Monday, October 29, 2007

ALCA and the Chocolate Factory


Sureños are extremely proud of their city, the "true" capital of Bolivia. "Sucre, Captial Plena" stickers can be seen on every street corner and every other car you see driving the streets, and it's almost as if by some magic that every street festival turns into a pro-capitalia march, with at least the majority of the audience chanting quaint and profane slogans ("¡Sucre se respeta, carrajo!"). This pride applies equally to Sucre's proud history, which includes (amongst other things) the distinction as being the first (though ill-fated) liberty cry in the Americas, as well as its local chocolate shops.


And there are quite a few things to be proud of in those chocolate shops, and not just in how great they taste (some of my friends here who fall more on the female side of the gender ledger have developed a bit of an addiction to them). Shops like Para Ti and Taboada are an important part of the local economy, and a nearly ubiquitous symbol of life in Sucre, up there with Salteñas, coca leaves, artisanal rugs, and really cheap quality imported plastic goods.


Para Ti is a brilliant example of Bolivian pride and practicality at work. Just outside the main city bowl you'll find the Para Ti Chocolate factory, from which Sureños (and a small export market) receive their weekly (or more frequent) fix of sweet milk chocolate. Para Ti, a privately-owned joint venture between two of the old aristocratic families in Sucre, runs under a business model that reflects Sureño hard work and pride in their community and their country. Over seventy percent of the factory's employees are female, working in two seven-hour shifts five days a week, with two three-hour shifts on Sunday. The result of this hard work is the production of over two tons of the typically sweet chocolate every month.


Two tons a month might not sound like a lot until you realize that the majority of the work done at Para Ti is done by hand, making scale-economies somewhat of an uphill battle. Think egyptian slaves carrying large blocks of rock up the sides of in-progress pyramids and you start to get an idea.


Even more impressive is the fact that Para Ti, with the exception of some packing and mixing materials not readily available in the domestic market, sources practically all of its inputs from local producers in the domestic Bolivian market. Thus, with every chocolate you purchase from Para Ti, you have the added pleasure of knowing that a large portion of the relative-high price you paid (in comparison to industrially produced chocolates imported from whichever country can supply a given good at the lowest possible cost) stays in the hands and mouths of Bolivia's farmers and primary producers (and both their children).


But price is also a problem. Artisanal production methods and local sourcing sound romantic, and they suggest the element of endogenous economic growth that attracted economists like Keynes, JK Galbraith and Raúl Prebisch, only without the emphasis on industrial development. But it also means that your product are going to be too expensive to compete on the international markets, which are dominated by firms producing industrially, meaning scientific management and increasingly larger scales, which drives down production costs well below what artisans who buy their inputs in the local economy can compete with. Think those same egyptian slaves competing with a Kellog, Brown & Root and you start to get an idea.

The problem of costs is endemic to Bolivian producers, which has struggled to industrialize during the course of its economic history. In fact, production techniques for many of Bolivia's goods have not changed much in the past hundred years or so, making the artisanal production methods of Para Ti less of anomaly among and more of a analogy for the state of Bolivian producers in the global marketplace.

All this places Bolivia in a difficult policy dilemma. The country can either seek to reduce trade barriers, so as to allow low priced industrially produced goods from abroad to make it into the hands of Bolivian consumers, making their already-low incomes go farther. However, the problem with this solution is that it is likely to devastate local producers, further decreasing the already-low national income. Many economists, especially those likely to find employment at multilateral credit agencies, would argue that such short-run costs will be more than balanced out in the long run, as the "invisible hand" of production and trade based on "comparative advantage" replaces arbitrary government policy based on rent-seeking by special interest groups. This policy stance is often equated with support for trade agreements such as the US-conceived Área de Libre Comercio de las Américas (ALCA), though this is largely inaccurate, as most US-backed “free” trade agreements are anything but, imposing protectionist barriers to trade on certain sectors (particularly intellectual property and medical patents) that outstrip the savings accrued by liberalizing manufacturing or IT services. In any event, the promise that such an “initial shock” will be worth it in the long-run simply hasn’t been borne out in practice.

