Unlocking Growth and Productivity in Latin America & the Caribbean

[JASON MARCZAK]

Good afternoon.

Welcome to the Atlantic Council.

I'm Jason Marczak, vice president

and senior director

of the Adrienne Arsht

Latin America Center here.

As part of our continued focus

on economic policy

and how to accelerate

the region's economic growth,

I'm absolutely pleased to be partnering

with the World Bank today

in its launch of their semi-annual

Latin American Caribbean Economic Review,

titled "Competition: the Missing

Ingredients for Growth."

Today we'll highlight new ideas

that will help

to hopefully further advance

our regional economic growth strategy

that is tied

to our broader Proactive Black Series.

It's a series that provides insight

to countries across the region

on how to emerge stronger

from the pandemic,

and also leap forward

in the region's developments.

We here see economic growth

as critical for more prosperity

for citizens all across the region

that will ultimately help to lift votes

from Mexico to Chile as well.

Growth impacts citizens votes,

helping to define political outcomes

across the region.

Just in the last weeks

we've seen elections in Mexico,

Dominican Republic,

where economy

was part of the decision voters had

when they went to the ballot boxes,

and ballot boxes in which they also

moved against the anti-incumbency trends

that we had seen historically.

From today's election cycle,

we see that the economy matters.

However, despite optimistic cases,

the World Bank finds that Latin America

and the Caribbean

has shown less economic dynamism

than any other region in the world.

The World Bank report

being launched today

forecasts that regional GDP will expand

by only 1.6% this year,

with GDP growth of 2.7 and 2.6%

for 2025 and 2026.

These rates are the lowest compared

to all other regions across the world

and, as the bank notes,

insufficient to drive poverty.

Despite solid macroeconomic management

in many parts of the region,

prospects for growth remain low,

partially because

of long unaddressed structural issues.

That one such issue

identified by the report

is the low level of competition

and the consequences

for economic competitiveness.

So what is the relationship

between competition

and economic competitors?

How can governments and business

work together to craft a framework

that is conducive

to higher competitiveness?

To deal with these issues,

I'm going to begin with a conversation,

a 15-minute conversation

with the chief economist

for Latin America and the Caribbean

at the World Bank, Bill Maloney.

Bill is one of the foremost

economic thinkers in the region.

Bill, I'm adding that to your title.

He is also a great partner

of the Atlantic Council

who leads, among other things,

the World Bank's thinking

on addressing the structural challenges

impairing growth in the region.

After my conversation with Bill,

Juan Carlos Lopez,

chief correspondent

for CNN en Español here in Washington

will moderate

a conversation with Marcela Melendez,

Santiago Levy,

Leticia Ossa Daza and Andrea Butelmann.

Bill, let me start with you.

It's great to have you here with us.

Thanks for the invitation

and thanks to the Atlantic Council

for hosting us.

Great to be co-hosting with you, Bill.

As we're launching this report,

I wanna take a step back.

The report has a couple chapters.

I'm sure many in the audience

have read the report

and seen the different chapters,

but chapter one addresses

some of the cross-cutting

economic challenges facing the region.

And I'll note that the report

begins by reconciling

the fact that Latin America

has fully recovered

GDP lost during the COVID pandemic.

Total employment

is close to full recovery,

although not in all groups,

and poverty

has fallen below its pre-pandemic level.

Yet the region

still confronts a global environment

that is very difficult.

What are some

of the general economic trends

that you're seeing in the region

as they relate to economic growth?

And also, why is the region stalling

in comparison to other parts

of the world?

[WILLIAM MALONEY]

Right. So, as you noted,

the Latin American

and Caribbean Economic Review

comes out every six months,

and the first chapter precisely deals

with the more conjectural elements,

how the region is doing

both with respect to itself

and to other regions.

And as you say,

the picture is very mixed.

On the one hand, in terms

of macroeconomic management,

it's been doing rather well.

Inflation, for instance,

is below that of the OECD.

And that's due to the very early

and determined actions

on the part

of the central banks of the region.

When they saw that inflation

was going to be a problem

long before the fed ramped it up.

So that's a testimony to the increased

professionalization and competence

of the macroeconomic authorities

in the region.

And it's something

we need to defend as a region.

On the other hand, we're not growing.

I think our figure at the time

was 1.6% for this year.

It might ease up a little bit

because some countries

have been performing better

over the last couple of months,

but that's still nowhere near enough

to alleviate poverty

and facilitate economic mobility.

And it's also not recent,

in the sense that we look at the 2010s,

the region was growing at about 2.2%

when the world was growing at 3.1%.

So we're consistently under-performing.

And that is a combination of,

in the short run,

it's a combination

of weak commodity prices,

low growth in Europe

and the United States,

uncertain growth in China.

But in the longer term,

there are structural issues

of many different kinds

that get in our way,

ranging from education problems,

to infrastructure problems,

to the structure

of our social protection systems,

to... and in this particular case,

we focus on the competitive environment

that our countries operate in.

Structural issues.

That chapter one

then leads to chapter two,

we look at competition trends

across markets in the region,

and you find

that that is a major contributor

to this stalling of growth.

