1 By Tagi Sagafi-nejad The Radcliffe Killam Distinguished Professor of International Business Director, Center for the Study of Western Hemispheric Trade Director, International Trade Institute Texas A&M International University Http://FreeTrade.TAMIU.edu For presentation at the 16 th Annual Manufacturing and Logistics Symposium South Texas and North Mexico s Global Positioning in Today s Economy, Texas A&M International University Laredo, Texas September 16-18, 2009

2 Competitiveness at the Global Level Competitiveness at the Local Level Challenges before us

A.R. Sanchez, Jr. School of Business 3

4 1. The Local Economy Good News and Bad News on Laredo s Competitiveness First the Bad news: We are at a competitive disadvantage on many fronts Location Near a developing country = spillover effects Drivers think left lane is slow lane Supermarket parking lots littered with empty carts Trash on streets and sidewalk Development indicators: Drop Out rate, literacy, income, health, Quality of life,.. Natural Resources (Oil, Gas, ranching)

5 Competitiveness, Civility & Quality of Life

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7 Shocks to the Local Economy Macroeconomic Global Shocks War Expenses Gas Prices Remittances Crime Mexico Protectionism

8 But, the Janus face - Dutch Disease or

9 Local Competitiveness: The Good News Location! Location! Location! Education The Natural Gas, Oil, Ranches, Discount Stores The River an asset, not a barrier Scoping the River The Weather (but try to find someone to install solar panels!) The Entrepreneurs Laredo Philharmonic Orchestra History and Legacy

10 Rio Grande : Uniter, not divider LMT, 8/30/09

11 Source: Texas Center for Border Economic and Employment Development, Texas A&M International University, based on Dallas Federal Reserve data

12 The Border: Domestic Product Gross Domestic Product by Metropolitan Areas 25,000 20,000 GDP in Millions of U.S. Dollars 15,000 10,000 5,000 0 2000 2001 2002 2003 2004 2005 2006 2007 El Paso, TX Laredo, TX McAllen-Edinburg-Mission, TX

13 The Border: Population Population Thousands 700 600 500 400 300 Population for Metropolitan Areas (2006 estimate) 200 100 0 El Paso, TX Laredo, TX McAllen-Edinburg-Mission, TX 2006 estimate 609,415 215,484 256,355

14 Rail Border Crossings (North + South) Thousands 800 700 600 500 400 300 200 100 LAREDO ALL BORDER 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

15 Thousands 10,000 9,000 8,000 Border Crossings: Trucks 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 LAREDO ALL BORDER

16 Millions 50 45 Pedestrian Border Crossings (North + South) 40 35 30 25 20 15 10 LAREDO ALL BORDER 5 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

17 Shocks to the Local Economy Macroeconomic Global Shocks War Expenses Gas Prices Remittances Crime Mexico Protectionism

18 Cahllenges Quality of Life amenities Health indices Health care (# hours waiting at doctor s office) Golf courses Museums Walking trails Education: Drop-out rates Income: Below state and national average

19 3. The Global Economy Global Financial Crisis Remittances Foreign Direct Investment Trade Flows

20 Global Recession: Shrinking Exports Source: World Trade Organization

21 Global Trade Flows Source: World Trade Organization

22 The Economic Ups and Downs Roots of the crisis go back a long time We are working our way out of it But the lessons must be learned Business can t be allowed to run amok Enforcers must stay awake or serve jail time Laws must be transparent Laws must be obeyed Wars can t be financed off the books Crisis breeds calls for protection Ergo: Bail-outs Triggers include dramatic oil price hikes

23 Oil Shock

24 Retail Regular Gasoline Prices - Laredo 2006-07 (An unscientific personal survey) 3.5 3 2.5 2 1.5 1 0.5 0 8/9/2006 9/9/2006 10/9/2006 11/9/2006 12/9/2006 1/9/2007 2/9/2007 3/9/2007 4/9/2007

25 Retail Regular Gasoline Prices - Laredo 2009 (Unscientific survey) 2.6 2.55 2.5 2.45 2.4 2.35 2.3 2.25 2.2 2.15

26 Foreign Direct Investment Flows The United Nations World Investment Report 2009, to be released later today in some 100 locations around the world, including Laredo, estimates that FDI inflows will fall from about US$1.7 trillion in 2008 to about $1.2 trillion in 2009. Recovery is expected to be slow in 2010, reaching no more than $1.4 trillion, but gathering momentum in 2011 to approach $1.8 trillion.

27 Foreign Direct Investment Trends ($billions) Source: United Nations Conference eon Trade and Development (UNCTAD)

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32 Protectionism Intended to protect a country s economy from foreign competitors Usually makes the protected country worse off than if it allowed international trade to proceed without hindrance Trade barriers include QUOTAS and TARIFFS, and Subsidies Subsidy: MONEY paid, usually by GOVERNMENT, to keep PRICES below what they would be in a free market, or to keep alive businesses that would die otherwise, or to make activities happen that otherwise would not Subsidies can be a form of PROTECTIONISM by making domestic goods and SERVICES artificially competitive against IMPORTS. By distorting markets, they can impose large economic costs. Source: The Economist

33 Why we should care Laredo is a trade gateway See charts that follow on truck, pedestrian, and vehicular traffic through Laredo Protectionism results in decline in trade Which, in turn, affects flows through Laredo Which results in decline in bridge revenues And overall economic health of the region

