The political economies of Panama and Costa Rica - Research Paper Example

?The Political Economies of Panama and Costa Rica Introduction This is a comparative study relating to the political economy of Costa Rica and Panama. The researcher expressed interest on these two countries who are exhibiting relative financial stability among countries in Central America. The comparative analysis will explicate their economies in the last three decades and identify the factors which aided them to sustain amid global economic recession. The first part will detail the basic information of two countries leading and progressing into comparative discussion. Costa Rica & Panama: Basics Costa Rica has an estimated population of 4.6 million as of July 2011 and a growth rate of 1.3% (IndexMundi, 2012). Sixty-four percent of this population is residing in urban centers of which about 94% are white, 3% black, 1% Amerindian, and 1% Chinese (IndexMundi, 2012). Their language is Spanish and the nation has high literacy rate of 94.9% (IndexMundi, 2012). The country allocated 6.3% and 10.5% in health from its GDP in 2009. The nation is located in the border of Caribbean Sea and the North Pacific Ocean. It is adjacent to Panama. Its rich geographic area is blessed with mineral, petroleum, hydropower and commercial resources (IndexMundi, 2012). Panama, on the other hand, has a population of 3.5 million and with a growth rate of 1.5% (IndexMundi, 2012). It has a 0.4 migration per a thousand of populace based and 75% of its people are residing in urban communities (IndexMundi, 2012). Panama has bilingual language: English and Spanish with predominant Roman Catholic religion. The country has allocated about 3.8% of its GDP for education and around 8.3% for health. Panama likewise is blessed with copper. Mahogany forests, hydropower and good shrimp culture among many other natural resources of commercial values. Costa Rica’s Pol-Economy Clare, Seanz and Trejos (2002) pointed that there are empirical evidences showing the decline of Costa Rica’s income per capita in the last decade albeit good economic standing in economic input. Clare et al. (2002) opined that the situation seemed amazing because the 80s to the 90s was the period when the country is undertaking serious reform in trading and fiscal performance. Researcher attributed this mediocre 0.7% annual growth rate of income per capita to influential factors of development: demographic changes (Clare et al., 2002). The latter meant an increasing figure of labor productivity in industrial and agricultural sectors. Economists posit that such increase in participation in production, particularly women and immigrants from Nicaragua. While increased number of labor forces meant growth of income, however, economic activity is slowed by poor labor productivity. Labor productivity has only reached a poor rate of 1.57% in Costa Rica compared to 3-4% labor productivity in East Asian countries (Clare et al., 2002). Using growth accounting, researchers pointed that slow labor productivity growth is reflected in slight negative growth rate of total factor productivity (Clare et al., 2002). This finding is bit odd because the in the last four decades, multitude of technological advancements are poured in this country to support the labor forces in production. Further study using sectoral analysis was in fact utilized to determine whether slow growth of productivity is a universal phenomenon or merely underplayed by a particular sector. Oddly, Clare et al. (2002) found that the industrial and agricultural sectors continued to attain high rates labor growth productivity and TFP while the service sector stagnates in the production. Researchers opined that it’s ironic for the service sector to have decreasing production output noting that it’s absorbing a large share of resources. As a matter of fact, the service sector of Costa Rica has been allocated with budget higher than that of Brazil and Chile (Clare et al. 2002). Economists assumed that the service sector have difficulties in capturing its market. In a disaggregate analysis for this sector using 1991 – 2000 database, result bared that the sub-sectors in commerce, restaurants, hotels, and community- social-and-personal services languish in stagnation. This finding debunked the improvement presented in the tourism, commercial and hotel industries (Clare, et al., 2002). Researchers opined that such stagnation is attributed to Costa Rica’s poor international trade relations amid liberalization of global economy; relative high prices of services; and other factors which have direct contribution to lower industrial productivity (Clare, et al., 2002). The latter is perceived as caused by poor infrastructure developments in roads, airport, ports, telecommunications and high real estate interests (Clare, et al., 2002). They also pointed that some national and fiscal policies hindered liberal trading relations with potential international partners. It s further assailed that deceleration of growth in the service sector is caused by the decline of public investment in education in the 80s due to financial constraints. This is aggravated by decline of private sectors support for growth and the significant fall in public investment in enterprise and infrastructure (Clare et al., 2002, p. 32). These causes interrelate with each other. To deepen these eventualities, Clare et al., (2002) conducted sectoral analysis from the 60s to the 90s. It illustrated that in the 60s, growth was contributed by the reallocation of resources from agriculture to industry and services. The limitations of this reallocation in the last two decades did not contribute much to national growth. Moreover, when researchers employed series analysis covering 1991-2000 data using domestic endogenous variables, findings pointed that the increase in international rates due to sad plight of US economy negatively affected the last quarter of that decade coupled with some domestic economic shocks (Clare, et al., 2002, p.33). The findings further thwarted the perception that with the introduction of structural reforms and infrastructural developments, economic growth would go along. In a comparative ranking using 2011 and 2012 data, the International Finance Corporation and World Bank (2012) ranked Costa Rica’s