I think you also make an important point

in the report,

which is that the lack of competition

leads to higher costs

for lower quality goods and services,

which also thereby then contributes

to higher inequality, right?

So that reverberating effect

that that has across economies.

So on a conceptual level,

why is competition

so important for markets

and how have you decided

to begin to further tackle this issue?

So competition among firms,

both domestic and international,

has a lot of potential benefits.

In the first place,

it lowers prices to consumers.

And so this

has a direct impact on poverty

and the basket of goods

that the poor consume.

If it's cheaper

because of more competition,

that works with us

in terms of reducing poverty.

From a growth point of view,

competition weeds out weaker firms

that are maybe absorbing resources

that could be better used

by more productive firms.

It also allows intermediate inputs,

higher quality intermediate inputs,

to be available to, precisely,

those more productive firms.

And helps them become even

more productive and grow faster.

And, finally, competition

is a stimulus to innovation in principle.

If you have to compete with other guys,

you are gonna try to be on your game.

And if you don't have to compete

the way, in many cases, we don't have to,

then you don't have to do much

to keep your market.

I want to go back to innovation

and some of the tradeoffs

that are noted in the report.

But as you note as well,

competition is a necessary feature

to achieve greater efficiency.

It's important,

as I mentioned, for lower costs,

ultimately greater choice

for consumers as well.

But the ultimate goal

should also be to achieve

more competitive economies at large.

And this sometimes means bridging this gap

between competition and competitiveness,

two distinct issues.

How can we translate competition

into greater competitiveness

for the region

and also do so in a way

that some of the firms

that rely upon lower competition

and those jobs are not displaced

in the interim?

Okay.

So in the first place,

exactly that stimulus to innovation

and to pushing the better firms

to become even more productive.

These are all issues that lead directly

to our firms being more competitive.

So productivity

is effectively competitiveness.

Now, what we found is that

if you increase competitiveness

in the domestic economy,

that leads to unambiguous benefits

in terms of greater productivity,

greater sales,

higher wages for workers in those firms.

It gets a little bit trickier

when you look at competition

internationally.

There, it's the firms

that are already kind of close

to the world levels of productivity

that innovate to escape that competition

and really benefit from it.

The problem

is that firms that are less close

in terms of productivity

and that can be a result

of weak management skills,

a weak workforce,

poor infrastructure,

difficult business rules within countries.

All those things make our firms

less productive and less competitive.

And therefore,

when they're confronted with competition

from China, from wherever else,

less able to compete.

So what's the policy mix

that's necessary then

to bring,

to upgrade firm level productivity

and make those firms

have the greater opportunity

to be able to bridge

those technological frontiers

and compete in a global scale?

Right, so you need

to work on several fronts at once.

In the first place, studies

of management quality in the region

suggest that our managers

have some work to do

to get to the global frontier

in terms of skills,

and in terms of, you know,

having a very competitive attitude

towards the rest of the world.

So working on firm capabilities

is important,

but on the other hand,

you need the entire...

system in which they work,

the supporting institutions,

be the universities,

think tanks or whatever,

and then all the relative regulations

and labor law around them.

All those things are very important

to having our firms being more productive

and hence more competitive.

So it's actually a big agenda.

One can say,

"Okay, we just need more competition".

That's true.

Except we need to work

on those things that hold our firms back.

And work on those things

in a sequential manner,

because now it can be done,

or in a complementary manner,

because not all can be done

at the same time.

How do you prioritize

all that needs to happen

to increase competition?

Well, you have to identify

the ones which are most binding

in any particular moment.

-And... and that varies by country.

-Yeah.

So, Bill, we always hear you

to make policy recommendations

that are actionable for policymakers.

After our conversation,

Juan Carlos Lopez

will delve

into some of the the nitty gritty,

our experts in the following panel.

But I want to also hear your perspective

on actionable policies.

You just mentioned a few steps

that could be taken,

but actual policies

the policymakers across the region,

or maybe in specific countries,

can take to foster

economic competitiveness

through competition policies.

What are some

of your primary recommendations here?

So I think one of the first,

the report provides

some of the first evidence

on the positive impact

of domestic competition authorities,

namely

where domestic competition authorities

have been more aggressive

in enforcing antitrust laws and the like.

We actually see precisely

this increase in productivity,

in sales, in wages.

And so that's unambiguously good.

That means we should be

strengthening those authorities,

which tend to be underfunded

and less independent than they should be.

So that's a place to start.

And when you get firms

more competitive domestically,

that also helps prepare them

to be more competitive internationally.

So that's one aspect.

I would say this emphasis

we put on firm upgrading is important.

And then the overall ecosystem

they work with.

Choose,

find the ones which are most binding

in each particular region or whatever,

and, you know, work with the firms

and find out which are the barriers

that are most preventing them

from improving.

Well, the report also mentions,

I was alluding to it earlier,

the tradeoffs that are inherent

insofar as protecting

existing jobs and firms,

but doing so

at the cost of forgone growth.

How do you move forward

on some of these policy recommendations

in this bridge between what's necessary,

domestic and international level,

with this knowledge

of kind of existing jobs

and firms that are dependent in many ways

on the lack of competition.

Right, I mean,

it is the nature of economic growth

that in any period of time

some firms are growing

and some firms are contracting.

