A question of honor

Competition and economic integration

Porter, Sachs and the Central American cluster

Central American integration: Flores starts off on the wrong foot

News Briefs

A QUESTION OF HONOR

For Nicola Abbagnano, in his Dictionary of Philosophy, honor is "every manifestation of consideration and esteem paid to a man by other men, as well as the authority, prestige or position for which he is recognized". As a consequence, not to have honor (or to see it diminished) is not to receive consideration and esteem from other men, or not to be recognized for the authority, prestige or position which is possessed. Honor, then, is something which may be had or not had; it is something which may be had in greater or lesser degree. All in all, it is not the same to be an honorable person than not to be one; it is not the same to be considered and esteemed than to be rejected; it is not the same to be recognized for our authority and prestige than to be recognized for arrogance and theft. This, of course, ought not to be a matter of indifference to persons with a minimum of dignity and respect for themselves.

So now, honor, as we have framed it above, can be lost (or can be undermined) for diverse reasons. Sometimes these reasons can be external to the person: others can lose all consideration and not recognize his authority (if it is the case that in virtue of his social role he ought to enjoy authority) because they perceive that he oversteps the context of his expectations (perhaps for his religious or political beliefs, for his sexual preferences, for his condition in terms of race, etc). At other times, the reasons can be internal to the person: this person may do things which lead him to be rejected by others, not to be esteemed, in summary, suffer a loss of prestige. What are these reasons?: acts of corruption, political charlatanry, illicit enrichment, disloyalty, criminal complicity, contraband.... Here it is a question of persons who positively do things which lead to a loss or diminution of their honor. If one considers the two situations, the worst, obviously, is the last, because it is where his own individual responsibility is seen to be involved.

Why this discussion of honor? Simply in order to reflect on Salvadoran reality during this post-war period. In our country, among many public figures who make up a long list, in which is included the name of the ex president Alfredo Cristiani, there are three who have seen their honor strongly undermined (if not absolutely diminished) by reason of sordid actions in the course of their political careers: the still not ratified President of the Comptroller’s Office, Francisco Merino; the recently removed Secretary General of the PDC, Ronal Umaña; the recently named Director of the National Civilian Police, Mauricio Sandoval. The honor of Merino, Umaña and Sandoval has been questioned by diverse social sectors: in the case of the first for well-founded suspicions of illicit enrichment; in the case of the second, among other things, for bad management of party funds; and in the case of the third, for his participation in the campaign that led to the assassination of the Jesuits of the UCA in 1989.

The attitude of these public figures exemplifies that of many others who in El Salvador have done things that have led to their loss of honor: not to defend themselves against the accusations with pertinent evidence and proofs, but rather attack those who have lost confidence in being part of a well-planned conspiracy against them, or to have turned a deaf ear (as a demonstration of total cheek) to public criticisms made of them, as if defense and recuperation of lost honor were not something important. It is as if it is not important to Merino, Umaña and Sandoval —and all like them— to be persons who are worthy, esteemed and considered important by the rest, with publicly recognized authority and prestige. It seems more as if they wish to be recognized as experts in trickery, shady deals and well-planned conspiracies. This is to say, as persons without honor who are admired by —and are surrounded by— individuals of the same kind.

Honor, definitively speaking, in the sense that it is here presented, must be vindicated in public life. And that means not only that public figures must be honorable —doing nothing which is dirty or underhanded— but rather that we Salvadorans ought not to encourage dirty or base behavior or attitudes. The best that these functionaries and political leaders whose honor has been damaged because of their own actions can do for the country is to withdraw from public life as a first step towards regaining lost honor or, at least, towards not sullying it even more. It is a given that they will use whichever of the two following arguments as excuses not to withdraw from public life: (a) that they will not withdraw because if they do their enemies will gloat; and (b) that their presence in one or the other of public or political office is so important for the progress of the country that, for the "good of the country", they are willing to suffer any harm in order to continue active in public life.

