Policymakers are at risk of ushering in a new decade of sluggish growth. Read about the opportunities they should grab to prevent this:
is still languishing. Mexico’s annual domestic investment is worth 22% of its. Between 2017 and 2021 it attracted annual foreign direct investment worth on average another 2.8% ofIn any case thethinks that blaming investment for slow growth mixes up cause with effect. According to its analysis, it is Latin America’s low growth that has caused its low investment. Domestic investment relies on household savings, which the region’s workers have relatively little of due to their low wages.
A second problem is that the region has lots of oligopolies. In Chile the 50 biggest firms account for more than 70% of. In Colombia state-owned conglomerates account for 25% of the revenue of the largest 100 businesses. Latin American firms enjoy bigger markups than those in the rest of the. Governments make the problem worse, often cordoning off industries from potential new entrants or pushing up costs with red tape.
Informality shows that an economy is sick, but “it is not the disease”, says Santiago Levy, a fellow at the Brookings Institute, a think-tank. Much like slow growth, illegal economies do not get big by themselves. In much of the region the high costs of hiring people—in the form of bureaucracy, social-security contributions and minimum wages—put off small- and medium-sized businesses from employing people formally.
Tackling most of these problems is unpalatable for politicians. Around 300m people across the continent have come to rely on social-spending handouts for their income, health care or their children’s education. The risk of losing their votes will prevent any drastic changes being made to these policies anytime soon. Meanwhile clamping down on oligopolies could potentially jeopardise a source of political-campaign finance. Making industries more competitive would also squeeze profits.
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