Clinton Speaks on Poverty and Politics in Latin America

Monday, August 7, 2006

A highlight of the IDB?s ?Building Opportunities for the Majority? conference in June was a conversation between Luis Alberto Moreno, the Bank?s president, and Bill Clinton, the 42nd president of the United States. Clinton participated in the conference because the IDB?s new initiative dovetails with many of the activities of the William J. Clinton Foundation. Moreno and Clinton discussed a wide range of topics, including inequality, trade, alternative energy, AIDS and the rewards of public service. Following are some selections.

Moreno: Mr. President, as you know, we have had 12 elections in Latin America this year. I?d like you to imagine that you?ve been invited to dinner with a newly elected Latin American president. This president has won with a small majority, and he has to balance the fiscal challenges entailed by social spending and the need to create economic growth?all of this while trying to close the tremendous inequality gap that we have in Latin America. What would you advise this president to do?

Clinton: ?We have to face the fact that [Latin America] has not been successful at reducing inequality. And it seems to me that basically there have been two models. One model is to follow fiscal conservatism, keep your currency stable, avoid inflation, allow the existing economic units to generate wealth and growth, and don?t do much social spending. Or alternatively, do a lot of social spending in the absence of fiscal responsibility and then try to figure out what to do next. Neither model has produced what any democratic society needs, which is a broadly successful and growing middle-class people moving from poverty into the middle class?

So, my view is that if you limit yourself to yesterday?s debate, that is fiscal responsibility versus more social spending, you are going to wind up with disappointment. Because you won?t reduce inequality that way, and you don?t want to just appropriate the assets of the state, or the assets of the wealthy. What you want to do is to empower poor people to create wealth, to become a middle class that supports a stable society. And I think you can only do it through trial and error and a commitment on the part of international institutions like yours, and national governments, to create the conditions that will enable that to occur. You can do it by focusing on identity through birth certificates or other aspects of the property rights revolution that Hernando de Soto started in his native country that still is just beginning in Latin America and elsewhere?

The barriers to entry for new businesses in Latin America are still too high in most countries. The time it takes to start a business is too long. The enforceability of contracts is too much in question. You need to think about all these micro-economic things and create the conditions in which people can join the middle class. One of the things that I see, the more I travel and the longer I live, is that intelligence and hard work are evenly distributed throughout the world. But opportunity and investment and organization are not. The systems often don?t exist for clever, hardworking, inventive poor people to be rewarded for their endeavors.

Moreno: In 1992 we had the Summit of the Americas in Miami; it seemed like a great moment for Latin America, and as a result several deadlines for trade agreements were established. Today, that trade agenda has become much more difficult to implement for both the U.S. and Latin American countries. How would you recommend that we reenergize this trade agenda?

Clinton: If the debate becomes just about whether trade is good or bad, there will always be some people who are negatively affected by it in the short run. And therefore, if a country has other problems, it becomes easy to blame it on globalization. The truth is in the last 20 years more people have moved out of poverty in the world as a whole than at any time in history, but ? the trade system alone has not been able to generate enough economic activity to avoid severe dislocations from a globalized and interdependent economy.

So, it?s easy to blame trade for the problems people face, both in poor countries and in rich ones. When you look at the Europeans and the Americans, you see that a lot of our working people and middle-class people are growing more protectionists because all they see is the downside. That?s partly because governments have not figured out how to help people make more rapid adjustments. In our case, we haven?t found a source of new and high paying jobs in this decade, largely because we haven?t made a commitment to a clean energy future, I think?

If you don?t achieve the economies of scale that come from trade, I can?t see how lower-income countries are going to be better off. If you believe as I do? that trade is on balance a big net-plus for poor nations, then there have to be the kind of internal changes within those nations, and the kind of policies from the international donor community, that will be trade-plus. I think a lot of us, including me when I first got elected ? believed that [trade] would lift all boats. But it doesn?t lift all boats without the proper kind of internal economic and social policies that have to be developed over time and with the support of institutions like yours. So, if you want to fight the anti-trade crowd, you have to have a trade-plus policy.

Moreno: Mr. President, soon after you left office, you concentrated a lot of your efforts on the fight against AIDS, and you brokered something that seemed impossible from a distance, and that was to significantly lower the cost of retroviral drugs through working with governments, drug companies, donors, and international organizations. How did you manage to get something as complex as this to happen, and are there lessons from that experience that we can apply to other issues?

Clinton: This all started in the Caribbean? [We] found out that the whole system for fighting AIDS was improperly organized, just the way a lot of domestic economies were. There were generic drugs which were available for US$500 per person, but the Bahamas, for example?the wealthiest country in the Caribbean, but also the one with the third highest infection rate of AIDS?was paying US$3,500 a person for these US$500 drugs. Why? Because they had no sense of organization regarding how to purchase the drugs, how to get them delivered, how they should be paid for.