On the first point it must be said that we are dealing, here, with a posture characterized by stubbornness because it upholds the idea that a public or political office may be maintained only in order to irritate presumed enemies, who would, otherwise gloat. The defense of honor goes beyond this and consists in offering conclusive proofs about honesty and transparency. The rest is simply sleight of hand in order not to render accounts of one’s own conduct because an honorable person will hold that the least thing that ought to be important to him is to retain the post simply to act contrary to his detractors. On the second question, it is good to make those who consider themselves irreplaceable in their public and political offices see that there is no more mistaken idea than this: there is no position which requires "geniuses" or "little gods" —as some believe themselves to be— in order to be function in a correct and solvent way. But, if for whatever motive, these persons were irreplaceable, the country’s institutions would have to accustom themselves to function without them because it would go ill for us to depend on "geniuses" or "little gods" in order to organize our political life.

Obviously, many of those who hold so tightly on to their positions use the argument of "the national good" as a mere trick to hide the stingy and selfish interest which animate them. Definitively, those positions are for them a source of easy wealth and an opportunity to buy loyalties; a space to order about and control others, in order to offer and receive favors in exchange for power. It is for this that they cannot resign their positions and attributions. To do so, nevertheless, is a question of honor.

COMPETITION AND ECONOMIC INTEGRATION

During the decades of the 1950’s and 1960’s the economic integration of Central America acquired fundamental importance with the creation of the Central American Common Market (MERCOMUN), which presupposed the adoption of free commerce between the Central American countries, the establishing of a common tariff level when faced with products of third countries and the creation of the institutionality necessary to encourage the economic integration of the region. These measures brought benefits for the countries which, as El Salvador and Guatemala, could rely on a more developed industrial sector which would permit them to obtain important surpluses in their commerce with the other Central American countries while these would experience the contrary: an increase in their deficit. The lack of capacity to balance this lack of equilibrium in the distribution of benefits has been indicated as one of the principal causes in the rupture of the MERCOMUN, together with the diverse incoherencies between the different national policies.

Almost 30 years after the formal break with MERCOMUN, the topic of integration continues not only in Central America but also in other regions: North America, South America, Europe and Southwest Asia. The most recent evidence of the continuance of the topic of Central American integration has been the summit meetings of the majority of the presidents of the region and of the President of Ecuador held in San José last June 18 where the document Central America in the Twenty-first Century, an Agenda for Competition and Sustainable Development, written by a team headed by the consultant Michael Porter at the initiative of the Central American Bank for Economic Integration (BCIE) among others. Fundamentally the expert proposes that the Central American region implement joint measures in order to create competitive advantages by means of policies which promote the formation of the labor force, specialization of the infrastructure, constant investment and innovative technology and processes. Moreover, he proposes that these activities be developed around four fundamental sectors: tourism, agriculture, textiles and garment, electronic services and software.

This proposition, as well as presenting the importance of the regional dimension of development, also presupposes that this will not come about as the inevitable result of economic liberalization policies and the reduction of the role of the state. On the contrary, it presupposes that the state ought to exhibit a clear and firm presence in the promotion of competitive advantages by means of public policies intentionally designed for this objective.

In this way, suppose that the private sector ought to accompany governmental efforts by means of the adoption of new business practices based on the competitive success of the business, efficiency and effectiveness and not focussed to such an extent on obtaining state benefits and privileges. This same point raised a strong polemical reaction when, during a previous visit by Michael Porter, he expressed his reservations about the possibilities for development in El Salvador if the business sector did not eliminate "old corrupt ways of making money", and if, moreover, growth in the maquila was to be promoted, then "only countries which have little to offer attract investments with fiscal advantage [tax breaks]" (see Proceso, 798).

As a result, in the new proposal for regional integration, El Salvador appears very much committed, as opposed to the situation obtaining at the time of the creation of MERCOMUN. The proposed strategic sectors are relatively underdeveloped or simply do not exist. Tourism is much less important than in other countries of Central America as in the cases of Costa Rica, Guatemala and Honduras. In fact, income generated by tourism in El Salvador is less than one fifth of that represented in Costa Rica, for example, owing to factors such as institutional weakness, deterioration of the environment and artificially high prices.