That's exactly

what we call creative destruction.

And we can't be stopping that.

We want to progress.

My favorite example

is the Ford Falcon in Argentina,

which was still produced

in Argentina 15 years

after it was terminated here.

Why could it do that?

Because there was no competition.

If we had more competition

and allowed in Mitsubishi and Toyota,

would those workers lose their jobs?

Yes, that is a fact.

On the other hand,

there's a huge tradeoff there.

The way we have to do that,

on the one hand, we have to have

this openness to competition

and prepare people

to adapt to this, to competition.

On the other hand, we have to have

a very well-designed

social protection system

that allows workers

to move to new positions or to new jobs,

retraining, whatever,

that needs to be part of the practice.

At present,

our systems of social protection

are not really well designed for that.

You also mentioned the structural issues

that have to go

alongside the ramping up of firms

to be more competitive.

That, thereby, goes with the workers too.

Insofar as training workers

for the next generation

of job positions.

Absolutely, Latin America

still lags in basic measures

of mathematical ability

for 10th graders,

but substantially behind Asia.

So when we think of,

for instance, nearshoring,

if I have a choice to go

to Vietnam or to Mexico

at this point, you'd go to Vietnam,

the scores are substantially better.

So productive firms need to have

productive and well-trained workers.

It's good for everybody.

They get higher wages,

they've more opportunities.

-So we need to work on that.

-We do a lot of work here.

We have a working group

dedicated to nearshoring.

There's actually

a subsection of chapter one, I believe,

focused on nearshoring.

What are some of your initial takeaways?

Right, it's actually

a very cloudy picture right now

because if you look at the numbers,

there is not a huge flow back

from Asia towards Latin America.

Even in Mexico,

we're still below where we were in 2010

in real terms.

And flows still continue to Asia.

On the other hand,

when you talk to people

on the ground in the north of Mexico,

they say there's a huge demand

for industrial real estate and the like.

So we have to see what's going on.

But at present,

the aggregate FDI numbers

and the announcements

of greenfield investment

are not showing huge movements.

Bill, last question

before turning to the panel.

You before mentioned the importance

of innovation,

and that is an important issue raised,

the necessity to foster

greater innovation of industries.

How can innovation policy

be designed in a way

that contributes more

to economic competitiveness?

How do you do that

along the value chain as well?

Right. So that's critical.

And at present I'd say that in the region

our innovation systems

tend to be fragmented,

underfunded and disarticulated.

For instance, Latin America, I think,

is tied for Africa with the level

of interactions between universities

and the private sector and firms.

If you think of Silicon Valley

or Route 128,

that linkage between

Stanford and Berkeley,

or Harvard and MIT

and the local firms there,

that's absolutely critical.

And we have our smartest people

in universities,

and they're not talking

with the private sector.

That's a luxury we can't afford.

And I would also say

that our training systems

need to be more aligned

with the needs of the private sector,

and we need to be thinking

about schools

that provide technical training,

which is the lifeblood

of a modern economy.

But we don't really have that.

So there are a whole bunch of things

we need to do, to reform.

I'd call them second generation reforms.

And we're putting out a publication

in a couple of months

on this second generation reforms

of the innovation systems

of our countries, are absolutely key.

We'll look forward to having you back

and talking about that publication

when it comes out.

You also gave

a lot of great insight for now

the panel to have to address

and further detail.

-They can go and correct my mistakes.

-As Juan Carlos moderates that.

So I want

to again congratulate you, Bill,

and your incredible team

on a great report.

And thank you again, as always,

for the partnership with the World Bank,

For our audience,

those watching virtually,

you'll now see a brief video.

For those here in person,

I'll welcome Juan Carlos Lopez

and his panelists to the desk here.

And you also see a brief video

as they're taking their seats.

So again,

thank you so much for joining us.

Thank you so much, Jason.

-Thanks.

-Thank you.

Good afternoon, a pleasure to be here.

A pleasure to be with this group

and with our guests.

So let's go straight to the introductions

and the questions.

Sitting immediately next to me,

immediately next to me,

is Marcela Melendez,

Colombia national deputy chief economist

at the Latin American and Caribbean

Chief Economist Office of the World Bank.

Before joining the World Bank,

she served as chief economist

for the LAC region

at the United Nations Program UNDP,

where she led a knowledge production

to support policy design

and decision-making in the region.

We also have Leticia Ossa Daza,

she's the head of Latin America practice,

and a partner

in the Mergers and Acquisitions Group.

For over two decades, Leticia has advised

international and domestic clients

on successful mergers and acquisitions,

and other complex

cross-border corporate transactions.

We also have Santiago Levy,

who's a non-resident senior fellow

with the Global Economy

and Development Program at Brookings.

He was previously president

of the Latin America and Caribbean

Economic Association.

From 2008 to 2018, he was a vice president

for Sectors and Knowledge

of the Inter-American Development Bank.

From 1994 to 2000,

he served as deputy minister

at the Ministry of Finance

and Public Credit of Mexico.

And joining us remotely

we welcome Andrea Butelmann.

She has had a long and outstanding career

in the area of competition

and economic regulation,

both in the public and private sectors.