economic management and showed that the nation fell down into -6 in starting a business and -2 in dealing with construction permits. It maintained its 43rd rank in power generation but sagged -2 in accessing credit (IFC & WB, 2012). On the other hand, it has maintain its stature in protecting its investors, trading across borders, enforcing contracts and in resolving insolvency while it improved with +6 points in registering property and +18 in paying taxes (IFC & WB, 2012). This implies the need to improve the countries business processing policies to make it an investment-friendly country. Some countries used one-stop shop as route to efficient business permit application and have availed opportunities for investors using tax incentives for increased business relations, especially with the private sector. Panama’s Pol-Economy Like Costa Rica, Panama also endured through paradox of development: more infrastructure and structural reform on one hand, but not felt and appreciated by the people. Oppenheimer (2012) described its economy as a “boom with gloom (p. 1).” Panaman people perceived that Panama in 2012 would be the Latin America’s economic star with a forecasted 6.8 % economic growth rate and no fiscal problems in the next few years (Oppenheimer, 2012). Citing the studies of World Bank’s Global Economic Prospects 2012, Oppenheimer (2012) pointed that Panama’s growth rate is speculated to gain the highest percentage in Latin America. Business tycoon contended that they will be able to enjoy the supermarket more with the influx of goods due following the Panama Canal expansion which was forecasted to bring $29 billion in the succeeding 25 years (Oppenheimer, 2012). The canal will also be supported with subway system which is considered as the first in Central America (Oppenheimer, 2012) as well as the entry of Venezuelans business investors who are pouring investments on real estate. However, there is a problem emerging from its political side as Martinelli’s warlords are sowing dissension, conflict and fears amongst its people in an autocratic fashion (Oppenheimer, 2012). As violence is heightened, Panama’s governance is also criticized of politically poor governance; absence of check and balance; massive corruption; and, capital fight ruling style, which many fear will lead to an autocratic state with no checks and balances, more corruption, capital flight (p. 1) which has serious impact on economic downturn (Oppenheimer, 2012). Noting all these there is a decline of public trust to its leaders to about 80%, as reflected in Dichter @Neira poll, thus, there is evident upheavals and protests of Panamans that are advocating for radical change. Groups opposed to Martinelli charged him of bribery to gather loyalty from his followers and about destroying the “country’s democratic institutions (Oppenheimer, 2012, p. 1)”. Although this leader is a business bureaucrat and was supposed as a strategist for national economic development, he was just unfortunately observed otherwise as evidences mounted pertaining abuses of power (Oppenheimer, 2012). Critics pointed that Martinelli lorded over National Assembly and the Supreme Court by ensuring that his party mates occupied all strategic political seats (Oppenheimer, 2012). Recent political talks pointed that the incumbent wanted to control the electoral tribunal, an office that is suppose to maintain its independence (Oppenheimer, 2012). The move was technically perceived as his strategy to maintain his political post (Oppenheimer, 2012). Aside from these, the current administration has been slapping cases against those who are opposed him through tax officials. Amid this turmoil and machination, Panama’s authority forecasted that they are attaining en economic growth of about 7.5 % this year as well as tourism boom as there are increased number of tourists observed since last year. They also figured that trading relation will be established with United States (Oppenheimer, 2012). Its ambiguous however to presumed that these economic developments and speculation on growth has direct correlation with the political dynamics and tendencies of the incumbent to authoritarian rule (Oppenheimer, 2012). They dismissed the idea about polarization of the community as insignificant to influence of Panama’s economy. Oppenheimer (2012) opined however that the emergence of tyranny and authoritarian rule should be considered for investigation. It’s confusing to note that the administration can equip itself with dictators’ instruments and yet cannot allocate sufficient budget that can support the educational system of the country. With the absence of governmental support, Arraiz and Rozo (2011) pointed that other institutions assumed the role in providing educational support for improved intervention for Panama’s human capital of the nation. Arraiz et al. (2011) explicated that there are significant sectors of Panama with high poverty incidence that aggravated the absorption, retentions and analytical capacities of the learners. Arraiz et al., (2011) reported that most affected are communities coming from hinterland and rural indigenous communities of Panama. Using Living Standards Measurement Survey of 2008, by Arraiz et al., (2011) bared result that civil society’s intervention improved school enrollment and somehow helped in the reduction of labor forces. In rural areas, the educational program has a positive outcome generating more enrollees and has assisted the completion of elementary school by 13.8% (Arraiz et al., 2011). Conclusion There are some points that are worth affirming and negating the political economy of Panama and Costa Rica. Those deserves affirmation are the positive information detailing quantitative and qualitative findings about growth. Panama has better statistical proof showing development growth than that of Costa Rica. It is also affirmed that these two countries are involved in the trading relations with United States of America. How these trading relations developed throughout decades depend on how pliant and how adaptive these nations to liberal economic policies. Both countries have significant hindering factors in achieving growth. This is caused by the imbalance trading and marketing relations of Costa Rica’s industrial, tourism and services sectors while Panama is