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Capitalism and the Border Crisis

Migrants cross the border from Honduras into Corinto, Guatemala, Oct. 1, 2020.


/Associated Press

Is economic development in the Northern Triangle—Honduras, El Salvador and Guatemala—a lost cause? Not according to former World Bank Group managing director

Juan José Daboub.

The Salvadoran entrepreneur is spearheading an effort to boost development in the region by linking foreign investors to locals who are willing to share risk and expertise.

The HUGE Business Council—an acronym for Honduras, U.S., Guatemala, El Salvador—aims to create one million jobs in the next three to five years by “near-shoring” supply chains that serve U.S. manufacturing. It also proposes to attract capital to build or rebuild things like roads, ports and airports and to bring U.S. natural gas to the region.

The council already includes some big players, including Parkdale, one of the world’s largest yarn manufacturers and apparel maker Intradeco.

The idea dovetails beautifully with the vision of a commercially interconnected Central America, Mexico and U.S. Gulf Coast—via rail and shipping—laid out in a 2017 report on the Mexico-U.S. relationship from the Mexican Council for International Affairs.

Highlighting “investment in logistics and transport infrastructure,” the report called for “complete modernization” of a train line from Guatemala to the tip of the Yucatán Peninsula to open “a new frontier” with the eastern U.S. “It should also contemplate the extension of this train line to Tegucigalpa in Honduras.” The same rail lines could be used to lay fiber-optic cable.

These are private initiatives, but they need buy-in from government—and that’s a problem. U.S. politicians from both sides of the aisle love to grandstand along the southern border, bemoaning the poverty and misery that sends desperate migrants north. But standing up to progressives who shape counterproductive U.S. foreign policy, and to labor unions that work at cross purposes with risk-taking capitalists, is another matter.

Restoring order and processing the large number of unaccompanied minors now at the U.S. border is the task at hand. But the big picture will change only if Central America changes.

The great migration is all about opportunity and, contrary to the sentiments of American nativists, the magnet that pulls so many al norte would weaken if there was work closer to home. If you build it, they will stay.

China’s rising cost of production and questions about its use of forced labor have Western manufacturers giving the Americas another look. The HUGE Business Council believes this creates new opportunities in the region, which can capitalize on the comparative advantages of proximity to the U.S. and a young, eager work force.

HUGE members will co-invest with companies that meet labor, environmental and corporate-governance benchmarks. Mr. Daboub told me in a telephone interview Friday from Washington the council estimates that infrastructure needs alone account for some $10 billion in investment opportunity.

Corrupt bureaucracies in Central America grab headlines. But there has been progress toward market-oriented policy. The Honduran Congress has opened the electricity market to competition. The electricity commission is preparing to receive bids from private carriers that want to invest in transmission and from energy wholesalers that want to act as market makers. Soon consumers will be allowed to purchase from wholesalers or generators, domestically or regionally, at a negotiated price.

Competitively priced electricity, which is crucial for manufacturing but has been unavailable in Honduras, is now within reach.

A notable barrier to creating a supply-chain “highway” from Central America to the eastern U.S. is the Jones Act of 1920, which forbids cabotage between U.S. ports if ships are not union built and crewed. Carving out an exception, the 2017 Mexican Council for International Affairs report noted, “would be particularly relevant to transform the economy and psychology of the Gulf of Mexico, and promote the development of southern Mexico, Central America and with Louisiana, Alabama and Florida.”

The Jones Act, a relic of a protectionist past, survives thanks to special-interest politics. It is hardly the only example of government causing more harm than good in the region. The U.S. Agency for International Development sponsors left-wing groups in Guatemala advocating a new “plurinational” constitution that would create a parallel legal system and allow local communities to choose the law they wish to administer. Advocates call this “decentralization” but it would undermine the rule of law and foster the return of the cacique, the local political boss.

The Biden administration says it wants to “address the root causes” of migration by dropping $4 billion in the region. But any effort that fails to unleash the animal spirits of capitalism will be dead on arrival.

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  Appeared in the March 22, 2021, print edition.

Read More: Capitalism and the Border Crisis

2021-03-21 16:40:00

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