She was a judge

at the Chilean Competition Tribunal

and president

of the Antitrust Preventive Commission,

head of the Regulation Division

at the Ministry of Economy,

leading the drafting of regulations

for public services

and overseeing verification processes

in energy, water and telecom.

Welcome all.

Let's start with Marcela,

co-author of the report.

So I saw a quote,

and it's not from Karl Marx,

and it says that capitalism

without competition is exploitation.

And this was a quote by President Biden

in his State of the Union address.

Where I want to go with this

is when you look at the report,

you see a need for these policies,

but there's a resistance to it.

So what specific policies

do you think should be considered...

to be implemented

to contain big business,

the political power they have

and the apprehension

that they have of letting go?

What do you do?

Thank you for this question.

Indeed, the concentration

of economic power

translates very often into political power

and the capacity

to influence policy making

in directions that not necessarily look

for the public good.

So one thing

that we are pointing at in the report

is the need to think

what to do to somehow rebalance power.

One side of it, of course,

has to do with having

working competition policy

and competition institutions,

competitions laws and agencies

which are still young in the region

and still weak, very often

under-resourced in terms of their staffing

and in terms of the their funding.

And also very often weak

in terms of lacking the capacity

to actually translate

into enforcing good behavior.

We have lower sanctions

than in other places in the world.

And we don't have

enough capacity to prosecute

and, like,

to investigate everything that goes on.

So that's one part

that for sure has to do

with also controlling the political power.

Because as I was saying,

this economic power

that you gain in the market

translates into rent seeking behaviors,

which is what I'm going

to go into right now.

When you think about rebalancing power,

there are policies in other areas

that we should be looking at,

for instance,

regulating lobby, lobby behavior,

and the way a business interacts

with government officials

and with Congress.

Also, campaign financing

is another way to somehow control

and mitigate the way that business

has of influencing policy

in undesirable ways.

And last but not least,

there is an ongoing global conversation

about how to tax the super rich.

The region

is starting to take part on it.

And that's part of the story,

because the idea

is that we should have, of course,

fair reward

for productive activity in the market,

but we shouldn't allow rents

that are not directly resulting

from productive like rents,

as we call them,

that come from the exercise of

or abuse of market power.

And that translates into all

these possibilities to influence policy

in other directions.

The existence of this,

this weakness that I was talking about,

of competition policy institutions

in many countries

is in itself sometimes the response

of this political,

of this business political power

that has not allowed these institutions

to appear sometimes,

and to function as they should.

One thing that we should be also

thinking about when we think

about this competition policy institutions

is the institutional design.

In many countries,

it's the president

who names the directors or the leaders

of these competition policy institutions.

And when this happens, very often,

when there is an intervention

that touches big interests,

then the head of the competition agency

is easily removed.

This is something that acts exactly

against the way

we should expect this type of institutions

to work with.

So it's a change of the ship.

Andrea, you've seen it real time.

You've dealt with it.

So how does it work?

How do you go from competition

to competitiveness,

and how do you convince

this private sector

of the benefits of opening up?

We're not hearing you, so...

Andrea, we're not hearing you.

-So we're going to sort out the audio.

-I'm here.

I think we hear you now.

Yes.

Yeah. In Chile, we have gone a long way.

I think we have been

the first in the continent

to have a modern competition law.

We have independent judges.

We have an independent prosecutor.

We have never had a prosecutor

change for political reasons.

They all end up their...

Their period.

So I don't think

independence is a problem,

budget sometimes

is a problem for the prosecutor.

We would like to see a prosecutor

that goes against more cases,

that doesn't choose the winner only cases.

But when we tell them that,

they say, "We don't have budget,

so we have to choose."

So I think budget is a thing.

And, of course,

punishments are a big thing.

You have to detect the cartel.

So top rates, it's very important.

I think most countries have that.

Fines, the level of fines,

are very important.

We have been winning

the right to put higher fines in Chile

because of the very...

I'd say, responsible way

the tribunal has used them.

So first we had very low fines,

then they increased it,

but still they have like a ceiling,

independent of the size of the company.

And now we have finally a variable...

a variable calculation of fines

depending on the size

of the sales or the profits of the firm.

So I think it's a slow process too,

so people understand

that the competition authorities

won't go crazy.

So we get more and more power

as we are very responsible using it.

So finally in Chile,

we have criminal punishment for cartels.

Nobody has gone to jail yet,

but it's there.

Social disapproval

I think it's very important.

We have gone from business as usual.

People say, "Well,

but that's the way to compete."

And now it is an embarrassment,

a social embarrassment,

and the business associations

are being more and more vocal

against this kind of a practices.

Leniency is a very important tool too.

Coordination between regulators

and competition authorities

is very important

because regulators usually care more

about the stability

of the firms they control,

they regulate,

and not as much as... on competition.

So I think more,

more coordination is important.

And one specific topic,

but it's very important.

And we haven't touched it well

in Chile yet.

We have done some things,

but we are not there yet.

It's better systems

for designing the bidding rules

of government procurement.

In many times...

Sometimes because of ignorance,

sometimes because

people want to favor specific companies,

these bidding rules

are not very competitive.

So that's a problem too.

Now, you have to know your markets.