Agriculture is one of the least favored sectors contemplated in the economic policies implemented during the last two decades. A reflection of this is the poor level of diversification in that sector, the absence of technology for agricultural and livestock production, the reduction in agricultural exports and the low level of importance evidenced by agricultural and livestock concerns in the GNP (see Proceso, 858). On the other hand, the electronics services and software concerns do not exist or, in the best of cases, are only incipient when compared with similar concerns in countries such as Costa Rica which is a pioneer in this activity.

Textile and garment, on the other hand, have been seen to have some participation in the development of the country, but principally owing to the influence of the runaway shops (maquilas) based on foreign investment attracted by tax breaks and free trade zones. National investment in this sector is not so competitive, but, at least, has managed to maintain its importance in the GNP in spite of a difficult technological lag.

In addition to the possible lags in development of strategic sectors, El Salvador has also shown some differences in its commercial policy which is summed up principally in the major emphasis given to lowering customs and duties and making them tax-free. In fact, the country has reduced its customs and duties charges in an uncoordinated and much more accelerated manner than its Central American neighbors and in terms of projections, it plans to bring them down to levels notably much lower than other countries in the region. While the majority of the countries are strongly proposing a maximum of 15% for the establishment of customs duties, El Salvador plans to bring the level down to 10% which has been greeted with adverse reactions on diverse occasions by the industrial sector.

What is certain is that the regional development proposal sketched out here, aside from demonstrating an active process of association between countries and regions, would suggest that in El Salvador economic policies have not promoted competition. The most developed sectors are the service sectors or sectors which do not generate transferable income such as commerce, construction and financial services (see Proceso, 847 and 849). Even the industrial sector of El Salvador —previously one of the most competitive in the area— is now experiencing reduced ability to compete and greater vulnerability to imported products owing to the removal of taxes on customs duties. On the other hand, the rest of the countries in the region have achieved greater advances in the areas of tourism, agriculture and, more recently, even in electronics services and software, as in the case of Costa Rica.

El Salvador’s perspectives in this new scenario are not very promising and especially noticeable is the need for the administration of the economy not to be limited to sustaining macroeconomic equilibrium, but should advance towards the orientation of growth towards strategic development poles. Growth and economic stability are not objectives in and of themselves, especially if they do not promote employment, income and satisfaction of the basic necessities of the population. Successful development models, such as Taiwan, demonstrate that the education of the labor force and the promotion of health have been fundamental bases for the promotion of competition and the increase in investment and growth of income.

What is presented to the new government is the alternative of continuing with the previous policies or assuming a leadership role in the promotion of education, health, science and technology. What is most convenient for the country is that activities which improve the intellectual capacity and the technification of the labor force be promoted and that growth should be reoriented towards strategic sectors such as agriculture, industry and ecological tourism.

PORTER, SACHS AND THE CENTRAL AMERICAN CLUSTER

Although we still have not seen the study Central America in the Twenty-first Century: an agenda for Competitive Ability and Sustainable Development, it seems as though these two specialists in business competition and macroeconomic frameworks offer us some good advice: Let us make a big conglomerate of Central America in terms of economic integration and unity of policies and projects. They use the word "agenda", a Latin expression meaning what ought to be done. And the first thing that ought to be done, according to Porter and Sachs, is to appreciate and respect the rich values donated to the region by Mother Nature. Our geographical location is a gift of nature, as is our economic geography, close to big markets which the foreign runaway shops (maquila) and ill-fated narcotics traffickers discovered before we did. Our environmental riches are a gift of nature, as are our climate and landscapes, which would make "clusters" possible (i.e., producers and commercializing agencies grouped together to place services and marketing strategies on the market in a permanent way) in regional and international tourism, recognizing the lack of infrastructure and the enormity of insecurity resulting from criminal activity which obstruct, for the moment, this source of relaxation, income and employment. Possessing an acclimatized agricultural sector is a gift of nature for the generation of products and production year round.

Nevertheless, while the natural conditions of El Salvador have created us as a geographical unity, small nationalisms have divided us up with customs requirements, commercial barriers, militarized borders, small areas under litigation and traditional jealousies which obstruct the required globalization of Central America. In this sense, the technical recommendations to form these clusters or conglomerates in more highly technological agriculture and industry concerns, in tourism, in the garment industry and electronic services...they have the double dimension of being concrete policies which we ought to analyze and which constitute an outline of the strategic bridge leading to regional integration. This is the principal "agenda" which would make sense of the sectorial conglomerates.