On the other hand, by not signing onto trade agreements like ALCA, the default trade policy stance would mean maintaining the current set of bi- and multilateral agreements. This would maintain preferences for artisan and local producers, but would not do much in the way of creating an industrial development policy, either based on trade and foreign investment (see above) or based on some version of “infant industry” protection. Protecting non-value added, low scale production is not necessarily bad in and of itself, since it can be seen as a form of social-welfare program where the domestic economy pays a “tax” directly to the local producers in the form of higher prices for goods, without first having that tax filter through government bureaucracy before being distributed to said producers. However, most economists would consider this program less efficient than an economy-wide (and thus non-market-distorting) income tax-and-spend program (assuming, of course, that the deadweight loss from government corruption is negligible—probably not the most sound assumption in Bolivia). Further, if this sort of protection is all you’re really doing then you shouldn’t expect your economy to develop, in any sense of the term. Rather, such “Malthusian cronyism” seems more a recipe for stagnation.

For all these reasons, Bolivia is seeking alternatives to current economic paradigms. President Evo Morales has sought alternative trade relations to those epitomized by ALCA, joining the Alternativa Bolivariana para las Américas (ALBA), which was created by Venezuelan President Hugo Chavez to oppose what he considers “imperialism” and “neocolonialism” implicit in the US-led ALCA. But politics aside, the size of an ALBA market is vastly inferior to what an ALCA-type agreement would achieve access to, and thus the appeal of the latter to industrialists and export-oriented industries in Bolivia remains great. And it's unclear whether a regional agreement based on ALBA-style "cooperation" would really be that much different for Bolivia's small-scale and primary producers if it meant that they'd be pitted against the industries of countries like Venezuela or Chile, which are significantly more industrialized and able to produce at much larger scales than those in Bolivia.

So far President Morales has tried to maintain a balance between the interests of the campesinos and indigenous, which formed his electoral base, and the traditional elites that have traded rule amongst one another since Bolivia’s independence, which still dominate most of the appointed positions in the Morales government. Thus there is a vast uncertainty as to where Bolivia’s future lies, and what this future will entail for the artisans that comprise such a large percentage of Bolivia’s population. At the least, I pray that's Sucre's delicious chocolate continues to flow.

Monday, October 15, 2007

Potosí y Cerro Rico


I am rich Potosí, treasure of the world, king of the mountains, envy of kings.

Potosí is a testament, more than anything, to Bolivia’s dependency and vulnerability to economic forces external to it; first marked by outright imperial and colonial control, but subsequently and currently defined by imperatives set by the international markets. Continuing to this day, the place has the overwhelming feeling of being a “company town,” with the original “company” being a dynamic joint venture between the Spanish Imperial Crown and the Catholic Church. Legend has it that the Old Gods intervened when the Andean Empire (what is somewhat problematically referred to as the “Incas”) discovered silver in the place prior to the Spanish invasion, telling Inca Huayna Capac that the deposits were meant for others. While the interpretation is usually a variation on your bread-and-butter imperialist manifest destiny, another reading could reasonably conclude that the Gods were warning the Inca against the unforeseen consequences that would accompany exploitation of the vast reserves of precious minerals hidden just below the surface of what the Spanish eventually termed Cerro Rico.


Cerro Rico towers above Potosí as though a sovereign, and indeed the economic history of the city (perhaps all of Bolivia) suggests that the analogy might be more than just poetic symbolism. Since the beginning of colonial rule in the Andean region, Potosí’s seemingly endless silver deposits become a central aspect of imperial policy, fuelling the long-term growth of the Spanish empire and funding its many wars, as well as financing trade relations between Europe and Asia. The Spanish colonial empire cherished the silver deposits in Potosí so much that while most Catholic churches face west, all of those in Potosí face South directly towards Cerro Rico, so that the silver mines could be blessed from their alters through open doors. The Crown celebrated the wealth of the mines by literally paving the streets with silver at one time.


