| ||||
"Investing in the Internet economy is like betting in a casino," noted Hernan Buchi, the former finance minister of Chile, during his keynote address at the recent Latin American business conference.
Speaking to an audience of students, professors and Latin American business executives at HBS, Buchi — by conveying the natural skepticism of a career economist and reformer — offered the group a sense of history and long-term perspective on Latin America despite the current "e-age" passion.
The dot.coms that exist in Latin America today, he said, would not be possible if not for economic reforms that have taken place to date. While problems remain difficult and complicated, certain areas have been displaying promising results. Nonetheless, he said, "because of different political realities there are different issues pending."
Buchi has been involved in Chilean government and business in a number of key roles since 1979. He was minister of finance in Chile from 1985-1989, ran for president in 1989, and for the past ten years has headed an independent think tank, the Institute for Liberty and Development. He advises governments in Latin American, Eastern Europe and Asia on economic policy and also serves on the boards of a number of Chilean private companies.
"There are new issues in the new economy, and I look like the old economy," Buchi told the audience with a smile. Like everyone else, though, he said, he is not immune to the frenzy of the Internet era, and said he participates in discussions with colleagues around the world on how their companies can take advantage of the new economy and defend themselves against competitors.
In his role as an economist, however, Buchi pointed out that it is natural to take a skeptical view of technology's potential impact, since economists, he said, are used to seeing technological change.
He focused his presentation at HBS on the Internet economy's relationship to the second wave of economic reforms in Latin America. While he is well aware of academic research that attempts to explain why one country is developed when another remains under-developed, he said, his tack in his speech was to be that of a "practitioner."
"Even though we don't have complete knowledge of what makes a real difference between countries — why one is developed and the other not —there is a lot of information," he observed. The ingredients of development have less to do with people and resources than with how a country is organized, he said. The second wave of reforms, which includes the growth and stability of political systems in South America and the individual countries' comprehensive agendas of reform, are not necessarily a cure for the problems we see today, he said.
"Common sense and traditional understanding create a set of institutional policies, culture and behavior that help a country develop," according to Buchi. Changes in a legal system alone won't do the trick, he pointed out. "Like a human body, if you don't have the heart, reform becomes difficult: it's not only a matter of putting in the brain." And political consensus is vital along the way, he added.
He also reminded the audience that not so many years ago Latin America was a completely inflation-prone society.
"Latin America has reformed a lot," he said. "You don't remember as I do how inflation was completely a part of the structure… The common excuse was: ‘Having a little inflation is like having a little marijuana.' Many countries which thought like that became drug-addicted to inflation.
"That attitude has changed a lot," he said. "Now in Latin America there is a different attitude, so institutions work in a better way. Some have advanced more, some less, but we have seen a lot of change."
The current statistics may not exactly ring of success, he said, "but if you look at where we were, it's a major development." Reforms have brought about change in Latin America's overall performance, he said, as well as advances in certain countries: Chile enjoys sustained growth; Argentina has low inflation and sustained growth; Mexico experiences moderate growth and an "explosion" in exports; Brazil has reduced its inflation and posts gains in productivity. Another factor in Latin America's favor, he said, is that — unlike Africa — it has not seen major border changes in the past 100 years.
On the practical side, Latin American economies need to build momentum, according to Buchi. "It used to be that if you wanted to get a telephone, it was typical to pay a worker for the connection," he said. "The worker would just take a line, and take the connection from another house. That state of affairs was going to last until the guy who paid the bill realized that he was paying two bills.
"That was the reality ten years ago."
Technology that is considerably more advanced – such as the Internet — may yet find its place in Latin America, he said.
"From the macro-economic point of view," Buchi told the audience, "the effect will be there, but it won't be as enormous as people think." On the micro-economic level, there is room for new relationships with clients, new competitors and new tools for increased sales.
"Obviously that is something very interesting there," Buchi said, adding, "In the gold rush, everyone went, but very few became rich.
"If this [Internet] reality is creating a new market – if that is real – it will mean more competition, and that will mean more benefits to the consumer, and it will be harder for companies to keep the benefits to themselves."