In recent documents produced nationally (Key Topics for the National Plan, Growth with Participation), as well as the president’s inaugural address, there is a growing concern that we should move forward towards Central American Integration. It is to be hoped that the exhortations of these authorized economics might serve to put this ideal into practice in terms of behavior and concrete measures. Journalistic notes speak to us of the cascade effect. Technical advisors have repeated it: Harvard proposes and you, the presidents of these republics, are the promoters of it. The presidents stated that "they can’t go it alone" and ask for help "beyond the demands of the citizens of the countries of the isthmus". President Francisco Flores states that we can no longer watch the bulls from the stadium and that the only solution is a joint effort. The creation of this consciousness is a positive achievement.

As we do not have, for the moment, the complete document, we cannot express an opinion about its chronological development, its particularities concerning financing, its relationship with other presidential summit meetings (Guacimo, 1994...), even the realistic potential of the recently hard-hit republics and new threats of natural disasters should be included on this agenda. Nevertheless, this study can help us to rise up above economic stagnation and, above all, above the crisis of our tiny nationalisms. It is a question which deserves much attention. The experts state: "This is no longer an option. It is a necessity" (Sachs). And the question then appears to be: Who will help us?. The answer appears to be: we ourselves. These advisers hold the opinion that "the days when the region could base its economy on protectionism and international aid" have long past. In the world of the big trilaterals, they recommend "regional association" to us.

They also remind us that sustainable development ought integrally to include economic policy, social policy and environmental policy. The integration of the public and private sector once again distributes the new functions of states and they ought to speak of a Regional Plan. Consonant with recent national developments, it is recommended "not to postpone any longer the strengthening of the financial system in terms of supervision and prevention of potential problems". It is a sine qua non that the financial sector integrate itself, in the most altruistic form, into the reconstruction of the real sector of these economies.

M. Porter, in his exposition of the topic, states that there is a change of focus in the business sector: we must go beyond "comparative advantage" and move towards "competitive advantage". The first is based on the natural patrimony of the countries, in the cheap labor force, in capital resources and in the gifts of nature. "On the contrary, the competitive advantage rests on much more complex and sophisticated factors such as an educated labor force, sophisticated infrastructure, constant investment and innovation in technology and processes". If profits previously welled up from the breast of nature, they are now generated thanks to education and the formation of human capital, of scientific research and innovation in re-engineering of human capability. This is a friendly recommendation for our ministries of education and social investment, for all of the educational institutions and as a catalyst for the creation of clusters in universities and the business sector.

There are also two more important aspects. The first, which we take more seriously is the protection of the environment, the gifts of nature, the lack of respect for which is an additional cause which multiplies the damage caused by natural phenomena. These advisors hold the opinion that we are not prepared for this kind of event. A second emphasis is on agricultural and industrial conglomerates, on the condition that this industry be integrated into agriculture where the greatest poverty is concentrated along with the highest levels of unemployment. Moreover, in order to design the great highway (and the great recommendation) which would join capital cities, ports and airports, we should not forget to design the secondary infrastructure and frontage roads without which schools, health units and the agroindustrial cluster will not function.... It appears, at first glance, that M. Porter and J. Sachs recommend an agenda of good things, above all if these help to create the consciousness that Central America is a cluster.

CENTRAL AMERICAN INTEGRATION: FLORES STARTS OFF ON THE WRONG FOOT

Central America opened the doors of the year 1999 with a poor precedent: the disaster left by Hurricane "Mitch". This development changed the face of a region which, only with difficulty, was making a strenuous effort to create a more stable situation, at least in macroeconomic terms, for productive activity in certain sectors. In like manner, it notably modified the conception which the international community had of Central American development and, above all, of the resources which it would invest in order to support it. In consequence, the calm period which really came after "Mitch" came as a gift from friendly countries who expressed a renewed interest in the region at the moment in which it most needed it. They promised in a decisive and generous manner to support reconstruction.