The big rules,

the overall rules are very important.

But to know how the markets work,

what are the barriers

and what are...

not the natural or legal barriers,

but the barriers

that the government build

to protect themselves from competition.

You have to understand that

and go straight to eliminate them.

You cut me if I'm going too long, okay?

But one thing we have in Chile,

and I'm not sure other countries do,

is... we have, we call it

"instrucciones de carácter general,"

general instructions.

Which the private persons have to abide.

And the tribunal can dictate these rules

if they don't go against the law,

or against any rulings or soft law.

So we did that, for example,

in the off-net on-net tariffs,

telecommunication tariffs,

Like the tariffs,

if you call within your network provider,

were very low.

But if you call another network

of the competition,

of a person

that is in the competitor network,

they would be very expensive.

So there was a lot of switching costs

and tariffs wouldn't go down.

So when we decided

that there couldn't be any difference

with off-net and on-net tariffs

and number portability was introduced too,

we had a fourth competitor

coming into the market,

and dramatic fall in mobile phone tariffs.

So that's one example

of knowing the market,

and go and fix what's going wrong.

Thank you, Andrea.

So I want to go to Leticia.

So you're on the other side,

you're dealing with these companies,

you're representing them,

you speak with them.

And you told me something,

when we sat down,

I asked you what you thought

and you said you're optimistic.

You're a lot more optimistic

than the reporters. Why?

Look, so I'm originally from Colombia.

I... and I feel the reason why

I created the Latin American practice

is because I'm very bullish.

Because of the opportunities, yes,

we need to work on many structural issues.

And I think, you know,

Red Report highlighted many of those.

I also believe that nearshoring,

even with, you know, the work

that has to be done on infrastructure,

also dealing

with political and legal instability

and under-scale workforce,

there is a potential, as a region,

to really overcome those issues.

We have been discussing

about the regulators,

like the authorities

on the antitrust side and all the laws,

also those are, as Marcela mentioned,

quite new in the region

compared to the U.S. and Europe.

But, and...

The independence

of these institutions is key.

And reinforcing that is very important.

But we saw it with Lava Jato.

The cooperation among authorities

to deal with that,

to prosecute, was there.

So I do believe, and we have

already talked about cooperation,

we have already talked

about the importance,

these issues are not also issues

that happen in one country.

We have more multilatinas,

so these issues

are happening in all the region,

also in the U.S. and also in Europe,

right?

So that cooperation, to me, is really key.

And the way I see really the region

overcoming all the structural issues

that are highlighted by the report

is really coming together

as a region itself.

And again, you know,

the example of the Lava Jato was there.

But also I would say

on the Fintech industry.

Fintech is booming in Mexico,

it is booming in Brazil.

And even if these issues still exist,

those are... like it is an industry

that has enormous potential.

And it is also because the private sector

and the public sector

have worked together.

Regulators have worked together

in figuring out how to have a spectrum

that really allows

for economic development

and also for capital to come.

The investment,

also thinking about long-term investments

and innovation.

So I think just replicating

by using these very positive examples

that we already have

is how, you know,

we will really get to the other side

and really have nearshoring

as the new El Dorado coming up.

Santiago, in 1993 you led the work

to draft

Mexico's first antitrust legislation

to regulate mergers and punish

anti-competitive business practices.

You also served as the first president

of the Federal Competition Commission.

What you did then, planning,

and what is happening now, how...?

What did you do right,

where do you see things now?

We did some things right

and we did a lot of things wrong.

We had a good law.

We had a structure of a competition

that was autonomous.

We failed to understand

that the power of these businesses

was so large that,

through various legal means, the "amparo",

which is a law of stay,

most of the resolutions

of the Competition Commission

would be neutralized or nullified

Because it would go to the judicial power

and then the tribunals

did not know how to deal with this.

Things have improved since then.

So now the tribunals

have specialized tribunals in competition

and we have specialized judges

in competition.

And there is now more movement.

But my take in this last almost 30 years

since I worked on this

is that we're still far from the promise.

We're far from the promise.

The amount of gains

that we had for consumers,

relative to the

concentration of power

and the concentration of rents

that is occurring

is still significantly unbalanced.

And then we missed something

that is very, very important

and that is in the report

and I want to highlight it.

If you read chapter two of the report,

and you should,

there's a very nice graph in chapter two

that talks about Latin America

being an area of the world

in which there are some few large firms,

this is what

we've been talking about so far,

and then there's a very large number

of small firms.

And nobody pays attention to that,

so I want to just think of the following.

Think of the market for bread

and think

there are only two firms, equal size.

One firm has 50% of the market,

the other firm has 50% of the market.

Maybe some kind of monopolistic

arrangement, cozy monopoly,

not a lot of innovation,

like what Bill was saying,

because there are two firms competing.

Now, suppose exactly the same.

There's one firm

that has 50% of the market

and now there's zillions of very,

very small firms making bread.

Each one with an almost infinitesimal

share of the market,

but when you sum them up,

they have another 50% of the market.

This large firm pays taxes,

pays minimum wages,

complies with social security regulations,

complies with all the laws.

And these tiny set of firms

don't pay minimum wages, don't pay taxes,

don't comply

with social security regulations.

