I am a Canadian, Naturalized as a Costa Rican Citizen and a practicing Costa Rica Lawyer by profession. I have no particular training in Economics, or Political Science.
I have lived full time in Costa Rica for almost seventeen years and I have a Costa Rican wife. I consider myself fully immersed in the Costa Rican Society.
Prior to the election of Luis Guillermo Solis as the President, I wrote a number of blogs QCostarica, related to the Election Campaign and gave a prognosis of what I believed was in-store for the Country if a PAC President were elected.
These blogs are all preserved in my blog archive and are available to the reader.
My general prediction for the Country was that Costa Ricans were looking at eight very difficult years if a PAC President were elected, an initial four years under the President’s term of economic downturn, followed by a further four years of economic recovery under a succeeding President with more politically Centrist leanings.
My predictions were based on what I believed at the time would be a flight of foreign investment capital through the movement of large multi-national companies to other more business-friendly jurisdictions, lack of new foreign investment, and a general downturn in the domestic business sector as a result of increased utility costs, taxation, and the general “red-tape” aspect of doing business in Costa Rica at the best of times. I had hoped that my predictions would be wrong.
Unfortunately, I believe that during President Solis’ first year in office, that my predictions have largely come to pass.
Certainly, the Economy in Costa Rica is “tanking”, for many of the reasons that I predicted. In many respects, what has come to pass is even worse than my predictions forecast. I ask myself, that if I, as an ordinary citizen, with no particular economic, or political training, could have foreseen what was to happen, where are the citizens of Costa Rica and political “power-brokers” who should have foreseen these negative consequences and exercised their influence to avoid what is how happening to the Country?
A general answer would be the cultural significance of the ranking of importance of general social factors. That is, in Costa Rican Society and Latin American Society, the social ranking is “Family, Friends, and Country”, in that order. Yes, “Country” is third.
Apparently, the most important line in probably the single most important speech ever given by JFK, “Ask not what your country can do for you, but ask what you can do for your country”, has never been adopted in Latin American social thinking.
The only response by the Government that I have seen to-date, is to exacerbate the problems associated with the current economic downturn, by borrowing money from international development agencies to support otherwise unsustainable Social Programs (like Greece) and to continue to pay Public Sector wages and benefits that far out-strip wages and benefits paid in the Private Sector, or even First World Countries, such as the U.S. and Canada, for similar work.
An even more disconcerting response, has been the current Administrations attempt to propose legislation to “muzzle” the Press, in order that it failings in these matters not be presented to the Costa Rica citizenry at-large.
We require politicians and Government officials who put this County first, not third in priority. There must be recognition of the fact that foreign and domestic business investment is crucial to sustaining the life-style of Costa Ricans.
The applicable business climate must be created to attract the same, knowing full-well, that if it isn’t, other jurisdictions are more than willing to provide those business opportunities, to our peril.
I, too, am an expat naturalized C.R. citizen and having lived here all most 12 years have witnessed a significant deterioration in the quality of life. The problems, however, did not begin with the election of our current leftist President but have been an accumulation of neglect, corruption, and mismanagement of ineffective leadership for many years. Here there is no political will at any level of government to “rock the boat” and possibly jeopardize all the fruits of public service. Politicians and bureaucrats alike fully realize that as long as the laid-back “Pura Vida” cultural mentality continues (and there is no reason why it shouldn’t) then they can reap their time in public service and kick the ball down the field to the demise of country and future generations.
The basic question to be asked is, “Where are the true patriots in Costa Rica?”. There is more to being a patriot than merely supporting your National Soccer Team at the World Cup and I don’t see any patriotism extending beyond that amongst native Costa Ricans.
A Tico, dear friend, attorney, scholar, respected businessman, and university professor once told me to remember that in Costa Rica the rule of all government employees is to protect one’s job and to do that you do nothing because if you do nothing you can never be fired for doing something wrong. Sad but true.
I agree that the economic problems Costa Rica is enduring have not occurred just since the election. These problems have been systemic in the country caused by generations of ideological shortcomings in the people – the ones you mentioned. To make matters worse the previous government threw the country into the world “ring” to compete in the global arena, which is like putting a paraplegic in the 100 yard dash at the Olympics. Globalization will not work for CR. The country will be victimized by the more adept, which is, in part, the reason many jobs have dried up and gone elsewhere already.
You didn’t mention that most of the world is enduring stagnation. Even the so-called grown in the US is more inflation than real growth, brought on by trillions of dollars of Quantitative Easing. In Canada we are slowing down too. What were you expecting from CR?
Give it some time, Rick. It is really, really hard to fault (or credit) a president’s economic policies after less than a year in office. Policies take longer than this to show any results, one way or another. Plus, let’s remember that Solís is dealing with a divided legislature. Even long term it’s going to be difficult to separate the effects of his initiatives from the consequences of his having had to compromise them.
More to the point, and unlike you, I remain cautiously optimistic about where Solís wants to take the economy. If you listen carefully to Solís, you will see that he is a more farsighted economic thinker than his detractors. His detractors are always bringing up things like foreign direct investments (FDI) and tourism, both of which they claim (with little evidence) to be down, but the problem Solís recognizes is that Costa Rica can’t continue to develop using these old strategies. Both FDI and tourism dollars have only primarily flocked into the country because of its low-wage workforce. Well, when wages increase, these sources of revenue tend to go to lower-wage countries. To fight to continue to attract these revenue streams amounts to fighting to maintain a low-wage workforce, and Solís knows this isn’t the right fight to make.
Instead, Solís is emphasizing Tico entrepreneurship, or Ticos owning their own businesses rather than waiting for FDI to flow in. Solís is absolutely right about this too. The only way for Costa Rica to continue developing economically is to change its strategies.
