Stability, Growth, and Radical Uncertainty: Assessing Options and Opportunities

Martin Rodriguez Rodriguez, Contributor
Carlos Navarro, Contributor

Distinguished academics, policymakers, and thought leaders gather for the Alamos Alliance XXIX conference in San Antonio, Texas.

From the emerging new geopolitics of international trade to what led to the downfall of the Chilean model in Latin America and the originally “transitory” but now not-so inflationary bubble, Alamos Alliance XXIX convened in San Antonio, Texas, on March 10-13 of this year to address these and other subjects.

Founded in 1993 by UCLA professors Arnold Harberger and Clay LaForce, Alamos Alliance has consolidated a tradition of hosting distinguished academics, policymakers, and thought leaders in the colonial town of Álamos, in northwestern Mexico. Previous participants discussing economics, public policy, and political economy include Nobel laureates Milton Friedman, Robert Mundell, and Vernon Smith.

This year’s 29th annual gathering, led by Roberto Salinas-León (Director of the Center for Latin America at Atlas Network), came together (under the convention of the Chatham House Rule) to assess the current geopolitical environment and outlook for the global economy. The general title was Stability, Growth and “Radical Uncertainty.” What followed was a thrilling joust of minds of public leaders and intellectuals that vividly echoed the theme of John Kay’s & Mervyn King’s marvelous book Radical Uncertainty: Decision-Making Beyond the Numbers.

Session I—The Return of “Stagflation” and the Perils of Fiscal Mismanagement

The first session was chaired by Thomas Saving (Distinguished Professor Emeritus, Texas A&M University) with the participation of Sebastian Edwards (Henry Ford II Distinguished Professor, Anderson School of Management, UCLA), Ignacio Briones (Former Minister of Finance, Chile), among others. It described the pandemic as a multi-layered, multi-year dynamic puzzle that confronted policymakers with an unprecedented degree of “Knightian” uncertainty that heightened the challenges of implementing fiscal and monetary policy.

The discussion addressed current challenges and tried to answer whether there would be an orderly or disorderly inflection point within this highly uncertain outlook for interest rates and global financial markets. Questions around how much debt the world can support were discussed. We used to think that if the benchmark interest rate was lower than the growth rate, there was little to worry about, but if the opposite happens, things could get messy. Decision-makers and academics should pay more attention to such matters.

During the dialogue, participants exchanged different views over the role of central banks and especially questioned if they were ever going to return to traditional monetary policymaking. A trend only heightened by the 2020 pandemic hiatus is that of central banks adopting reactionary policies for short-term solutions instead of focusing on long-term goals. Whether one thinks Modern Monetary Theory is being implemented or not, it has become increasingly clear that inflation-targeting is no longer the chosen policy standard for many central banks. 

The discussion also contemplated the need for fiscal policies that consider intergenerational justice criteria and the necessity for fiscal rules that protect future generations by ensuring that permanent spending is matched by permanent revenues—as in the case of Chile. Nonetheless, others counter-argued that bad governments can have balanced budgets, as in the case of Mexico, which suggests that there are other higher-order priorities in fiscal matters. After all, fiscal deficits are always and everywhere a political phenomenon.

Session II—The “Supply Chain Mess,” Near-Shoring and the Future of Open Trade

The second session, led by Robert Topel (Isidore Brown and Gladys J. Brown Distinguished Service Professor of Economics, University of Chicago Booth School), brought together Douglas Irwin (John French Professor of Economics, Dartmouth College), Anne Krueger (former First Deputy Managing Director, IMF) and Antonio Ortiz-Mena, (former Head of Economic Affairs, Embassy of Mexico, USA).

The exchanges underscored how international trade geopolitics have changed in the past five years, highlighting the precarious moment that the so-called “WTO-consensus” is facing. The bipartisan unanimity in Washington around protectionism and vigorous industrial policy was scrutinized and severely questioned, noting that the Biden administration’s trade policies are but a simple reboot of the Trump administration’s view of trade as a zero-sum equation.

During discussions, some participants suggested that the U.S. appears to be moving into copying Chinese policies in the worst possible ways, leading a former policymaker to exclaim “We [the U.S.] are not going to out-China, China!”

In other words, imitating Beijing’s ways constitutes an unwise policy strategy. 

Queries on how much free trade contributed to China’s rise in the past thirty years and how to deal with the socially dislocating effects of eroding manufacturing employment in the U.S. were also hotly debated.

A prominent economic historian illustrated the anti-protectionist position by alluding to John Donne’s poem No Man is an Island, namely, that all human action (in the Austrian sense), whether it is changing consumer preferences, innovations, or proposals for plant and labor relocation, will hurt someone. She further explained that economists do an outstanding job compartmentalizing and explaining the benefits of free trade. However, these explanations are woefully insufficient in addressing the legitimate grievances in a growing segment of the population in many advanced economies.