The mountain that eats men alive.

For the native Bolivians, all of this meant radical social change. In order to continue exploitation of the mine’s wealth, the authorities of Alto Peru (a colonial administrative province spanning Peru, Bolivia, and much of northern Argentina) reinstituted the Andean Empire’s mita, a system of cross-regional forced labor, and implemented the importation of thousands of Black Africans through the international slave trade. The dangerous conditions in the mines meant near-certain death for most of these workers, with death rates estimated at seven out of every 10. Total estimates for the number of indigenous deaths occurring in the mines run as high as 9 million over the period of colonial rule, suggesting that Cerro Rico alone maintains bragging rights for a significant role in the long-term decline in the Alto Peru indigenous population. While the Spanish empire formally prohibited religious syncretism (the mixing of pre-columbian and Christian forms of worship), the Crown did not dare venture inside the mines where worship in El Tío, a cross between old mountain deities and the Catholic devil, helped preserve the mitayo soul against the inhumanly brutal realities of life in Cerro Rico.


The miners’ lots never really improved, even after the end of formal imperialism, as the fate of the industry was still dependent upon the international market price for mineral extracts. While the nationalizations that occurred after independence allowed the development of a strong miner’s union as a political force in the nation, corruption in the state-owned enterprise, inefficiency compared to international competition and increasingly northern-focused politics led to the privatization of the state-owned mining industry, effectively ending organized bargaining over prices and mining conditions. Whatever protections remained died with the crash in the international price of Tin in 1985 (which had replaced Silver as the main mineral extract of Cerro Rico after a century-long production decline), when even private ownership of mineral extraction was liquidated.


Where do you think the metal for your digital camera comes from?

However, this did not mean the end of exploitation of Cerro Rico’s rich veins, nor of the workers that eked a living inside them. After the “crisis” of mineral prices in the 1980s, formal ownership of the mines was transferred to existing workers and their families through the break-up of the quasi-statal private enterprises, creating a system of small- to medium-scale “traditional cooperatives.” However, these are not reflective of what one would normally think of as a cooperative. Rather, the cooperatives function by informalizing the system of labor in the mines, where the workers organize themselves and work either independently or in small- to relatively large- groups. Membership in a cooperative, however, merely means that the product of your labor accrues to the group’s total output, in exchange for a share of the market value of the minerals extracted, which is sold in tonnes to the privately operated refineries, which are freed of the labor costs associated with mineral extraction. In this way, the cooperative system functions similarly to what we in the U.S. would associate with an “independent contractor” system of informal labor, whereby a single agent is hired through contract by an employer, who is then freed from any further involvement in the subcontracting process organizing the division of labor. Similarly, the miners in Cerro Rico all work under the auspices of the “socios” of the cooperative, who retain the benefits of much of the group’s labor product themselves, in the form of life and health insurance which are unavailable to non-socios (socios receive a larger share of the market value of the extract output, and are also the only ones who pay taxes). And since it takes around 15 years of membership in a given cooperative to become a socio, this means that the majority of workers in Cerro Rico live according the luck of the mineral draw, whereby “quality and quantity” times the price set on the international market (London) determines his (no females work in the mines) standard of living. The inadequacy of this system’s ability to provide a sufficient standard of living is reflected in the high rates of child and female labor (outside the home) in Potosí.


The international price for the minerals drawn from Cerro Rico (Silver, Gold, and Tin are among the majors) is currently high, and this has led to an increase in the number of workers, both adults and children (some claim the number of the latter to be as high as 8000 kids or more, ages 11-18). Coupled with historically slow growth rates in most of Bolivia, this goes a long way towards explaining the sustained popularity of working in the mines. For example, one study reported a full 94% of miners responding that their main reason for working in the mines was a lack of alternative employment. “Tradition” was the second most frequent response. “I like it” was a distant third, and this was attributed mainly to the child workers, who compare mine labor not to the fantastical concept of a childhood spent in school, but against the prospects of working in the city, where earnings are lower and the romantic conception of doing a “man’s work” is absent.