obviously hindered by an undemocratic and autocratic regime plagued with alleged corruption and violence. The developments acclaimed by both governments apparently are not so much felt by the constituents. From a right-based development perspective, true development should not only be able to transform figures but also the lives of its people. Poverty, human rights violations, marginalization of certain sectors, and poor governance block the attainment of genuine development for its constituents. Hurwitz, Peffley, and Seligson (1993) insinuated that policy review should be undertaken to reform and direct these nation’s economic perspectives into better foreign direct investments (FDI) and relations. FDI demand transparent and transformational governance to democratize its system. This will also provide an opportunity for these people to reflect their economic behavior compared to other developed nations. Meanwhile, Edleman and Seligson (1994) proposed that land reform should also be redistributed to the landless to improve agricultural growth and to effect distributive justice. This is logical since in the last decade, the agricultural sectors of Panama and Costa Rica deserve to be cultivated to increase agricultural growth (Edleman et al., 1994). While it’s noteworthy for Panama to contend that they have the lowest tariff rates for FDIs in Latin America and that it has gained the 9% of GDP (Economist, 2011), the country still necessitate to genuinely enforce their development blueprint and must make it service-oriented too. Thus, it must change its social services by improving schools, hospitals, drainage system, and infrastructures. Social services and healthcare should likewise be improved (Economist 2011), including the pension plan for the disadvantaged and scholarship for the indigents. These must be undertaken if indeed Panama wanted to gain the status akin to Singapore economy. It should not therefore just attain growth by simply accumulating capital from real estate investments but also through productivity. It must also work for judicial and electoral independence (Economist, 2011). On the other hand, Costa Rica must innovate and reinvent its tourism industry and their business relations with other foreign multinationals. It must also push for policy reform in governance and in business management, focused on enforcing more changes in its service sectors and advocate for enforcing genuine developments that could ultimately attract more business investors from foreign capitals. It must undertake pro-active leadership to encourage the private sector to be part in economic and political reform. Its civil society must likewise push for integrated understanding of its problems and its issues. With collaborative partnership between private and public sectors, socio-economic, sociological and anthropological tools can be optimized to appreciate and uphold the distinct culture of Costa Rica as a nation. Leaders should therefore consider diverse and overlapping economic, political, and social network with global stakeholders. They needed to utilize transformational leadership to develop their expertise in utilizing better frameworks and analysis with its variegated issues and to relate all these concerns as part of interconnected whole. Costa Rica leaders should reinvented alternatives to engage the public in decision-making, in deliberation of resolutions to their pressing concerns. Policies must therefore be improved for buttress national developments. Indeed, the Panama and Costa Rica experience, albeit its complexity, simply reaffirmed that the interaction of politics and economics in the development of nations. These interactions can take place in the market, in the legislative bodies, and in the three branches of the government. The confluence of political-economy determines the behaviors of its people in meeting their needs amid scarcity or demand for conservation of limited resources. It will also dictate the kind of responses it can generate from its business investors, its market, and its people. Like business strategists, its leaders must constantly make political, economic, social, technological, ecological and logistical analysis to determine the better framework for developmental agenda. Such implies that the nations must be led by expert leaders who can manage the country’s human, natural, and infrastructural resources without sacrificing the basic rights for survival, participation, and involvement of all sectors and stakeholders for growth (Surlaru, 2009; Zeqiri, 2009). While economist these days strongly recognize the contribution of multinational enterprise and foreign trade investment as contributory to generation of employment and national growth, it likewise demanded interdisciplinary political-economy management to ascertain that all benefits accrued from these interactions can reach the community (Morgan, 1990; Hoffmasiter, 1991). Crucial to this is strategizing and economizing. The first has strong reference to the power perspective—about how authority and decisions are wielded for the greater good and not for selfish interests. The second aspect deals with efficiency in management. Both Costa Rica and Panama needed all these. Its there people who can create an environment that is conducive for radical social, economic and political reforms here. It must be likewise realized that the present market is driven by liberalization and globalization. It’s for these nations to hammer down relation and policies that can balance entry of foreign investments while at the same time improve its domestic enterprise. For isn’t right that aside from making decrees and edicts for change, the people must come to a coalition to push right governance. References Arraiz, I. & Rozo, S. (2011). Same Bureaucracy, Different Outcomes in Human Capital? How Indigenous and Rural Non-Indigenous Areas in Panama Responded to the CC. OVE Working Papers 0311, Inter-American Development Bank, Office of Evaluation and Oversight (OVE). Clare, A. R., Saenz, M., & Trejos, A. (2002). Economic Growth in Costa Rica: 1950-2000. IDB Research Department of IDB, Washington. http://www.econ.psu.edu/~aur10/Papers/EconomicGrowthCR.pdf Accessed: April 18, 2012. Edelman, M. & Seligson, M. A. (1994). 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