RIO DE JANEIRO, BRAZIL – What will 2021 bring to Latin America? More unemployment, more poverty and perhaps more violence. Is that inevitable?
No: the region could free itself from the chains of an outdated system based on the Napoleonic code and, with cell phones as the major tool, unleash the productive and creative energies of “the 99 percent that political leaders systematically ignore”. “Leaders” includes everyone: Alberto Fernández and Cristina Kicrhner, Jair Bolsonaro and Luis Lacalle Pou, Sebastián Piñera and Iván Duque, Andrés Manuel López Obrador and Mario Abdo Benítez.
The bold assessment and proposal was made by Gerónimo Frigerio, an Argentine attorney with extensive experience in organizations such as the World Bank and the Inter-American Development Bank (IDB). His specialty and obsession is precisely this: the economic and social development of Latin America, a region that, he says, “has chillingly naturalized that a third of its citizens are poor.”
“Latin America today is going nowhere,” says Frigerio during an interview in which he rejects the notion that the region is heterogeneous and that one cannot compare Argentina’s problems with those of Central America, for instance.
“We have to accept ourselves as Latin Americans. Did you get your electricity cut off? Does your Wi-Fi work terribly? Do you pay very high taxes? Did you bribe a police officer? Were the schools closed all year? You are Brazilian, and your problems are the same as those of a Nicaraguan, an Ecuadorean or a Colombian”.
Frigerio, who has traveled dozens of times to virtually every country in the region, has a bleak assessment. “We are the world’s poor neighborhood. No one does business with a poor neighborhood except the poor people who live there,” he says. But his proposal is brimming with optimism: “The pandemic is a great opportunity to make a very deep and very simple change simultaneously”. He translated that proposal into a recently published book, “Simple”, which he describes as “an idea to change the future of Latin America”.
Q: You say that Latin America is a great failure. Why?
A: With good rules there is development. With bad rules, there is no development. Laws in Latin America derive from the Napoleonic code adopted by the Spaniards. Wealthy countries govern well, while the poor do much and badly. Doing business, believe it or not, is as difficult in Mexico, as in Argentina, as in Brazil. The same rules to open and close a company, to pay taxes, the same judicial system… In 2020 we confirmed that all Latin American countries failed in these first 200 years. When you look at the past 50 years, one out of every three Latin Americans is poor. Invariably.
No country has achieved sustainable development. Neither Chile with right-wing capitalism nor Venezuela with 21st century socialism managed to prosper. Chile did better, but it could not solve the issue of poverty. Chile did not create a development program to solve its structural poverty.
Q: Chile tends to be seen as a successful and different model…
A: No, Chile’s model is the same as that of other Latin American countries. No country in the region developed its private system with a focus on small, micro and medium-sized companies. They are 99% of companies, micro are 88%. That 99% hires 60% of people, with poor rules. Imagine this with good rules. And that 99% contributes to 25% of Gross Domestic Product.
The key to Latin America’s development is to unleash the potential of small and medium-sized enterprises. Lowering the time, cost and complexity of the relationship with the State. Today, opening a company is very difficult. Closing it too: ten years to complete a bankruptcy.
Q: And that will solve the problems of Latin America?
A: According to a recent survey, today’s poor people’s three priorities are, in this order: eating, drinking water, and having a cell phone. How is it possible that the State does not speak the cell phone’s language? It must be possible to open and close a business from a cell phone, hire and fire, access credit, pay taxes, import and export. Everything from a cell phone. One hundred percent of the life cycle must be at a minimum cost and with the minimum complexity to foster private sector development.
Q: Sounds good, but is there a country operating this way?
A: There is a country that managed to have 99% of its procedures performed by cell phone, which is Estonia. We do not have to copy it, we have to be inspired. We are poor, they said at the time: let’s become efficient. We must do this with a Latin American identity.
The Latin American development model consists of 20 Ministers of the Economy who promote 1% of the companies that contribute 75% to GDP. A total of 99% must be integrated; these are millions of entrepreneurs who will save you, the only ones who are going to hire people. Our reality is that we are informal. We must get Latin America to adopt simple rules so that doing business is easier than anywhere else in the world, particularly for small businesses.
Q: You blame the Napoleonic code, isn’t that excessive?
