Globalization and Central America

Economics Editorial

Towards the middle of my three-week study trip in Costa Rica, my group and I took an excursion to the Museo Nacional in the nation's capital, San Jose. Based out of a large stone fortress many decades old, the museum had a massive collection of Pre-Columbian  artifacts and relics. These objects, ranging from tools to jewelry to monuments, were a unique product of the indigenous population of the area. True, they weren't entirely unaffected by the surrounding socio-ethnic cultures; but at the same time, the objects were unmistakably Costa Rican, both in terms of origin and styling. They were a product of a single, specific culture, and distinct from those of neighboring ones.

But outside of the museum, Costa Rica is a product of the modern era; an era of globalized trade, cultural diffusion, and foreign influence. It's culture is one of adaptation and change; of taking in parts of other cultures and altering them to fit the local lifestyle and customs. The nation maintains a unique identity and sense of self, of course, but at the same time the marks of international contact are hard to miss. For every restaurant that sells gallo pinto or casado another one can be found serving up hamburgers or sushi.

Perhaps the clearest mark of a globalized culture and economy is the ever-present soft drink titans. As Harvard Professor of Business Administration Richard Tedlow argues, "Coca-Cola is said to be the second most well-known phrase in the world" (according to Bloomberg Businessweek). My time in Costa Rica did nothing if not enforce this. For instance, the 2014 Brazil World Cup was going on at the time of my visit, and Coke was one of their major sponsors; advertisements for the beverage were nigh-unavoidable. Pepsi had less of a presence, just like in the United States, but it was still all over the place.

It's important to clarify that these two companies are not outliers when it comes to the Costa Rican economy; rather, they are exemplary of a larger system that is able to incorporate foreign trade and industry into small-scale localized economies. Nike and Adidas, Universal Studios and Disney, Forever 21 and Apple; these and many other companies have massive footholds in the national industries, on a scale that wouldn't be out of place even in the US. 

This is the clearest expression of a process that has been occurring around the world for many years now. After all, the disruption of the indigenous culture by the Europeans so many centuries ago is a product of the very same process that can cause the establishment of a Chinatown in the middle of  a Central American city.

It is a process that shaped my experience in Costa Rica, just as it shapes all of our lives in the United States or anywhere else on the planet. It is a process that has informed the earth for many centuries gone by, and which will certainly continue to do so for many more to come. It is the process of globalization, and it is the way of the world we live in now.

What FDI Means for Southern Europe

Economics Article

The euro crisis has hit southern Europe hard. Billions of Euros have been spent to keep the economies of Greece, Italy, Spain and others afloat. Millions of people, particularly among the young, remain unemployed. However, there are some signs that the worst has past. No country has needed another bailout for some time; talk of a ‘Grexit’ has all but vanished, and perhaps most promising, people are regaining confidence in these markets. This is most apparent in the rise of foreign direct investment (FDI). In Greece and Portugal, FDI has remained consistently positive over the past few years. In Italy, reports the OECD, annual FDI has recovered to its 2009 levels, of approximately 16 billion Euros, and in Spain it has reached nearly 30 billion Euros, as it was in the early 2000’s. Foreign Direct Investment is important because it indicates opportunity in domestic markets that outsiders seek to benefit from, and so they invest. That investment helps the domestic markets to grow.
It is important to analyze the form of FDI, that is, how the money gets there. Much of the FDI has been in the form of large acquisitions of domestic companies by foreign private-equity firms such as Bain Capital, KKR, and Lone Star. In December of 2012, Bain Capital bought a Spanish call-centre business, Atento, which was struggling with debt. Atento is now growing strongly and plans to make an IPO in the near future, and it is far from alone.
Additionally, positive FDI represents net inflows of capital. Since many local banks are crippled by bad debts – owed to them by struggling companies unable to pay those debts – they are unable to lend as much money to others, money which would have funded a start-up or new enterprise and supported growth. FDI helps to increase the availability of capital, and meets the demand that the debt-laden banks are unable to meet. PwC, a consultancy, states that this year, in part due to FDI, southern European banks will shed over $20 billion in loans, and the EU as a whole will settle as much as $109 billion.
This form of FDI is beneficial for Southern Europe, because it means that foreign firms are not just snapping up domestic companies, sucking them dry, and making a quick buck. They are selecting promising companies, re-structuring them and paying their debts, allowing them to thrive. This pattern of investment has helped improve conditions. In the first quarter of 2014, Spain’s GDP grew for the first time in two years, and unemployment is falling, according to figures by Moody's Analytics. Meanwhile Portugal’s GDP has grown for the past two quarters, with industrial production rising.
While the euro crisis tunnel is still dark for many countries, these signs of life bring much welcomed hope that some may have already begun to climb back up on their feet.

By: Jonathan Wood

Does America Produce Enough Corn?

Economics Editorial

            In 2011 America harvested 84 million acres of corn; however, only 12% was consumed as food, according to the EPA. Much of the rest is used in various products such as candles, crayons, dyes, and shoe polish. You can find corn in countless foods, diapers, sandpaper, antibiotics, paints, and even patriotic fireworks. With so many uses for corn, one may wonder why we export approximately 20% of our harvest each year. Why do we produce that extra 20%, when we don’t need it at home? Certainly a bit extra is good insurance, but 20% is a large portion. The answer can’t be sheer profits: 1 acre of corn in 2011 was worth ~$760, while 1 acre of rice was worth over $1115. So, why produce the extra corn?

            Most people would agree that the primary goal of agriculture is too feed people. And with rapid growth in population, that is obviously a growing challenge. Recently, America has been producing record levels of corn, which has vastly increased the supply of corn and should logically cause the price of corn to plummet. But it hasn’t. This is because of the rapidly growing global population, which needs to be fed. The demand for corn has increased rapidly enough for the price to stay constant, so that the supply still does not exceed demand. In fact, coupled with the demand for an ever larger amount of manufactured products and synthetic goods, the demand for corn has risen faster than suppliers can keep up, according the Chicago Board of Trade, such that inventory of corn has steadily fallen over the past few years. Thus, prices have risen from around $2 in 2006, to about $4.50 in 2013.

            The conclusion, despite producing 34% of the world’s corn, we need more. Obviously our current massive operation is insufficient at meeting the demand. Much of this demand is driven by government, not consumer, spending, through subsidies, but it is demand that affects the industry in the same way. But why corn, and not rice, which would be more profitable, and would provide more calories per acre?

Globally, America has a comparative advantage in corn, as it can produce the most corn in its fertile valleys the most cheaply. Although it could produce rice, it is not best at doing so. India, specifically the Indus Valley region, is best at producing rice, with China’s Yellow River basins a close second. India thus should focus on rice, and so should China, given that India’s production is not sufficient to meet the needs of a booming Asian population whose diet relies heavily on rice.

By: Jonathan Wood