Nobody pays attention to them

because they're tiny,

they're minimal firms.

But when you add them up,

they have 50% of the market.

Is that a competition problem?

Would that be sanctioned by the law?

If you read

the Latin American laws on competition,

none talk about unfair competition

in the product market

coming from the existence

of a large number of firms,

many of which

will be subsidized by the government

through micro-credits,

through special tax regimes,

through whatnot.

This is a part of the competition problem

that the report brings out

and I want to highlight that,

because the report's

a very nice way of saying,

"This is another dimension of competition

and we haven't paid attention to that."

One last point.

Marcela and Bill

talked about rent concentration.

So again, go back to the bread example.

Two monopolists or two duopolists,

you know, and they share rent somehow.

If you have an effective antitrust law

and you bring down prices,

not only you do reduce rents,

but you also increase the real wage.

In Latin America, we work all the time

with trying to increase the real wage

by raising minimum wages

and by doing all these things,

subsidizing this and that,

which is extremely costly and distorting

in other dimensions.

But if we did effective competition,

you could get the equivalent

of an increase in the real wage

without distorting the real market

and with the additional bonus

that you would improve

the income distribution and reduce rents.

So bottom line,

there's a lot to be done in competition,

but we have to widen our perspective

of what competition is,

to think about what's happening

with this large segment of firms

on the other side

that nobody pays attention to.

And then think about making

authorities much more effective

because they indeed can bring

about changes in efficiency and equity.

Not many policies in Latin America

can increase efficiency

and equity at the same time.

Competition is one of them.

How do you change the ship? How do you...?

You were saying very interesting things,

like you have to tax the mega rich,

you have to have better regulation,

you have to have strong authorities.

When they look

at the number one economy in the world,

it's going

completely against that direction.

There is more lobby, there is less taxing

and, depending

on what happens in November,

they're promising less taxes.

How do you do...?

How do you take that sector into mind

and bring them

into this competitive market?

You bring the conversation

to a difficult place

related to how we build

stronger social contracts in the region.

How do we understand that the only way

that we will have enough tax collection

to invest in development

is if we actually have

working labor markets and output markets.

And that's... So, so...

I... Sadly, I don't have the answer,

but I think... I want to say something

that hopefully sort of...

also responds to your question.

We started talking about policy

and I don't know if we've said high enough

that we have a problem

of very low competition

in most markets in the region.

We have very high markups on average

and we are up there,

where the developed world

is very worried that they are getting to,

so we've always been there.

That's the big concern and it has to do

with what Santiago was mentioning.

We somehow have managed to survive

with this very strange landscape

of productive activity

whereby we have

these giant firms on one extreme

and then a largely missing segment

of the small and medium firms.

And a lot of people in tiny firms

and self-employment.

Part of what we have there is a story

of 90% of the market, probably more,

not being able

to put any competition pressure

on the on their firms

that are at the very top.

I don't know how the mindset changes,

because I do think

that in some of our countries

we have a rentist mindset,

and that's

what we should be going against.

I have my... Maybe Andrea can correct me,

but I have the impression

that we're in countries

where competition authorities

have been stronger and have more standing.

There is a chip that starts changing.

When I see Chilean firms

operating in Colombia,

my own country,

they come with a different chip

than our own companies.

So I think it's a matter of...

I think it's a matter

of political willingness, in a sense.

The starting point.

And a relationship with power

and how you deal with authority.

A lot of Colombians here.

-Now...

-Yes.

Leticia.

There's also this angle

that more authority, more control,

slows things down.

And then it depends

on how efficient that authority is,

or how well versed

that authority is and what it's doing.

So sometimes

it could even hamper competitors.

Yes, and I think...

I will go to policy volatility, right?

Like one of the main issues

for foreign investment

is really not having...

not knowing what will happen, right?

And you're seeing it...

You saw it with Mexico,

with the energy reform.

You know all the progress that it took

to get to the energy reform

and then the changes again.

If you don't create that stability,

then it gets very...

it gets even more complicated.

So I think that

that will be really the incentive

because I believe that,

for the international players,

they need to know when they are

making a long-term investment

and, you know, some of the investments

that we need on our own infrastructure,

which are long-term investments.

You need to know

that there will be the certainty,

the legal certainty that it will be there

even if you have political changes.

And that's why, you know,

also the independence

of all these authorities

that we have been talking about

is also so key.

Andrea is it a... there's...

is there a cultural factor

on this whole process?

Because the way

you describe things in Chile

are a lot different with,

Leticia was mentioning Lava Jato.

So, is that also a factor

that made your job easier,

having a society that is more willing

to comply with these rules?

No, no, I think...

I think, as I said, when we...

I was like, in the first ten years

of this new authority.

So, when we came in, as I tell you,

most entrepreneurs thought that, you know,

doing cartels was business as usual.

So I think it's a process.

I mean, if the authority is effective,

it starts to build in the society

that these are wrong things to do.

And I think that after these 20 years

we have achieved that in Chile.

I mean,

I'm not saying there are no cartels,

but society doesn't accept them anymore.

And so...

But and...

I want to touch

on a couple of other issues.

Of course politic...

our political systems...

In Chile we have...