A: Latin America has been sitting on the same model for 200 years. Without good rules there are no good institutions, without that there is no good business culture. Now, why do we have bad rules? Because they were thought up in Napoleon’s time for a wealthy Europe 200 years ago, and they cannot serve to develop a poor Latin America. In 200 years they hardly changed, only producing more bureaucracy and a worse business culture. These rules cannot be reformed; they must be replaced by very simple rules for millennials, centennials, the alpha, born with the cell phone and the iPad.
We don’t need 40 taxes, but only one that people pay on their cell phones. Our generation is now part of the past, this should be for our children and grandchildren who have another culture. How can we not leave them a prosperous Latin America, with at least good rules for a digital institutionality? And Europe is diverse, too. You have two Europes: the continental one, with bad rules, but a different culture from ours, which makes it work regardless, and Eastern Europe, which changed the rules in an attempt to function. Estonia, Bulgaria, Georgia, Hungary… They accepted their reality and tried to become more competitive based on their own reality. Latin America has not yet accepted its reality.
Q: Digitalization does not necessarily seem to be the political priority in the region.
A: Latin America has naturalized that one out of every three people is born and dies in poverty. And solving that is not a priority for the State. From Mexico downwards we are 650 million with the same problem. Poverty, informality, rules that are not complied with and unemployment. And no political leader comes close to the idea of a solution. Latin America has not found a solution for its development model, it is a region that seems to be asleep, it has not debated how to stop being poor. Poverty has become so natural that the ability to address the issue has been lost.
Most describe why we are poor, but they do not work on how to be better and insist on solutions that did not work. How can we not try to think differently when the coming generations are different? There is a resignation to the fact that our countries cannot be saved. This is an historic opportunity for a very simple, but very deep, transformation.
Q: In the midst of a pandemic?
A: The State is not going to be able to address the post-pandemic. If in 200 years it failed in the pursuit of development, why should it succeed in the next 20 years? If we don’t reform now, in this deep crisis, there won’t be another clear opportunity for reinvention. The generations to come will not adjust to these bad rules and institutions, they will not want to do things, they will go beyond the State. They are only going to increase informality.
Q: Should this be led by major countries in the region?
A: It is difficult to think that large, federal countries such as Argentina, Brazil and Mexico can lead these reform processes, given the complexity of their structures. It is more likely that small countries such as Uruguay, Paraguay, Costa Rica or Panama will lead this change. However, the leaders of Latin America’s largest countries, including Colombia, will determine the success or otherwise of these reforms. If it works in Paraguay, then Bolivia and Argentina will copy it. I am not asking for a revolution, only for a coexistence of systems: let the 1% continue to do what it does and function badly, but let the 99% succeed. Integrate the 99%, together with all the informality, which in Latin America is half of the economy… If we are 650 million people, this is a solution for 600 million.
Q: Do you really think the region’s political leaders could embrace such a disruptive proposal?
A: I don’t rule out that traditional leaders may redefine their approach to creating progress. Out of sheer need. Political leaders report successes, but they know the failure of the state like no other. They understand perfectly well what is happening. It is time for Alberto Fernández, Jair Bolsonaro, Andrés Manuel López Obrador, Iván Duque, Sebastián Piñera, Luis Lacalle Pou and Mario Abdo Benítez, along with the other regional leaders, to join forces to find a common solution to an extraordinary situation. If they do not, the risk of regional economic and social chaos is real.
Q: Economic and social chaos… What do you see for 2021?
A: Another year of failure, but without the adrenaline of the pandemic novelty. It is a cathartic year before a reality that does not change. To change the reality itself, you have to intervene. GDP rebound? It makes no difference amid this chaos. And it’s naive to think that foreign direct investment is going to save us. What will save us is the generation of business among Latin Americans themselves, our market of 650 million people. If there’s a year when none of the political and business leaders should have a vacation and everyone should be thinking about what and how to reform, this is it. But 2021 has begun and there is no debate underway. In 2020 we saw failure and poverty, 2021 may be worse.
Q: Worse?
A: We could have very severe crises. The year 2021 will be the confirmation of failure: more poverty, more unemployment, more informality. And that will lead to more violence. The problems we dodged in 2020 are being imposed in 2021. The headlines will be poverty, unemployment and informality. No country in Latin America is immune to this. The past as we knew it no longer exists. We are all going to have to adjust to the new reality: politicians, entrepreneurs, workers…
If politicians fail, there will be situations of violence, chaos, but perhaps politicians with a view to the future will emerge, with new ideas. There will be a renewal of the political leadership. But youth is not necessarily synonymous with new ideas. In Asian cultures, the wise are the most experienced. It would be good for that to happen here. The mistake is to think that as time goes by we will be better off. The passing of time only amplifies problems.
