Famed economist Tim Harcourt talks Peru, Latin America

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Luis Davelouis Lengua for El Comercio

Around here, listening to visiting international academics telling us that Peru is going in the right direction, that it is an example and that there is still much to be done has become commonplace, and therefore, obvious and boring. The well-known Australian economist Time Harcourt (author of the best-selling Airport Economist) is a very nice guy, who seems, at first impression, unable to say anything negative about anyone, even Hitler. Appearances lie.

In your presentation, you talk about the opportunities that Latin America has to integrate itself more, and better, in the world…
Yes, the potential is very high and the destinations for the region’s exports are still very concentrated, as are the products that the region exports. There are opportunities to broaden the portfolio of products that you export, which adds value to those products…

What is our advantage?
The human capital in Latin America is very strong…

Seriously? But if our education system is so bad…
Yes, that’s why they go to Australia to study [laughs]. We have many students from Latin America, especially Colombia, Peru, Chile, Brazil and Mexico.

We export people to Australia and reimport educated people. That doesn’t sound sustainable, or cheap, or efficient.
But that way, your people have more exposure to other realities, especially the Australian one, which is one that has many links to Asia, a market you are very interested in. Business schools in Australia usually work out very well for Latin Americans.

What else seems interesting to you in the region?
The infrastructure gap. There are many Australian companies interested in that sector.

Returning the subject of value-added exports. That requires trained, knowledgeable labour, as well as technology, which we don’t have…
That’s something that you will acquire as you trade with more and more countries, because in all commercial relationships, there is a process of learning.

That point is very interesting. The transfer of knowledge from our partners to us has been very limited…
It will change with time. The transfer will happen gradually. For example, with China, which is one of your most important commercial partners right now, they have acquired knowledge themselves from their partners; knowledge that they have used to develop…

That’s true, but if one looks at the past experiences of China and its smaller commercial partners- like our case- one quickly realizes that there has never, or almost never, been a transfer of knowledge, know-how, or anything. They just buy raw materials, and nothing else.
That’s true, but it doesn’t have to depend on China passing on knowledge. We [Australia] are also your commercial partners, and we can do that, and in fact, we try to. Our relationship with China has changed a lot over the years. Now, we don’t just send them rocks and crops, but we take measures in terms of intellectual property and knowledge, according to our national interest. As China has become so big and has developed its infrastructure, we build many of its highways and railroads and the airports that they need. So yes, we sold them rocks and crops to begin with, but now we are a different kind of partner.

I understand, but Peru does not have an exportable industry of that scale in, practically, any area. We need partners who pass us knowledge, and that isn’t happening.
It’s happening from Latin America. It moves as a result of the infrastructure development and through human capital. Trained personnel and knowledge go from Chile to Peru and Ecuador. There are mechanisms for transfer, but it’s a gradual process.

When I talked to the economist Sebastián Edwards, he said that as the labor costs rise in China, a window of opportunity in manufacturing has opened for Latin America. What do you think of that?

I agree. Some time ago, in China, I talked to the manager of a factory and I asked him, “Do you have your employees insured?”

He said, “No, in fact, if the worker breaks something, he has to compensate us.” They could do that then because there is a huge migration from the countryside to the cities, but now it’s different. Now there are more jobs in offices; it’s a lot more glamorous and calm, and therefore there are fewer who want to work in factories. Now, they have to pay overtime and insurance.

But isn’t that a step backwards?
Yes, but it won’t happen, because there are other, more important, factors at play.

Latin America has good resources, good human resources, but it also has problems with its institutions. 100 years ago, Argentina and Australia had the same resource base, patterns of immigration and similar land for cultivation. But the difference is in the institutions. We have confidence in our financial system and our parliament. In Argentina, they have never had agrarian reform and therefore there were problems with terrorism and Peronism, because the land was very concentrated and still is. Nor did they trust their financial system.

It’s…like when they asked Maradona about the “Hand of God.” Do you remember that match against England?

I remember…
In that match, Maradona scored a goal, from behind, one of the most beautiful goals in the history of soccer, but he’s proud of this [signals his right hand]. On the first, he scored the most beautiful goal in history, and on the second, he cheated. But he’s proud of the latter. And what’s more, it’s celebrated.

That’s a symptom of institutions in collapse. They want to cheat to win, and I think that is a great problem with that economy. If someone says to you, “Lower your salaries to compete with China,” I’d say that is not desirable, nor will it work, because it requires institutional reform. Mexico is the best example of that.

Is there a country in the region that doesn’t have institutional problems?
No, but they’ve improved. Chile is a good example, a reference point for the region.

Our institutions are weak and they lack credibility…
For good reason…

Reforms take a long time, maybe a generation, but we must start somewhere. What do you think could launch that process?

That you are sitting here, people your age, with a more open-minded point of view, open to what happens beyond your country. Chile transformed itself in a couple of generations. But let’s look at Colombia, which seems to have changed a lot, like Brazil. So I think that your generation, added to the international experience and communication around the world, when you inherit these defective institutions, will achieve a great change in a shorter period of time. That’s why I’m more optimistic about Latin America, India and Indonesia than I am about China, up to a certain point.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

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