Others suggested that despite being politically profitable to talk about “jobs saved,” it would be more helpful to discuss how excess labor capacity, generated by technological innovations and trade, can be employed in better and more productive jobs.

Another critical exchange focused on the risks of overextended supply chains. A leading scholar underscored the vigorous recovery and growth in world merchandise trade volumes to exemplify how resilient supply chains proved to be, despite talks to the contrary. Others emphasized that notwithstanding the intensity of editorials advocating for near-shoring supply chains to Latin America, there seems to be too much optimism around the rhetoric with little progress.

Finally, there seemed to be a unanimous sense of incredulity at the lack of a hemispheric free trade agenda for the upcoming Summit of the Americas in Los Angeles in June.

Session IIILost Opportunities and Radical Uncertainty in Latin America: Why?

Ian Vásquez (Vice-President for International Studies, Cato Institute) oversaw this session with the participation of Ricardo López-Murphy (National Deputy and former Minister of Finance, Argentina) and Alejandra Cox (President, Association of Pension Fund Administrators, Chile), among others.

With Chile writing a new Constitution and Colombia on the brink of taking a sharp left turn in electing Gustavo Petro as President, a former member of the M-19 guerrilla, the session could have aptly been named “What is going on in Latin America?”

Panelists noted the region is losing ground in the global marketplace due to stagnant productivity, high levels of informality, and lack of competition. Moreover, sluggish average annual growth could well see the decade ending in 2023 having a worse performance than the regional lackluster 1.4% rate experienced during the so-called “lost decade” in the 1980s.

One panelist explained that the last peak in foreign direct investment in Latin America was in 2013. Since then, this key figure has dropped 53%, exhibiting the challenges that high inflation in certain countries and structurally mediocre growth poses to productive investment flows.

Many hypotheses were offered for the causes of these phenomena, most revolving around poor political representation, feeble and ineffective institutions, and fragile property rights regimes resulting from the redistributionist impulses that guide public policies in nearly all countries in Latin America. Overall, there was an inherent sense of “who knows” uncertainty in the room regarding the origins of the malaise.

That said, a plurality of voices highlighted how narratives that dominate public discourse in the region display outright hostility to the values of individual liberty, and how that has decisively contributed to the appeal of the siren song of populism.

To some, what is happening in Chile, demonstrates vividly that no policy victory is final. A country lauded in Alamos Alliance as a beacon of prosperity throughout the years is now embarking on the treacherous path of writing a new constitutional framework that is unlikely to lead to better institutions and greater social progress.

Keynote Session—Capitalism, Prosperity, and Social Mobility.

The final session was headed by former Senator Phil Gramm, who introduced this year’s keynote speaker Hernando de Soto, the founder of Instituto Libertad y Democracia, author of the seminal work The Mystery of Capital, and candidate for the Presidency of Peru in 2021.

The presentation focused on the importance of property rights for economic prosperity. Using historical examples, such as during the U.S. occupation of Japan under General MacArthur, Mr. de Soto illustrated how the country transformed a feudal system into a property-ownership system and how these reforms were fundamental to Japan’s ensuing economic success.

The speech underscored how the appropriate reforms could provide all citizens with legal tools and institutional arrangements to participate in the formal national and global economy.

Referencing his native Peru, he explained the importance of removing obstacles to creating legal property rights, describing the challenges citizens in countries with poorly defined rights face. Mr. de Soto explained that ownership is an abstract concept, and if the evidence that something exists is not readily available, it becomes a problem. The virtue of a system of written titles is that it is straightforward to know who owns what, which in turn allows individuals, through the process of representing their property, to create capital.

Following tradition, Alamos Alliance XXIX concluded with heartfelt remembrances from friends and colleagues of Mexican economist Manuel Suárez Mier, past participant and close friend of the Alliance throughout the years, who passed away last year.

This 29th meeting of the Alamos Alliance conference brought forth the challenges of our moment and emphasized the need to strengthen the values of free exchange and toleration that underpin open societies. In 2023, Alamos Alliance XXX will be reconvening in its birthplace town of Álamos, to continue discussing ways to enhance open trade, markets, and the rule of law.

Disclosure: The author is a Visiting Research Fellow at the Center for Latin America at Atlas Network and took part in the organization of Alamos Alliance XXIX

Martin Rodriguez Rodriguez is a Venezuelan policy entrepreneur, always keen on creating good and necessary trouble. He is a section D partner. 

Carlos Navarro is a Senior Research Associate at Texas A&M University. His areas of research include economics of development, crime, health, trade, and migration.