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Disarray & Hope in Latin America

Guest: Ricardo Ernst, Baratta Chair in Global Business and director of the Latin American Leadership Program at Georgetown University’s McDonough School of Business

Latin America faces a triple threat of health, economic and political crises – what are new ways for the region to bounce back?

The official forecast for Latin America is glum. The COVID-19 pandemic has triggered a regional recession, dragged down social indicators and killed hundreds of thousands of citizens. The United Nations predicts 9.1% negative growth in 2020 and 231 million Latin Americans in poverty – a 15-year backslide. Widespread discontent has led to mass protests and political unrest. Democratic erosions, from populism to authoritarianism, are on the rise in countries like Brazil, Peru, El Salvador and Mexico – as regimes in Venezuela, Cuba and Nicaragua clamp down.  

How can Latin America rebound amid so many challenges? Ricardo Ernst, the Baratta Chair in Global Business and co-director of the Global Logistics Research program at Georgetown University’s McDonough School of Business, makes the unusual case for optimism. He argues that a shift in how the region approaches issues like productivity, public policy and politics will bring a brighter future. Ernst is also the managing director of Georgetown’s Global Business Initiative and the Latin American Board, as well as executive director of the Latin America Leadership Program.

Ernst argues that Latin Americans should focus less on what the United States government might do, and more on their own initiatives: “Biden has enough problems with the United States the way it is today to worry about what will happen in Latin America. I would argue that in Latin America we should take these opportunities. There is a vacuum there, we don’t know what the policies will be, so why don’t we try pushing the local leadership in the region and encourage them to take the opportunity?”

According to Ernst, closer intra-regional ties and public-private partnerships will be key for Latin America’s success: “We are over 620 million people and the time has come to start thinking more as a region and not so much as isolated countries… Let the private sector get more and more involved in the public arena – that is the first step.” As Ernst points out, “At the end of the day, the Germans and the Italians were able to get the European Union… the closest we have is Mercosur, which is a big-time failure which is going nowhere.”

Technological innovation will also prove vital for overcoming obstacles to economic growth. “We need to start looking for industries where we can leapfrog,” says Ernst, pointing to examples like digital finance and E-commerce. According to Ernst, “If we only go linearly we will be behind,” arguing instead to “overcome the normal barriers.” Even before the pandemic, he noted, “the productivity in Latin America and the Caribbean had been worse than ever. We were behind. Why? Because it is not based on technology. It is based on labor.”

A revived Latin American economy would require a greater shift away from raw material exports and towards new types of companies, says Ernst: “Can you name three brands that are from the U.S.? You have no problem thinking about that: McDonald’s, Coca-Cola, et. Name three brands that come from Europe…Lego, Zara, etc. But if I were to say, name three brands that are well-known around the world in consumer goods from Latin America… you cannot come up with one.”

Ernst points to lesser-known economic success stories in the regional as well. Regarding Central America, he says: “Honduras just had the most incredibly sad natural disaster, but if you see how the textile industry is doing in Honduras you wouldn’t believe it… I see the same thing in Guatemala.” He also argues that in Mexico, despite the business community’s concerns over President Andrés Manuel López Obrador, the private sector keeps chugging along: “In Monterrey, you go to one of the most important suppliers of the automobile industry for the United States… you think that you entered into a plant in Japan. It is state-of-the-art. These guys worry, obviously, that the president might not be supporting all the things they do, but continue pushing.”

Ultimately, Ernst wants Latin Americans to stop looking North and to improve conditions in their countries: “We have a lot of young people, and the young people are very creative… I would encourage all people in the region to stay in the region…The time has come for us to start pushing for the Latin American dream.” But, according to Ernst, that also means avoiding populist policies and clientelism: “Responsibility does not go one way, from the elites down or from the government down. We need to find a way of continuing to help but with some level of expectation.”

Despite the profound challenges in Latin America, Ernst remains optimistic: “I believe in pendulums. I think that the economic pendulum moves, the social pendulum moves, the political pendulum moves. These pendulums have their own life of moving and nothing can get extremely negative before becoming positive.”

Find out more about how Latin America can bounce back, available for download here

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Episode 87