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A passage to India

Monday, July 12, 2010

Can Central America grow faster than India?

India and Central America already share approaches to development in a couple of key areas.
Both are largely convinced that market solutions are the best way to strengthen the economy.
Both tend to have weak governments, with limited resources to devote to infrastructure projects and income redistribution.
But within this broad, shared framework, Central America and India can help each other learn something about issues that include education, working women, personal security and market efficiency – although some of the lessons are harder to learn than others.
As far as education is concerned, Central America overall has done a respectable job. With literacy rates approaching 100% in each country, Costa Rica and Panama have done especially well.
The problem for India is the sheer size of the challenge.
The fact that close to two of out of every five adults are unable to read or write means the country has no fewer than 300 million illiterate people.
Meanwhile, hundreds of millions more attend decrepit public schools, many of whose teachers are so poor that they skip classes as often as several days a week in order to work at other jobs.
Another major issue for India involves women and productivity.
A glass ceiling still exists in Central America, as it does in most of the world.
But Central American women in general are more successful professionally and contribute more to the region’s economy than their counterparts in India, where longstanding cultural prejudices ensure that a vast number of women are inefficient workers (India’s female literacy rate is an abysmal 47%), while millions more are discouraged from participating in the workforce at all.
A similar situation exists in reverse, in relation to the issue of personal security.
Outbursts of ethnic and political violence happen periodically in India, and urban crime may be increasing.
But the average citizen can still walk the streets of India’s biggest cities at any time of day or night, without much fear of being mugged, let alone stabbed, shot, carjacked or kidnapped.
By contrast, in El Salvador, Honduras and especially Guatemala all of these are real risks, which slow development by diverting valuable resources to policing and penal systems and by discouraging foreign investment.
Just as there is no quick fix for the problem of massive Indian illiteracy, there is no easy way to reduce crime in a region which faces three major problems – the United States-financed drug war, racial conflicts in several countries, and a population rich enough to see the world’s most desirable products on color television but too poor to buy them.
In both cases, the only solution is a long-term increase in output that exceeds population growth and creates a big, stable middle class.
India had impressive annual average growth of 9% in the value of its output since 2004, mainly due to the evolution of a highly competitive internal market.
It needs to keep growth rates high – a tough task - just as Central America needs to keep attracting investment in textile operations and tourism and vacation properties, which helped much of the region grow at a healthy pace during the last few years.
An easier lesson for Central America involves communication skills.
A useful legacy of Britain’s colonization of the subcontinent is the fact that most educated Indians fluently speak the world’s most important business and professional language.
To spur economic development in Central America, whose main trading partner and source of investment is the United States, the region should copy India and improve its English-language training.
Like any upgrade, this costs money.
But hiring a small number of outstanding English teachers in each Central American country involves a tiny expense, compared to the benefits it would produce.
The other lesson Central America needs to learn from India is the importance of  a unified market with a single medium of exchange, along with the creation of an active capital market.
With the National and Bombay stock exchanges aggressively promoting initial public offerings and making it easy for mid-cap and even small-cap companies to get listed, both have been effective intermediaries between companies seeking capital and investors looking for growth opportunities (Bombay’s main index went up close to 50% during 2007, second among major exchanges only to the Shanghai Composite).
Likewise, Central America needs to develop a true internal market, instead of the current bureaucratic tangle of six small countries using no fewer than five currencies, and applying different rules governing financial services and telecommunications, among other sectors, in each jurisdiction.
Increased commercial cooperation would let the region become more efficient without necessarily implying ideological changes in any individual country.
Promoting integration sounds like an easy job.
But - at least for now - not many people are doing it.

Fred Blaser
República Media Group