However, the market price of precious minerals could fall at any time, and while Bolivia’s overall growth rate under President Morales has been impressive, it remains uncertain whether this growth rate will be extended evenly across the county. In the foreseeable future Cerro Rico remains the destination for an increasing number of Bolivia’s poorest.

James Read, The Rough Guide to Bolivia, (August 2002).

Pedro Negro, Koala Tours-Potosí, (October, 2007).

Mark Weisbrot & Luis Sandoval, Bolivia's Economy -An Update, (August 2007).

Wednesday, October 10, 2007

It's almost عيد

Friday is the holy day here, which means the day off of school, and a welcome break from the noisy trucks that patrol the neighborhood: the Junk truck, who's shouts into the megaphone letting people know he will pick up their junk (although it sounds like he's ranting about government conspiracies); and the gas truck, which advertises tanks of gas with a 4 note tune, like an ice cream truck, only it sounds more like something from a Final Fantasy game.

Without real weekends, I don't have much of a chance to travel, but Jordan is small enough that I can get to most places in the country in a few hours, and cheaply. Last friday I went with a Japanese woman in my class, her husband, and some Japanese kids my age, to Petra, the 2000 year old city in the desert best known for it's appearance in Indiana Jones. The place was enormous, with countless caves and carved out rooms and decorations and facades. The Treasury, below, is the first part of the city, which you approach through a mile long canyon.

The end of Ramadan is finally here, and it means our one and only break from school. I'm taking full advantage, and going to Syria and Lebanon for the week. Due to the fact that Syria is in the AXIS OF EVIL, I will apparently have some difficulties getting across the border, and will have to wait several hours, or all day, to get a visa, while the australians and british that I'm traveling with can sail through. At least I'll be with some other Americans, and I haven't been to Israel yet – if there is any indication in my passport that I've spent time in “occupied Palestine,” there's no way I'm getting in.

After I get back I'll start working at the UNHCR, where I got a job doing refugee status determinations for, apparently, everybody but Iraqis. It should be interesting, and after the backlog in this department goes away (which is only 30 at this point) I'll be able to find other projects to work on.

Monday, October 8, 2007

Saludos desde Sucre, la ciudad blanca de las americas, y la Fiesta de la Virgen de Guadaloupe


Sucre is my first destination on my leave of absence from law school, and a very interesting city. Despite having less than a few hundred thousand people, it's managed to hold onto one of the three branches of national power in Bolivia. And that's not all, it's demanding more.


The movement towards "capitalia" is asking that the entire capital be "returned" to Sucre, being the center of colonial power for "Alto Peru" and the site of the national capital after independence, but La Paz took two of its branches of national power during a civil war between the cities a while back. The sureñas (Sucre-ites) want them back, and they're willing to take to the streets to get it. Protests, like those that led to miner's blasting caps and police teargas in the streets of this beautiful colonial town a few weeks back, are expected to start again this week as the Constitutional Assembly reconvenes, but the word from the family I'm staying with is that they're expected to be much more peaceful this time.


As I said, Sucre is beautiful, the White City of the Americas, filled with white-washed colonial architecture.


These streets were recently filled with dancers from different fraternities (different meaning here, btw) in Sucre and the surrounding provinces for the two-day-long Fiesta de la Virgen de Guadaloupe, a two-day-long parade and massive public display of debauchery that left the city so está de ch'aqui (a quecha-spanish combo meaning "hungover") that the crowds in the saltañerias (shops that sell Bolivia's delicious version of the empanada) couldn't muster their usual enthusiastic morning cacaphony.


The festival is a major event, the biggest party of the year. In it, fraternities from all over Chuquisaca (Sucre's province) and Potosi come together to dance on a route that lasts nearly 3 hours before terminating in the main plaza in Sucre.


So far, Sucre seems like a very pleasant and idyllic start to my Bolivian adventure.