So, what we did is that we went to the major producers of these medicines in India and in South Africa and we said, ?Look, you are essentially running this AIDS drug business like a small jewelry store in America. You have a low-volume, high-profit margin business with an add-on because you don?t have certain prompt payment?because some people can?t afford to pay for their diamond ring on time. We want you to operate this as a grocery store. We want this to be a low-margin, high-volume business with absolutely certain immediate payment. And I will get countries to promise the payment and we?ll come in and bring in experts and try to improve the productivity and the manufacturing process, but you have got to cut the price.? So, they cut it to US$135 eventually?that?s where we are now? That means hundreds of thousands of people will stay alive because of the change in a business model.

Okay, so what did we learn from that? We learned that if you get entrepreneurial partners and you apply entrepreneurial practices to a social challenge, and you work on the supply lines, increasing productivity, and use high-volume, low-margin strategies that have absolutely certain payment, then you can make a huge difference ?

We don?t apply enough entrepreneurial thinking to a lot of the supply issues and pricing issues of a lot of these problems. And I?m convinced that you could take 10 other issues and do exactly what we did with the AIDS drugs, and get the same results? [If you look at] TB or malaria, or at putting kids in school and getting educational materials to them? if you start thinking like that it opens up a whole range of new possibilities.

Moreno: Another subject that you?ve devoted a lot of your time to, Mr. President, is clean energy. How do you see the evolution of the clean energy debate and environmental conservation debate in Latin America and the rest of the world?

Clinton: Many serious petroleum geologists believe that by the end of this decade the world will reach peak oil production. That is, we will have taken out half of all the oil that is recoverable? They believe that with the predictable use patterns of India and China and other countries, the world will exhaust its resources of recoverable petroleum within 35 to 50 years. Now, that?s not much time for us to re-jigger a whole economy.

What does that mean for Latin America? It means, [among other things], that we need to do a serious analysis of what we are using our oil for. In the United States we use oil about 70-plus percent for transportation, and it?s not too much different from the rest of the world.

[In considering alternatives] we need to look at the fact that the ethanol production in Brazil is by far the world?s most efficient. Essentially, there are three ways to make ethanol. You can make it out of corn, the way it is often produced in the United States. The conversion ratio is very low, about a gallon and a half of corn to a gallon of gasoline? Then there?s the cellulosic ethanol (basically farm waste, wood waste, grasses, etc.) which, in the best cases, you can get that up to three or four gallons. But in the sugar cane production of Brazil, the conversion ratio is sometimes as high as eight to one, which is stunning. And now the Brazilians are going to cars that have the capacity to run 100 percent on ethanol. If we did that everywhere, obviously however much oil is left in the ground would last a whole lot longer, and it would give the world time to convert to a whole new way of generating wealth through different kinds of energy.

Furthermore, the biodiversity of the world is heavily dependent upon Latin America [and the Amazon rainforest may still contain] the sources of cures for cancers and other kinds of problems. So for me, this is both a global imperative and a phenomenal economic opportunity for Latin America to get in the business of conserving its natural resources and developing an alternative energy future. It can make a real difference and basically lead the world.

Moreno: Finally, Mr. President, I know that a person who inspired you to go into public service–he certainly inspired me–was John F. Kennedy. He was a hero to so many Americans, and he led many young people in his generation to enter public service. What would you say to the young people that are coming into this Bank; why should they serve?

Clinton: I think there are two things that ought to be said. First of all, politics is frustrating, imperfect, and often full of banality and short-sightedness. If you don?t want to deal with it, go into some other line of work. And to whine and complain about it, to be like one of these soccer players in the World Cup who complain that every now and then somebody has to get a penalty card, because they get hit from behind. If you don?t want to play the sport because somebody might do something bad to you, stay home. But it?s still the best hope we have for solving our problems together. It?s very important.

The second point I?d like to make is that private citizens have more power to do public good than ever before. I mean, Mr. [Fernando] de Soto here, he holds no public office. The Bill and Melinda Gates Foundation gave a billion dollars to health care in Africa and India, and they hold no public office. The tiny NGOs that do microcredit all over Latin America and Asia and Africa, they have collectively an enormous impact. So, the other thing I would say to young people is if you want to become a banker or a physician or a teacher or something else, you can still serve, and you must serve. Because of the rise of the NGO movement globally and the Internet give people of modest means the power to join together and give big amounts of money.

If you decide not to be a full-time public servant, you have to do something through the NGO movement to try to close the gap between what the state can do and what the market will produce. Otherwise, we?ll never pull the world together and we?ll never build the kind of future we need.

It?s also immensely rewarding to young people. I think sometimes when you only see the bad stuff in the press people forget about how much fun it is to do public service. I mean if anybody had ever told me that I would leave the White House and within a couple of years we?d have 350,000 people who would certainly have died who are now going to live because we got them the cheapest AIDS drugs in the world, I would have had a hard time believing that. So you know, young people have to ask themselves, if they?re 20 years old, ?How would I like to feel about my life when I?m 70?? I think you would like to feel that you did something that left the world better for your children and grandchildren, and gave more people the chance to have the life that you enjoyed. It?s the most rewarding thing you can do.

Source: IDB America (link opens in a new window)