At the same time, Solís is still wooing firms that provide FDI for high-skilled jobs.
Put differently, Costa Rica is currently in what is sometimes called the “middle income country” trap. It has managed to rise out poverty by selling its low-wage workforce, but it can’t continue to rise unless it finds a different development model.
Solís may well fail, but he is asking the right questions and envisioning the right alternatives. I say let’s give him time, and even pitch in to help him, since business as usual is the real recipe for disaster.
Ken, To follow your model, there needs to be a much more highly trained workforce than exists now, or will exist in the near future. Maybe a gradual shift over a 50-60 year period (two generations) would be in order, if these more highly trained workers you envisage materialize. It is largely the Multinationals that are leaving Costa Rica because of this Government’s policies of increasing the cost of doing business. These Multinationals, many with Call Centers and some with more technical workforces as you describe like Intel, employing thousands of Costa Ricans, do pay higher than average salaries and are environmentally friendly businesses. This is the kind of business that can be catered to by the existing workforce in Costa Rica. To chase away this type of foreign investment out of the Country to the degree that the current Government has within a year of taking office, is, in my opinion, a disaster for the Costa Rica Economy.
We’re not too far apart, I don’t think, but let me quibble a little.
The notion that a highly trained workforce is a precondition for economic development of the sort that requires a highly trained workforce can get the cart before the horse. Costa Rica currently has a small glut of un- and under-employed university graduates, which tells us that there are more highly trained people than there are jobs. (A few even end up taking jobs abroad, producing a “brain drain” in Costa Rica.) More importantly, many young Ticos now drop out of school in part because they realistically forecast that there won’t be jobs for them if they finish school. In the best of these cases, the Ticos do complete high school and learn English, then follow this with some IT training, but they are still dropping out prior to earning university degrees because they don’t see an economy that will reward them for this kind of further education. I look at patterns like these and conclude that if there were more jobs available that required more training, more Ticos would get the training. That is, the jobs may be the horse pulling the cart of training, not the training pulling the cart of jobs.
Related, business does its own training, and it’s frankly the rare university graduate in North America who walks into a job knowing how to do it. The main pre-job training that most businesses want are the “three R’s” and some social skills, and most Ticos have these.
With respect to multinationals, who exactly is chasing them away? Solís himself went hat in hand to Intel and succeeded in convincing it to increase its high-skilled workforce in Costa Rica. Since neither of us was present during the negotiations, we don’t know whether or not Solís also begged Intel to keep the Tico workers it is replacing with Vietnamese workers. If he did, he failed, but my guess is that he wasn’t overly concerned about losing these jobs, since the jobs he got promise a brighter economic future. Solís after all knows that if Costa Rica has to compete with Vietnam for jobs, the jobs Costa Rica gets won’t be the kind that propel it forward economically.
And how exactly are the multinationals being chased away? You mention the increasing cost of doing business. What are these costs? The main one is frankly the payroll tax. Well, if the argument is that Costa Rica should dismantle its pension and healtcare systems in order to attract more multinationals, this is just an around about way of saying that Costa Rica should compete with countries like Vietnam on the basis of a low-paid workforce. Another cost mentioned is electricity. Businesses don’t like their high electricity rates. Well, OK, if they are lowered for businesses, someone else is going to have to pay a higher rate to subsidize the lower rates for businesses. Do we want to subsidize the multinationals in this way? Third, businesses always complain about the red tape and costs of the government bureaucracy. Well, I’ll agree with them that these can be problems, but didn’t Solís already create a one-stop shop to help businesses more efficiently navigate this government maze?
Meanwhile, the elephant in the room is the free-trade zones. An article in La Nación not long ago pointed out that these have the effect of increasing taxes on individuals and businesses not in these zones in order to subsidize the businesses that are. Far from increasing the cost of doing business, these free-trade zones lower the cost below zero and force others to subsidize the multinationals.
Related, I wouldn’t be surprised to discover that the multinationals who arrive do so with the intention of only remaining short term. This is the usual practice globally. The multinationals negotiate a bunch of temporary tax breaks and infrastructure improvements as conditions of entering, and then exit when their tax breaks expire. In Costa Rica the incentive for remaining only a short while is heightened by labor laws that give employees more rights and pay with seniority. Basically, the businesses exit as soon their labor costs grow too high and their government subsidies expire. This may be smart business, but it’s pretty dumb of government to keep wooing these smart businesses.
Mainly, and with respect to your 50-60 year time frame, I like to compare Costa Rica with countries like Taiwan and South Korea, which 50-60 years ago were roughly equally poor or even poorer. Now the cables than connect your computer are very likely made in Taiwan while your cell phone and car may be South Korean brands. Where in the world can you find a product manufactured made by a Tico-owned firm? You can’t. You can find a few unfinished goods (coffee, pineapples, and bananas) as well as tourism advertising, but I can’t think of a single value-added good that a Tico-owned firm exports.
IMO, Costa Rica did pretty well during the first half or so of this time frame, and neither the wars nor the financial crises of the 1980s were its fault. These were unfortunate setbacks. Even so, here we are in 25 years after 1990 with a Tico business class still clamoring for more FDI and tourist dollars–both development strategies that depend upon a low-wage workforce–and nobody except Franklin Chang pointing out that it’s high time for Tico firms to start making and selling value-added goods rather than sitting around waiting for multinationals and tourists to save them.
I can’t be sure, but I get hints from Solís that he understands the challenge and is trying to meet them. Sure, he may fail, but I didn’t even get hints from the last two presidents that they understood the challenge. Arias blew his second term fighting for the so-called free trade treaty, which was essentially something the multinationals wanted, and Chinchilla blew her term cowering in fear of Ortega while letting her henchmen raid the treasury. Finally we have a president who gets it.