Within reasonable and appropriate asset allocation and risk profiles perhaps insurance reserves in some developing countries could be directed to local investments in secured loans to provide medium term growth capital.
2. Integrate Foreign Investment into the Entrepreneurship Initiative. Foreign multi-nationals provide many benefits to foreign countries, not the least of which is hands on training in professional management to local staff. Due to weaker education systems in many countries, most entrepreneurs have only limited access to the thinking and processes of modern management. This lack of experience is a major factor in limiting the emergence of world class companies.
Perhaps foreign investors must have social responsibility programs that support local entrepreneurship. Programs in education, local suppliers and services and sabbaticals for employees to work for a year in a local company all would qualify. Preferential tax rates might encourage this activity. The Digicel workshops for Haitian entrepreneurs is an example of such a program (albeit with no particular tax incentives).
3. Education is Critical. Several academic studies have shown that a part of the success of Silicon Valley and Boston as entrepreneurship centers is their proximity to great universities. Mayor Bloomberg's recent initiative to attract a world class engineering school to New York City as a means to foster greater entrepreneurship there points out the need for education in certain subjects that tend to produce more entrepreneurs. Of course, if we provide good engineering universities, access to capital and professional venture capital investors, a country would be well on its way to duplicating the critical success factors that explain Silicon Valley or Boston.
Based on conversations with many government officials around the world, the development of intellectual property is going to be the engine of economic growth in the 21st century. This concept is a basic tenet underlying the philosophy of OLPC, which in part explains the success of the program and the approximately 2 million computers distributed to children. Improved education, and in particular science, math and engineering, is a necessary part of any sustainable entrepreneurship program at the country level. Procter & Gamble's social responsibility program in Latin America focuses on education, which suggests that they share my view on the importance of education in emerging markets.
4. Focus on Entrepreneurship. Isenberg cites the example of Malaysia's program to foster entreprenurship in the idigenous population as a failure and support for his concept of "stress the roots" by encouraging resourcefulness. I agree but I think Isenberg fails to draw the more important conclusion. The indigenous population in Malaysia is not some small tribe of nomadic Indians but rather the majority of the population. Malaysia has a history of failed programs to support the indigenous majority while the Chinese minority thrives. Malaysia's entrepreneurship program failed because it did not focus on entrepreneurship but rather addressed a wider range of social and political issues. I see many governments starting good projects only to fail because they have too many social or political objectives. If governments would refrain from discrimination on the basis of culture, race or religion and not try to solve all the problems with one solution, their programs would be much more effective.
An example that supports this view of focus is the Uruguay program to implement OLPC. Uruguay is the first country in the world where every child in primary school (450,000) has a laptop computer (from OLPC) and the program has garnered worldwide acclaim for the country. The reason that this program succeeded, in large part, was that the government had one simple goal--include every child in Urugauy with no exceptions--rather than adopting discriminatory programs or complex, multiple social goals.
5. Liberalize the Legal System. The structure and philosophy of the U.S. legal system has been a major factor to explain the scale of entrepreneurship. The U.S. system is built on the concept that if something is not prohibited by law, it is permitted. Many countries adopt the contrary approach--if it is not permitted by law, it is prohibited. This later controlling view of legal systems greatly inhibits entrepreneurship. I have thirty years of stories where entrepreneurs were stopped by government bureaucrats from expanding their businesses because a law did not permit something. What countries need to do to foster entrepreneurship is to change the philosophy of their legal systems to make them permitting rather than inhibiting.
Professor Isenberg should be applauded for this important article on the importance of entrepreneurship in developing economies. Perhaps our differences of opinion will foster further debate and research on this important topic.