Q: Is Latin America viable?
A: Latin America does not accept its reality. We still think that we are going to be wealthy, even if we are poor. We are poor and we have to work hard to be wealthy. Immigrants brought us the rules, the work culture, the language, and the religion. We have to let go of these bad rules and return to the work culture. Not everything we inherited is bad. We have a Latin American creativity that is a tremendous asset.
Q: With a historical perspective, what do you see in the medium term?
A: There won’t be any more foreign direct investment as we knew it. When you analyze global crisis processes such as the 1930s crisis or World Wars, adjustments take at least a decade. During this time Latin America will not receive financing or foreign direct investment. As never before in history, the solution relies exclusively on Latin America. And that is good, if one understands how to solve it.
Q: What don’t we understand?
A: That we are what we are: poor, informal and with high unemployment rates. And our business economic reality is one of small businesses. We are always talking to the 1% and ignoring the 99%. What businesses survive on bad regulation? The extractive companies: mining, farming. The only model surviving is the extractive business or those close to the state. And the longer this goes on, the more irreversible the scenario of poverty will be. Let’s look 200 years into the future. We do not know what will happen, but if a plan is made you will have a glimpse beyond the current situation.
Q: Latin America looks very much northwards, towards the United States. Is it correct to do so?
A: We live looking at the U.S. And why do we want to be similar if we have different rules for doing business? The Anglo-Saxon system is different. Cashing a check, getting divorced, or going bankrupt is easier in the United States than in any Latin American country. That’s less time, less cost, less complexity. The United States understood that development depends on the success or otherwise of the private sector.
In Latin America we continue to debate ideology around the role of the state, when the focus has to be on how the state promotes private sector development. The state is also asked to do everything: movies, regulations, financial services, training, housing… It should focus on health, education and justice so that wealth and job creation is led by the private sector. With a focus on micro-enterprises, which generate jobs in the real economy. Be aware that large companies need micro-businesses. Developing countries are able to balance the role of the state, of large and small companies.
Q: Most likely, the transformation you are proposing will not occur, do you agree?
A: What is forthcoming is unusual: they will have to change reality out of sheer need. We are in a scenario of failure and bankruptcy of public finances. But the State does not want to lose power. We must speak the language of the cell phone. What is that? Everything has to be so intuitive that you can enter, operate and leave formalities in a minimal time at the least cost and with the least complexity.
Q: While that does not happen, where is Latin America headed?
A: Latin America today is not headed anywhere. The risks of contract frustration, social protests, currency depreciation, expropriation, access to justice are at their highest levels in all of the region’s countries. As never before. This makes any existing investment more complex and new ones will not come for an indefinite time. More than ever, out of need, if we do not implement the reforms we will continue in the periphery described by Raúl Prebisch, which is where we still are.
Peruvian Hernando de Soto proposed giving property rights to everyone. Mine is simpler, but it goes beyond that: let’s empower citizens through the cell phone and let Latin America be its best version. We don’t have to aspire to be the United States or Europe. It rests on us like never before.
Q: In your discussions with politicians in the region, do you envisage any possibility of someone taking up your idea?
A: Surveys, which are based on what politicians decide today, no longer count. Because people are unable to think, to rationalize what is happening. You need leaders deciding on the grounds of convictions. Those who decide based on surveys are going to fail.
Q: Several countries in the region are betting on China as a lifeline. Is this realistic, is this dangerous?
A: Even if Latin America wants to, it can’t get China in, because it can’t get organized. China entered smaller countries, it can’t enter larger ones. Until it closes an agreement with Argentina, Colombia, Brazil and Mexico, its role in the region will remain limited. China seeks water, energy, food and infrastructure for transport. An intelligent relationship with China can be proposed, but the main challenge is how to develop the private sector to create jobs. Agreements with China or the United States can have a huge impact on the macro, but to change the development reality for millions you need to reach the micro level. Compared to China, all Latin American countries are small. How can we ignore the fact that we can learn from our failures in 200 years? I am critical of the past, but those 200 years are the time it took us to learn.
Source: infobae