But this abundant prosperity was not unconditional. The need to "fix" the fragile Central American economies became the principal and unquestionable proposal of those who have participated in the drawing up of viable options for the future of the region. At least it was so demonstrated during the first meeting with the Consultative Group in November of last year. Now, this fixing up of the economy seems to be a preview of much more than the mere "adequate" insertion of the Central American countries into the globalization model for the markets. The aim of this is the uniform development of the isthmus, with an eye towards guaranteeing a self-sustaining model of development within which the reinitiation of a process of integration is fundamental, at least on the economic and institutional plane.

Francisco Flores assumed power faced with this regional panorama. If it is true that his government will have economic support only comparable to that which the country received in the years immediately following the signing of the Peace Accords, the possibility that the changes produced in this context may be conveniently received by the economic dynamic of the rest of the country of the region although this is uncertain. It will be possible to measure the success of those changes in two ways: first of all, in the measure in which the bases are established for a stable economic take-off, nationally as well as regionally; secondly, in the measure in which this take-off presupposes that the Central American economies might become a re-structured and more solid front capable not only of resisting the unpredictable attacks of nature, but also of offering better opportunities for the development of its inhabitants.

What indications has our president given of having understood the message sent by the international community in this context? It may be said that he has given very few indications. The absence of a policy for integration in his governmental plan is already an indication of his starting off on the wrong foot. Official commentaries have not been made, nor have plans been presented —not even indirect allusions to the topic. As with many other situations, this is one of the points which the president and his team of ministers have basically laid aside. During his political campaign, Flores, although he referred to the possibility of inserting our country into the regional economic community, made the reference only as a kind of decorative element in his pretentious government plan. Now, definitively installed in the presidential office, it has been easy for him to keep the topic on the back burner, if it may be compared with the efforts aimed at drawing up an emergency plan against crime or a diagnostic of the national economy, for example.

Effectively, the solution to domestic problems seem to place themselves before any aim to spend time and resources on an effort which does not provide immediate results. But this vision is a result of a poor evaluation of the possibilities offered by regional integration in the period following "Mitch" in which we find ourselves. The conformation of a regional block could serve to support recuperation of the sectors most affected by this natural disaster. And this in the measure in which there is coordination of the reconstruction of highways, reactivation of the primary sector of the economy and maintenance of minimal levels of citizen security. Perhaps the need to respond to the most immediate problems of economic integration do not create a climate favorable to eventual political integration, but it could be a test of the application of models of integration in terms of customs services, regulation of customs, norms for the exploitation of natural resources and public investment policies in strategic areas such as tourism.

A sensible balance in the benefits which the initiation of an integrationist highway would bring for Central American countries ought to put on the table these and many other positive aspects. In fact, a few days ago, during a meeting in which an economic alternative for the region was drawn up, the presidents of El Salvador, Nicaragua, Costa Rica together with the representatives of Guatemala and Honduras, were urged not to abandon the creation of blocks or clusters and to apply uniform policies which would facilitate commercial exchange between the countries of the isthmus. Again, two elements were behind this initiative: the guarantee that Central America could count on the support of the international community to set in motion a new economic model and the possibility of taking advantage of the few movements forward in the matter of integration which have come about during recent years.

What is more important, then? To center oneself exclusively on "domestic" policy or seek to create a joint leadership for a region which for years has survived in the face of the vicissitudes of the international market and the pressure of economic and social retardation. Given the panorama presented above, in terms of alternatives neither one nor the other is presented as feasible options if they are implemented in isolation by one country from the others of the region. To relegate the call to create union —although it be partial— of Central America could mean placing at risk the quality of aid which the region hopes to receive. Flores cannot ignore the fact that a good part of the economic guarantee which will be obtained during his governmental administration will come donated by those countries which have demanded viable projects in the context of an equitable regional development. Whether they are or are not going to achieve significant changes in integration policy for the rest of the countries, t least he ought to take up this possibility within his political agenda during the current period with the serenity which the topic merits.