And this is very well touched

in the report.

Our political system in Chile

has 24 political parties and growing.

So politicians here at best

they care about the next election

and they don't care

about long-time welfare.

So if you're going to present them

a new law

that will destroy one job,

but will create...

that has the potentiality

to create a thousand other jobs,

they will reject it

just because of that one vote.

I am exaggerating, but it's true.

So, for example,

we have been discussing

the cabotage rules, you know,

in the Congress forever.

And they keep saying, "No,

we are going to lose a couple of jobs."

So we are a long country

with a long coast

and we don't use it for transporting,

because we have

a monopoly in cabotage.

And I think it has to do

with political structure.

But, they...

No party really is sure

it's gonna be there in five years

to respond to the policies they take.

But other thing

that I think is missing in the report

and I would stress it

is economies of scale.

Technology

has increased economies of scale

in almost every market.

So you cannot compare

competition in Chile,

in each Latin American country,

with a market like Europe

or a market like United States.

It's really unfair.

And it's impossible to get

to a level of competition

with our Island economies.

Because we are really islands

within Latin America.

So first I want to be...

to pledge, to erase the graph 2.2

in the report,

where you can compare

the depiction of the share of the GDP

of the 50 largest firms.

And of course Chile looks...

70% of the GDP in Chile is explained

by the 50 largest firms,

but we are 1/7 of Brazil economy

and we are 1/6 of Mexico economy.

So that comparison...

put on the the alarms

where it shouldn't be

and given our very bad political...

very low political...

with low-level political debate,

that graph can lead to a, you know,

a change of policy,

a very dangerous change of policy.

So you have to be very careful

in comparing countries

because it has consequences.

Andrea, I want to interrupt you,

I want to go with Santiago.

When you read the report,

the prognosis is that growth

is going to be slow, very slow.

Is there a time to implement this?

Is this something that can be done

in the middle of those long-range?

Is this mindset...

Can it be changed quickly enough

for growth to be where it should be?

It takes time,

but it's not so much a question of speed.

It's a question

of what Leticia was saying.

It's a question of policy consistency.

What you need

is get a good competition law.

It's not going to work well initially.

You're going to make mistakes.

Cases are going to bounce

with the judicial power.

It's going to take time,

but little by little you're going to build

the capabilities within the government

to do competition policy.

And, something that Andrea was saying,

the changes in society

such that this kind of behavior

is not business as usual,

but it's no longer tolerated

such that political parties

then reflect them into their platforms

and this becomes the law of the land.

This process has been extremely difficult

and I want to illustrate it

with something that is very sad,

what's going on right now.

So I started a Competition Commission

about 25 years ago.

In the previous administration

of President Peña Nieto,

there was a constitutional reform

to actually strengthen it.

Policy continuity.

During this administration,

the president

put forth a constitutional reform

to actually close down

the Competition Commission.

So if you're trying to tell society

this is an essential element

of the way the economy should function

and if we want to be competitive,

we need to have more competition,

and in comes a policy reversal that says

we're actually

going to disappear this agency.

This is, you know, useless not relevant.

It's very, very difficult.

So, to come to your question,

what's crucial is consistency.

Because it takes time.

It's not going to deliver 100% growth,

increasing the growth rate

in the very short run.

But over time,

it might just create conditions

that will increase productivity,

that then will increase

the growth rate over time.

And we haven't done

the homework 25 years ago

and we're suffering today

compared to other regions of the world.

So, you know, whatever is past is past,

but what is important,

and that's the message of the report,

is this is something

that needs to be done,

begin, or we already started,

have policy consistency and continue.

The report brings out something

very pedestrian but very important.

You need to put money into this.

These competition agencies,

not only a Chilean one,

you know, they're scratching for pesos.

The rate of return on this is huge.

For a little bit of extra money, you know,

we're talking about 50 million dollars,

100 million dollars,

the gains to consumers are huge.

So they have to put more money into this

and congresses

have to increase their budgets

and just do it consistently.

I want to open up the forum,

we've received questions from our viewers.

The first one is from Marlene Ortiz.

She's in Cajamarca, Peru.

"What is the importance of the education

for the competition to competitiveness,

unlocking growth and productivity

in Latin American countries?"

Who wants to take that one?

Education for this goal.

That's the importance of education.

The report makes a very strong point

of policy complementarity

We will not become more productive

just by having

working competition authorities

if we don't push the levers

in other directions.

Human capital is for sure one of them,

and like we've been talking,

Bill was talking about innovation,

how we have to work on preparing firms

to increase their firm level productivity

in order to be

actually prepared to compete

in domestic markets

and in foreign markets.

So I would say the importance of education

is that it's

like the very base of productivity, ¿no?

It's what... One of the very basic inputs

that we put into any production function

is our human capital.

And as long as we lag

in terms of human capital,

we will be lagging in productivity

and we will be not able

to face international competition.

That's my connection to it.

I don't know if that answers the question.

I'll add just one point

that was mentioned before,

all the relationships that exist

to really foster innovation

through the universities

and the private sector, that's key.

And that needs to happen.

It's happening at some scale

in different countries,

but it needs to happen in every country

and every university.

I have another question

and I wanna start with Santiago.

