Marcela Escobari — Markets, Globalization, & Agriculture
Director, Harvard Center for International Development, Bolivia
If we all made these small choices consistent with our values, the impact would be a lot bigger than the World Bank, IMF, and bilateral aid put together.
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Marcela Escobari—Harvard’s Director of International Development
Marcela Escobari is Executive Director of Harvard’s Center for International Development, which creates, applies and integrates knowledge from across Harvard University to resolve the dilemmas of public policy associated with eradicating global poverty.
She has over a decade of experience in economic development, including work with industrial strategy, technology policy and private sector development. Before joining the CID in November 2007, Marcela led the Americas region and served on the Executive Committee of the OTF Group, a strategy consulting firm that advises private and public sector leaders on how to improve export competitiveness. Her work has included advising the president of the Dominican Republic on the country's industrial policy, the government of Colombia on revitalizing its tourism industry, the Jamaican entertainment and tourism industries on increasing their earning potential, and the government of Trinidad & Tobago on diversifying its economy away from oil & gas and into high-tech sectors. She has also led strategy projects for private companies in corporate strategy, product positioning and market entry. Marcela has a particular interest in the impact of information and communication technology (ICT) on economic development. She has led studies on the effectiveness of ICT investments in the Caribbean and Africa, and assessed the role business incubation in driving entrepreneurship in 47 developing countries. She has spoken about issues of technology, entrepreneurship and competitiveness in a wide range of policy, industry and academic forums throughout the Americas, and recently gave the keynote address at the "International Conference of Social Women Entrepreneurs" for an audience of over 1000 women entrepreneurs in Mexico City.
Prior to working at OTF, Marcela worked with indigenous communities in Bolivia for the World Bank and was a Mergers & Acquisitions investment banker with JP Morgan in New York. Marcela grew up in Bolivia, holds a B.A. in Economics from Swarthmore College and a Masters in Public Policy (MPP) from the Kennedy School of Government at Harvard University.
[Bio adapted from In the River They Swim]
Rule of Law and a Culture of Trust
People talk about culture of trust … and I’ve thought about this and worked with that presumption of there are places that are high trust in the US. We trust each other. In Jamaica, people distrust anybody who’s not my brother. And I don’t think it’s about inherent lack of trust or that you are a better human being from these developed societies versus me. It’s that the rules are not clear. And the reason I’m able to trust you because there’s a set of rules that if you don’t fulfill your promise to me, there are going to be consequences for that. And I believe in that in that exchange. And, and in these other countries, where there’s no rule of law, where people don’t think that that justice is made, then you have to kind of bring your trust closer and closer, and rely on other currencies, which is extremely unproductive and ends up with some sub-standard outcomes in business and in life.
Globalization Refining Competition
Globalization has changed what competition means. And I think it opens up an opportunity, for governments, even from small countries, to redefine how they work together to get their businesses to grow, entrepreneurs to thrive.
Import substitution: I would say the biggest, or maybe the only problem that it has is that it’s hard to cut people off. It’s not a problem to protect infant industries, to help them out, to get them started, to support in any possible way, as long as you know that at a certain point, you need to be able to take away those benefits. And that’s what government after government was not and has not been able to do. And that’s where these industries get into problems, because they’re sheltered, and the moment that things change, they can’t compete. And it’s a desperate attempt at keeping those that creates further problems internally within a country.
Collaborate to Increase Capabilities
Private firms, with the government, need to think about what are the capabilities that we build slowly, that allow us to expand our productive set. And those capabilities are extremely broad. Education, roads, infrastructure, standards, the ability to attract foreign, direct investment. And it’s this collaboration between the private sector and the government that allows a country to build the capabilities that then businesses can use within a country, that are non-tradable; to then build businesses that are able to compete. It’s a long answer with a lot of jargon. But the poor are poor because they’re stuck in activities of low productivity – subsistence farming, informality – and it’s hard for them to shift because they’re cut off from these other networks of productivity. They’re cut off from from markets. These markets can be finance, water, electricity. If you think about all those markets, they’re actually networks. You actually need to be attached, with a line, to something else. And most of the poor are cut off from all of these different markets that function, that allow them to create self-sufficiency, that allow them to create self-actualization.
