Why Do Poor Countries Stay Poor?

Why do poor countries so often stay poor? Tonight, I am tempted to respond that it is because in such countries, there are too many restrictions on capital flows, an unrealistic public valuation of time and labor, too little self-respect on the part of consumers, and a weak regard for customer service.

Dear professors of Business Administration: If you want a prime case study of poor management, look not an inch further than Colombia's AIRES airways. This budget carrier is an absurd company that throws its customers around like ping pong balls an employs zero common business sense. That is, it has repeatedly failed to realize that when a customer purchases a good or service, she is effectively signing a contract with the firm to receive what exactly what she perceivably selected, at face value.

This afternoon I got a ring from one of AIRES' "customer service" (but a better term would be customer disappointment) agents. She called first to ask if I was confirming travel during my first weekend of March itinerary to Barranquilla to enjoy Carnavales (travel that, of course, so happens to occur along one of the busiest routes in the country during one of its most popular festivals). She then ever so graciously notified me that AIRES has experienced a "change in schedule" that would require the arrival of my flight to Barranquilla on March 4th, my birthday, to be delayed three hours. Already familiar with these contract-breaking ethics on the part of AIRES after seeing many friends and colleagues suffer similar autocracy-induced twists of fate, my stomach began to tighten. The agent then casually informed me that my return flight, the one that jeopardizes my standing at work if delayed, would not only leave Barranquilla an hour later than expected, but would include an additional four hours of layover in Bogotá. I did not pay for those changes, I thought. Literally starting to chuckle aloud in incredulity, I asked the agent how much her company was going to reimburse me for my lost time at work and, upon arrival in Barranquilla, for my missed "business meetings" (really just my code words for meeting up with missed friends, but valuable time that could theoretically be business transactions just the same). Of course, after a long silence (arriving as the result of the rarity of hearing Colombian customers complain in reaction to disturbance) she awkwardly but curtly replied that AIRES would do nothing to compensate my inconvenience. So I let her have it. I swore and told her the truth about how much of an abomination her firm is, and how much of an embarrassment it imposes on any developing world companies that are truly trying to reach modern, international standards of customer service. She, of course, reacted with her tongue tied...

Now see, that's exactly one of Colombia's gravest development dilemmas: public culture is shrouded in so much contrived politeness that people never raise their voices when they are inconvenienced. There is such a complacency and comfort toward things going wrong, and toward institutions achieving less than their potential, that there seems to be frequently insufficient public will for advancement in education, business and politics. Failing to value time and labor and contracts: THAT is what keeps nations poor! When will these negligent administrators realize that EVERY scheduling setback and every inconvenience to customers represents lost productivity and monetary value? I grieve when I notice Colombians and other citizens of the developing world continuously fail to demand more from the large companies that run their service markets. In any high-income country, AIRES' antics would mean, simply, eventual bankruptcy: customers would lose patience and move their funds elsewhere. But in Colombia, there are very few alternatives to AIRES. The predominant competitor and national legacy carrier, Avianca, has a strong grip over most popular routes and therefore overcharges; other low-cost competitors have a restricted reach of routes, tiny fleets of planes, and nearly no market power at all. In Colombia, a nation of heavily restrained competition, customer transfer in events of poor business ethics and rip-offs just seem to be a notion of fantasy.

Please, my friends in the Highly Developed world, do yourself and I a favor. Take a deep breath and a moment today to reflect upon your gratitude. Gratitude that you reside in a country where institutions work, where government agencies serve effectively to block the formation of monopolies, and where something closer to real market competition actually exists.

For me, it is tragic to realize time and time again in Colombia that poverty is as much externally generated--by carelessly constructed trade policy, by multinational corporation resource extraction, and by too much top-down bureaucratic management at the world's leading International Financial Institutions--as it is internally generated--by poor business accountability, restrictions on capital and goods mobility, and monopoly power. My grasping of this stark truth is enough to make me at times feel hopeless. But we must carry on the good fight. In fact, there is little time to waste in collaborating the right physical agencies and the right mental agencies to move forward in solving the world's development traps. To quote myself from yesterday when my stipend transfer again arrived late, "nobody wants to boil anything in a pressure cooker except their fríjoles [beans]." People can learn to value themselves, their work, and their time more. And institutions and companies can be reconditioned to function efficiently, humanely, and respectably. It starts with ideas and models that constitute a whole new approach to business behavior, like those contained in this book: http://www.amazon.com/Power-Unreasonable-People-Entrepreneurs-Markets/dp/1422104060

Believe.

As I close, I will show you what a typical line for an ATM looks like in Colombia (see image below). This type of scene, and the societal unconcern toward market inefficiency that it evokes, are enough to make me want to bang my head against cement. This is exactly the type of bottleneck that turns tasks regarded as simple and taken for granted in the States, such as paying my cell phone bill or buying a pair of socks, into two-hour endeavors. This is what happens in a country where, in my estimation, considerably less than half of businesses take credit or debit cards, and where perhaps another quarter have plastic payment readers that are only partially functional. I will have to agree with last week's statements of the editors at Dinero magazine when they said, and I paraphrase: two major keys to resolving Colombia's economic development dilemmas will be 1) raising the minimum wage (something which Brazil's government has done to four times the degree that Colombia's has, in nominal terms, in the last 10 years--and look at the drastically different results in global economic positioning that have come of it); and 2) restricting the growth of the informal sector. I will be even more blunt and simply say this country URGENTLY NEEDS TO CURB INFORMALITY, OR RISK CONVERTING FROM WHAT WAS ONCE CONSIDERED A FAVORABLE DEVELOPING WORLD PROSPECT FOR GROWTH INTO A BASKET CASE!

Why I carry a music player or a book with me everywhere I go in public in Medellín, which is to say nothing of the library I'd need in Bogotá...

I can only hope that one day, Colombian consumers begin to embrace the power of market demand and shift away from negligent companies like AIRES, causing them to go bankrupt. Oh wait! They have gone bankrupt!... After recounting this afternoon's story to fellow Fulbrighter Tim Herrmann, I've just learned that AIRES was, in fact, bought by LAN, the Chilean airline, a few months ago... LAN could once be considered at the center of a core example of Latin American monopoly power, because Sebastián Piñera, Chile's newish President and one of the richest men in the country, owned more than a quarter of the company, while also occupying the office of Head of State. But it just so happens that Piñera sold off his stakes off the company in early 2010. LAN, as it turns out, is one of the region's most respected companies, with a reputation for a high grade of customer service. Maybe Piñera and Chile have learned an important lesson: overly concentrated dominance over the market and over politics simply lead to restricted choices and terrible outcomes for wider society. Now let's just see if this means AIRES, under LAN's tutelage, will turn into a fairer, more responsible, and more responsive airline...

...Time will tell if a gradual embrace of reasonably tempered market practices can lead Latin America closer toward prosperity and equity--or if it will remain the most stubbornly unequal region on the planet. Raise your voices and do your part, my friends.