This is from Luis Fernando Peña.

He says,

"Corruption, especially in infrastructure,

neutralizes the competitive advantages

of countries

and makes

the use of nearshoring ineffective.

What good practices are there

to combat corruption in infrastructure?"

Excellent question,

64,000 dollar question.

Pray to God, that's policy number one.

Policy number two

is you've gotta clean procurement laws.

You've gotta be consistent with that.

A lot of the infrastructure projects

are government-led

infrastructure projects,

so procurement is central.

Transparency helps.

It doesn't go all the way,

but transparency helps.

And you just have

to go at it and increase sanctions.

Right now, the game

for a lot of these people is,

"If I get caught,

I'll be two days in the press.

It'll be a little bit shameful,

but three days later,

somebody else will be in the press

and people will forget, end of the story".

What you need to do

is spend five years in jail.

And then that changes behavior.

So we need to increase sanctions

and we need

to be more credible in the sense

that these kinds of behaviors

are not tolerable.

And we're not there yet.

So that's why corruption continues.

"For those in touch," Fred says,

"excited for Copa America this month.

<i>Vamos Argentina."</i>

So, and the last question is for you.

It says,

"Beyond just competition between firms,

what role can regional cooperation play

in boosting overall competitiveness

for Latin American countries?

Are there specific

areas where collaboration

could have a significant impact?"

The question is from Mohammed Abdurahman.

Okay, thank you.

Well, I think, as I said,

economies of scale

make our markets, especially Chile,

which I think is the smallest market,

impossible to compete.

I mean, we cannot have many companies

if the economies of scale are increasing

and the optimal size

of each company is very large,

maybe larger than our market.

So cooperation,

I wouldn't say cooperation.

I would say it's trade integration.

And that doesn't mean to be protectionism,

protectionist.

We are far away from the larger markets.

So we are already protected

by the distance.

So what I mean is more integration,

like infrastructure, customs,

many things

that we have to go to the details.

And maybe start thinking

of regional markets,

like for energy, for example.

Europe has...

a European market for energy,

the United States, of course,

and the mobile phone, transportation,

air transportation is very

balkanized in Latin America.

We don't give each other

permissions for frequent flights.

I mean, there is so much to go

in the road of integrating our markets,

to really be using

those economies of scale

to lower prices, to increase competition.

I know I'm daydreaming.

I mean, I don't see...

I mean, it's as difficult as...

I don't know which is more difficult,

Latin America integration

or improving our education.

So I want to say one thing

about education, please.

If you let me.

Please, be quick.

Yes, we have...

if you compare lower education levels

in Italy, Spain, and Chile,

they are almost the same.

35% of the people

have lower education levels.

But if you go to real skills,

I mean, ability to read,

ability to use some mathematical skill,

Chilean percentage go twice as much.

It's 70% of the people

don't know how to do...

how to read, how to understand,

or how to do basic

mathematical operations.

And in Italy and Spain,

it keeps being 35%.

I mean, those who have lower education

have lower skills.

So we're not talking

only about the level of education,

we're talking about quality.

We have one minute left.

Marcela, how optimistic are you

that you're sounding the alarm?

Are we paying attention?

Are the people

that have to pay attention listening?

We need everyone to amplify the messages.

I think people are not,

and historically have not been,

paying enough attention

to the potential that we'd have

if we were able to have markets

that actually work properly.

We have in the report a few examples.

There are not so many examples

that we have been able to quantify.

But we have some good examples

of what can happen

when competition institutions

actually work well.

In terms of the impact on productivity,

the impact on wages,

the impact on the working of markets,

and the impact on overall welfare.

So this is a concern,

the fact that markets

are extremely concentrated.

And let me say this,

it's not that we worry

about having large firms.

We actually want to have large firms.

We just don't want them to misbehave.

We don't want them to have rents

that come from misbehavior.

We want more firms to be able to grow,

and we want these big firms that we have

to allow other firms

to actually

enter the market and participate.

The message is not loud enough.

This is why we keep

sort of trying to point at it.

And there are,

we think, low-hanging fruits,

in terms of things that can be done

and that only really

require political will

and not so much spending resources

or anything to start.

Leticia, are you as optimistic

as you were when we started?

Yes, I'm still very optimistic.

We have the natural resources,

we have the Amazonas,

so there is no reason why not to.

And I completely agree.

Like, what's happening in Mexico,

we should all be very concerned about it

and really voice our concern.

Santiago, what do you tell the folks here

and the folks watching us?

What is the main point

they should pay attention to

and do something about?

Read the report and, you know,

competition, it sounds trite,

but we have a region of the world

in which we have a market economy

that doesn't deliver

the benefits of a market economy.

And it's extremely frustrating for people.

A lot of the political

dysfunctional ability

that we see in the region

comes from the fact that people

equate market economy equal privilege.

Market economy

equal concentration of power.

And then we have all sorts of experiments

all over the place, no policy consistency.

If we had functioning market economies,

eventually our politics

would be less dysfunctional.

Santiago Levy, Leticia Ossa Daza,

 

Andrea Butelmann,

Marcela Melendez, thank you very much.

-Thank you.

-Thank you.

Thank you everyone.