Why the Poor are Poor
The poor are poor because they’re stuck in activities of low productivity – subsistence farming, informality – and it’s hard for them to shift because they’re cut off from these other networks of productivity. They’re cut off from markets. These markets can be finance, water, electricity. If you think about all those markets, they’re actually networks. You actually need to be attached, with a line, to something else. And most of the poor are cut off from all of these different markets that function, that allow them to create self-sufficiency, that allow them to create self-actualization. Fish don’t know they’re in the water. We take these networks and this access that we have to thousands of products and thousands of connections for granted, which the poor are cut off. And it’s about providing these access mechanisms that then allow the poor to create their own businesses, their own business models that are going to be very different from what we envision, from academia, the aid community, and the businesses of developed countries.
Capacity for Productivity
It’s not that people don’t have the capacity to be much more efficient; it’s that the access is not democratized. And I think it’s about making sure that this access becomes widely available. And that is a lot more complicated. It has to do with creating a civil service, creating the incentives for people to be efficient, decreasing the incentives for politicians to work X and Y. Democratizing the access to that power structure, that these countries need to focus on.
Role of Government Regulation
We need regulation to be very specific. The problem is that the communication between me, as a mobile provider to be able to send remittances – what I need of you, the government, is very specific. Can I have that conversation with you, so that you can create very specific regulation? If governments are able to increase their bandwidth and be receptive to the requests of the private sector that increase their productivity, not increase their rents, then you start to create regulation that makes sense, that happens faster. And that’s a possibility.
Regulation is extremely important. And it’s extremely important that it’s specific. The US has 10,000 pages of regulation because it needs it. Because in every transaction that we take for granted, we want to make sure that the food that we’re giving to our kids is safe. We want to make sure that when we buy a house, we’re protected if somebody wants to cheat us. The problem is when a certain type of industry dictates regulation … when one has access to the 22,000 lobbyists in Washington, and the organic farm in the middle of X state does not.
The Burden of Corruption
Corruption increases transaction costs. It not only increases transaction costs because I need to pay someone – we need to pay someone to transact all the time; it also creates a moral transaction that I have to go through a lot of burdens on what I think is right and not right, to decide how to act. And those moral transaction costs, are personally a huge burden, and they’re a burden to a society.
The Catch 22 with Corruption
I wouldn’t say that because of the existence of corruption, which is prevalent, which is horrible in these poor countries, from their political systems, from the poverty, etc. that I am not going to engage in you, country X, because you’re corrupt. The US was corrupt when it was building the railroad. In a way, countries decrease their level of corruption as they develop. So, it’s tricky, when we think about aid, or any other kind of engagement, where I think you need to work with the right partners to limit corruption. But if we expect a country to not be corrupt to be able to engage with them, we’re going to be waiting a long time.
Costs of Corruption
Corruption creates costs that are more than the obvious ones. In a way, you would say that corruption is just an additional transactional cost to doing business. Before, I needed to do X, and it would cost me $500. I need to pay off a few people, so it costs me $1,000. I put it within, you know, my cost of doing business in country X. The problem is that it has these moral implications that I, as a human being, may feel wronged, may feel that it’s unfair to have to pay this bribe. And if I don’t pay this bribe, it’s going to take me 10 times longer to get this process through or to get the birth certificate of my newborn. That moral cost is one that I might decide that because I don’t want to incur it, I’m going to do a bunch of different things, or spend 10 days in the capital city to get my birth certificate the right way, without paying the bribe; not because I can’t afford it, because I don’t want to engage in that behavior. And that creates additional costs—as a society reducing your sense of justice of the world, which also reduces the justice that you that you expect others to serve. And I think it can lower the society’s sense of trust and sense of happiness.
Fake Ideological Extremes
Latin America is caught in these fake ideological extremes. Where it’s supposed to be about the people. When you think about taking wealth from the rich—the rich are rich because they exploited the poor. And this narrative is a very popular narrative, because people want to feel that if they are in this poor situation, it’s somebody else’s fault. Changing the sense of responsibility to oneself is a difficult thing to ask a country and a people and a group of people who don’t have access to most things… it’s easier to have that narrative of victimhood. Now, definitely, Latin America, has, and many countries have suffered from a capitalism that is not about access to markets. It’s about access to markets for few people. And that is broken, and globalization, in a way, has proven that. The people and companies who get protected by governments eventually fail. And they will try to grasp for power for longer, but they eventually fail.
Investing in Education
In Pakistan, the, the biggest segment in education that’s growing is small, private schools that are teaching English. This is in the poorest of places. People will invest in their own future, in their children’s future, if you give them the opportunity.
The Poor Will Invest
The poor need to be given this access to markets, and need to create their own possibilities, because they will … People will invest in their own future, in their children’s future, if you give them the opportunity.
