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.

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