Evidently, for Flores, the topic of the making up of a regional block is irrelevant. For now, his foreign policy is oriented more towards the coordination of international funds destined for public investment, the encouragement of exportation, and the establishment of links with the much appreciated "brothers and sisters abroad". In this way, surely, he aims to gain points for his image and for that of his party, with which it would be assuring, little by little, a very convenient victory in the elections for mayors and deputies scheduled for March of 2000. Nevertheless, none of this will do him any good in the long run in procuring for El Salvador economic growth which actually gets to the most needful sectors of the population, at least not in the way promised by his governmental program. On the question of integration, Flores has taken, from the beginning, a false step in conveniently not evaluating the importance of encouraging efforts focussed on modernizing reciprocal terms for economic relations between the countries of the region.

WATER. The decentralization of the distribution of water, one of President Francisco Flores’ principle projects, will require a legal context and time to put it in motion, according to the opinion of functionaries and technical personnel. The legal context is the cornerstone of decentralization and will determine how the municipalities will administer the distribution of water. In the Law on Water ought to exist, moreover, a directive agency which oversees the exploitation, administration and conservation of the resource, so that autonomous enterprises do not over-exploit it. Currently, 678 municipalities of the 14 departments of the country handle, independently from ANDA, the potable water system in their locale. These municipalities have administered their hybrid system since 1961, the year in which ANDA was created as an administrative and regulatory agency for water. These municipalities have obtained financing to administer water by means of international organisms such as the Central American Economic Integration Bank (BCIE), which has a special program for credits for local development. Nevertheless, the capability to administer the independent water system depends on the size of the population of the municipality. ANDA is studying the possibility that the municipalities which do not have the capacity to administer it themselves can participate in a process of decentralization of the service (El Diario de Hoy, June 18, p. 2).

POVERTY. President Francisco Flores and two of his colleagues from the region, met, on June 18, in San José, Costa Rica, with professors from Harvard University to study a new plan which would permit Central Americans to obtain, in the year 2005, income per capita of U.S. $4,500.00 with which, according to the participants in the meeting, would reduce poverty in the region by 50%. Michael Porter and Jeffrey Sachs, who have been advising the Central American governments for five years now, asked the governments to develop tourism, agricultural businesses, the making of textiles and garments and electronic services in order to reduce social problems. Likewise, they asked the businessmen and governments to concentrate their efforts on developing four business conglomerates with similar tasks in accordance with the activities they are involved in, in order to seek a way out of poverty. The Harvard advisors estimate that in order to achieve efficiency in the functioning of the conglomerates these ought to adopt measures for improving climate for business and for regional productivity. To achieve this, they recommend the creation of a Central American corridor which includes the construction of a super-highway; the creation of customs without paperwork for the whole region which would be computarized; the improvement of other infrastructural projects; and the improvement of property registers and the roads in order to resolve business conflicts, among other things (El Diario de Hoy, June 19, p. 2).

ARENA. On June 17, three deputies for the ARENA party, René Rodríguez, Maria Elizabeth Zelaya and Mauricio Aguilar, declared that sectors of the party have asked them to present technical positions at very political moments. They declared themselves to be followers of Francisco Flores, but pointed out that, in any case, within the legislative faction there are deputies "who are more the friends of Flores" than they are. "In terms of work and a coming together, those who are more friends of Flores are deputies Walter Araujo, Gerardo Suvillaga and Rene Figueroa", they indicated. Rodriguez maintained that the group feels united to Flores by common thinking, first of all, in the 1994-1997 legislature, later as presidential candidate and now in support of his governmental plan. "If, given this, there are groups of persons with other interests that they plan to point out in order to say that we are in favor of one and against the others, we reject it", stated Aguilar. On this, Walter Araujo, head of the ARENA faction, stated that there are persons who try to make us believe that discontent exists within the party. For Araujo, the legislative deputies have their own criteria and can admire the form of government of Cristiani, of Calderón Sol or of Flores. "Each thinks what he pleases and is free to joint the ranks of the ‘paquistas’, the ‘calderonistas’ or ‘cristianistas’", he stated (La Prensa Gráfica, June 18, p. 4 and El Diario de Hoy, June 19, p. 6).