Creation, Not Redistribution
It’s not about whether you should redistribute the wealth that exists. Because in many of these countries, you’re just going to continue to redistribute poverty. It really is about competing in world markets, so you need to allow the poor to have access to markets, to be able to enter that competition. And we need big business to open those markets, to create jobs. It’s not about distributing what exists … It’s about creating wealth.
The Mentality of Victimhood
I think a lot about what makes countries rich and what makes countries poor are mental models. It’s how people conceive of themselves how they conceive of why they are where they are. And I think there’s a tendency, in people and in politicians, to have a narrative of self-pity, to have a narrative of victimhood, of “I’m here because somebody did this to me.” And I think changing that narrative is as important as everything else, in terms of capitalism, markets, staff, roads – changing that sense of possibility in that it’s up to me and what I can do to change my destiny, is half of the battle. What values do societies need to prosper? And there’s a lot that we can learn from developed countries—a sense of entrepreneurialism, a sense of possibility, that it’s okay to fail; that equality and gender equality are valued, an independent judiciary, a sense that that we can trust our elected officials; that if I want change, I’m not defeatist. You can roll up your sleeves and do something, if you see something that doesn’t work. Those are values that societies have, that societies learn, that help in this trajectory, from poverty, a poverty of wealth and spirit, to richness and a sense of wealth.
Rules of the Game
I feel that there’s a basic psychological need for rules that tell you the game and that tell you how the game is played. And when you not only know what those rules are, know that they’re going to be respected, your whole outlook changes, your whole sense of what is achievable changes. Your sense of being able to invest in the future, because you can count on what the rules are going to be in the future. That’s not only a psychological need, but it’s underpins our daily behavior, which is why I think issues like property rights are extremely basic if you want a society to function.
Our Power to Affect Change
In this globalized world, we can affect by what we eat, by what we buy, by the companies that we invest in, the set of values that we believe in … If we all made these small choices consistent with our values, the impact would be, um, a lot bigger than the World Bank, IMF, and bilateral aid put together. “Do I believe in child labor? No, I don’t. Do I believe in paying fair wages? Absolutely. Yet, if I don’t use my buying power to back up those decisions, I am giving a message to those board members and those owners of businesses, that I don’t care and I’m not willing to pay for that. So, in those little decisions … we have a huge amount of power.
Voting with Dollars
Every day, we have a vote that we make with every dollar that we spend; not just once every 4 years, when we vote for politicians. What world do we want to live in? What are the basic values that we believe in? And we get to put that into action in every single purchase that we make. Every day, people have the power to change the world … in every instance, when we decide how we spend that dollar. What cause do we support? That has repercussions in every single part of society. If firms know that I don’t stand for unfair wages or child labor because I’m not willing to support with my pension fund and with my purchases, they will take that in consideration. They will listen. And then, we will have a world that is more consistent with the values that people say they have. That’s where the power is.
If you wanted to central plan the most basic thing, like making an omelet, there’s just too many variables that need to be in place … It’s just too complex. So when the government tries to play that role, it is likely to create so many distortions that hurt markets and hurt production and hurt competition. So, it’s not that it’s good or bad; it’s impossible.
Agricultural Subsidies Distorting Markets, Hurting the Poor
Agricultural subsidies are a huge distortion for world markets, particularly the poor. They happen because local interests want to protect their markets. And they do that at the expense of other countries that don’t have the same power to negotiate the bilateral agreements with large powers like the US. So, you’ve got countries like El Salvador that can produce sugar 30% lower the cost than an American producer. But because of tariffs, of quota, I cannot bring that product in. That hurts consumers in America, because they’re paying for more expensive sugar. That hurts producers in El Salvador, who are actually being efficient in producing sugar, and they have a lot more land that can be used for sugarcane, and a lot of livelihoods that depend on this product, that cannot, in spite of their efficiency, export their product because of the rules that we create. So, it creates a distortion that benefits a very few large firms, that are able to have an increased margin for producing a lower-quality product. And at the end of the day, consumers here and producers there pay the price of that inefficiency. So then, because I have a protected price, and the government will buy my sugar at X price, I’m going to produce a surplus, which is why we probably have sugar and corn syrup in every single thing that we consume. Because they have no idea what to do with it because it’s not based on market forces of our demand, it’s being subsidized creating X’s demand, that then gets sent to those countries in the form of aid, and creates distortions in those markets, who were producing their own food, who are agricultural economies to start with.