34 Why Protectionism? Jobs Manufacturing Infant industries National interest Trade as a political weapon And: Everybody does it! Especially during recessions See charts that follow

35 But, every coin has 2 sides! Open trade has been good for the World Concluding Doha Round of world trade talks is the best stimulus for world economy Economists believe, rightly, in Comparative advantage 2+2=5 (gains from trade) Open markets No barriers to trade Rule of law Competition

36 Trade skirmishes Airbus vs. Boeing China vs. US US vs. EU Etc.

37 Airbus says.. Much of the subsidy received by Boeing comes in the form of research contracts for its military arm, the results of which can then be applied to its civil aircraft without charge Boeing gets subsidies from different American agencies ranging from NASA to the Export-Import Bank of the United States (known as Boeing s Bank ) as well as tax breaks from several states Europe puts Boeing s subsidies at only $24 billion over the past two decades but claims the figure would be closer to $305 billion! Airbus describes the 787 as the most heavily subsidized civil aircraft in history.

38 Boeing says. The giant A380 was made possible by $3.5 billion in launch aid Airbus has received cumulative benefits of more than $100 billion over 20 years Boeing puts the combined value of all the subsidies Airbus has received at $205 billion

39 Stay Tuned WTO will be ruling on the case soon But the bigger issues are: Competitive protectionism, Competitive currency devaluations, Subsidies, and other forms of trade-distorting measures Even Trade Wars! All in the name of national interest

40 Bottom Line on protectionism Common (Economic) Sense 2+2 = 5 (Gains from Trade) Winners > Losers Multilateralism Global Rules With Legal Teeth

41 Tax burden: We re not so heavily taxed!

42 Global Turbulence

43 Political Instability Index

44 Middle-ranking countries

45 The Most stable

46 Competitiveness It s a rough world out there! Countries compete Companies compete globally Countries help their companies compete globally (Boeing v. Airbus) Laredoans nay, south Texans - must cooperate regionally to compete globally

47 Components (Pillars) of Competitiveness: What It Takes 1. Institutions (legal, Judicial, administrative, ) 2. Infrastructure (physical, information, educational) 3. Macroeconomic Stability 4. Health & Primary Education 5. Higher Education & Training 6. Goods Market Efficiency 7. Labor Market Efficiency 8. Financial Market Sophistication 9. Technological Readiness 10. Market Size 11. Business Sophistication 12. Innovation

48 The 12 Pillars of Competitiveness

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51 WEF - Competitiveness Indices (1) Source: World Economic Forum (WEF)

52 IMD Competitiveness Factors Source: Institute of Management Development (IMD)

53 Competitiveness Indices: The IMD scoreboard (2)

54 Competitiveness Indices (2)

55 Competitiveness Indices (2)

56 Kearny- Foreign Policy magazine s Globalization Index Tracks and assesses changes in four key components of global integration, incorporating measures such as trade and investment flows, movement of people across borders, volume of international telephone calls, Internet usage, and participation in international organizations.

57 The Top 20 Most Globalized Countries 1. Singapore 2. Hong Kong 3. Netherlands 4. Switzerland 5. Ireland 6. Denmark 7. United States 8. Canada 9. Jordan 10. Estonia 11. Sweden 12. United Kingdom 13. Australia 14. Austria 15. Belgium 16. New Zealand 17. Norway 18. Finland 19. Czech Republic 20. Slovenia

58 Competitiveness Criteria according to IMD Basic Infrastructure Access to water is adequately ensured and managed. Roads Density of the network Railroads Density of the network Quality of air transportation Distribution infrastructure Source: Institute of Management Development (IMD)

59 Some of IMD Competitiveness Criteria Technological Infrastructure Investment in telecommunications Fixed telephone lines Fixed telephone tariffs per 3 minutes Mobile telephone subscribers Mobile telephone costs Communications technology (voice and data) Source: Institute of Management Development (IMD)

60 Some of IMD Competitiveness Criteria Technological Infrastructure Computers in use Computers per capita Internet users Broadband subscribers Internet bandwidth Availability of information technology skills Source: Institute of Management Development (IMD)

61 Technological Infrastructure Technological cooperation between companies Public and private sector supporting technological development. Legal environment for development and application of technology Funding for technological development Technological regulation Source: Institute of Management Development (IMD)

62 Source: World Trade Organization

63 Leading Importers: 2007 Source: World Trade Organization

64 Corruption Illicit Trade Transparency International Corruption Perception Index Bribe Payer s index

65 Illicit Trade: Clusters

66 Hide-outs for the ill-begotten/laundromats! Financial Times, March 14-15, 2009

67 The Least Corrupt Countries

68 Those in the Middle

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71 Those at the Bottom! Source: Transparency International

72 The IFC World Bank Doing Business 2010 report Tracking regulatory reforms over the past six years for 131 countries Some common features among successful reformers They follow a longer-term agenda aimed at increasing the competitiveness of their firms and economy They stay proactive They implement broad-based reforms They are inclusive They stay focused thanks to a long-term vision supported by specific goals

73 World Bank/IFC Doing Business Criteria Starting a business Dealing with construction terms Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business

74 Why Laredo? Top Five reasons to locate here Top Five reasons not to locate here Top Five things to enhance competitive position

75 Center for the Study of Western Hemispheric Trade International Trade Institute http://freetrade.tamiu.edu