Latin America’s Moment

While politicians have focused primarily on the effects of trade, automation is rapidly transforming the nature of work. A recent McKinsey report estimates that half of the labor done today can be turned over to machines, fundamentally changing the nature of manufacturing, retail, food services, and data processing among other sectors. They predict that China, India, the United States, and Japan will see the largest and fastest shifts as a combination of easy capital, aging populations, and falling productivity speeds the transition away from a human workforce. By their calculations, nearly 400 million Chinese and 235 million Indian workers compete with robots today. In the United States and Japan, some 60 percent of jobs are susceptible to change. Although positions may not disappear altogether, the work people do will change, as roughly a third of today’s repetitive tasks could be taken over by machines. Latin America will also see significant change – with roughly half of the current labor mix in Mexico, Brazil, and Argentina vulnerable to automation, a higher percentage than the United States. Sales of robots already top $2 billion a year, showing that the shift is already underway. Brazil looks the most vulnerable to change, as its mix of stagnant productivity, an aging population, and the infamous “Brazil cost” make labor expensive. In manufacturing, retail, transportation, and agriculture more than half the work done by 32 million employees could be automated. Though Argentina’s economy is slightly less susceptible to automation, its aging population combined with a decade long lack of investment could lead companies to step up capital spending on robotics under the more market friendly Macri government. Slowing the process down are strong unions and unreliable electricity. But over half of its agricultural and manufacturing jobs are vulnerable. Structurally, Mexico has the highest potential to automate, as almost two-thirds of the work done in advanced manufacturing plastic, auto, and aerospace sectors could be phased out, affecting some five million workers. Yet the process in Mexico will likely be slower, cushioned by its younger population and lower wages. The global question is what comes afterward. The majority techno-optimists believe new jobs will emerge for these displaced workers, following the industrial and agricultural revolutions before. They point to car mechanics, coal miners, engineers and more recently app developers as previously unimaginable gigs that have appeared. The pessimists see this time as indeed different, as with the rise of artificial intelligence making machines viable substitutes for people. Leaning optimistic, McKinsey’s advice for advanced nations rings just as true for Latin America. Governments need to expand social safety nets to protect those most vulnerable to these coming labor upheavals. They also need to transform schools and educational curriculums to train a twenty-first century workforce that complements rather competes with robots, encouraging creativity, flexibility, and entrepreneurship. And governments need to support basic research and innovation, helping them shape the ongoing revolution. For Latin America especially, it means promoting these types of investments, as even though they disrupt today’s status quo they will help ensure the region isn’t left behind in these global shifts.

This morning, I had the privilege of testifying before the U.S. Senate Committee on Foreign Relations at a hearing titled “Venezuela: Options for U.S. Policy.” Also joining me before the committee were David Smilde, Senior Fellow, Washington Office on Latin America, and Mark Feierstein, Senior Associate, Americas Program Center for Strategic and International Studies. You can read my written testimony, the written testimonies of my fellow witnesses, and watch a recording of the hearing on the U.S. Senate Committee on Foreign Relations website.  

View article in Spanish, originally published in El Financiero. Mexico’s presidential elections for decades have been a one shot deal. Whomever wins the most votes—paltry as that count may be—goes on to live in Los Pinos. And paltry they increasingly are -- in the last two elections these numbers dipped well below 40 percent; in 2018 many believe the winner could garner less than a third of the ballots. This has significant negative ramifications for legitimacy, accountability, and governability. But there is a solution – a second electoral round. Most of Latin American and indeed most countries around that world that elect presidents, as opposed to prime ministers, have a second round. A few weeks or so after the first election voters return to the ballot box to choose between the two highest vote getters. This process ensures the new president an electoral mandate, as by definition over half of the voters chose the winner in the second round. This is vital for leaders, such as Argentina’s president Mauricio Macri, who want to make big changes to the status quo.   Second rounds also tend to eliminate extreme or fringe candidates, exposing the very real electoral ceiling on their vote share beyond the fervently loyal. This is the immediate reason many in Mexico champion the reform, as they believe it will stop a 2018 AMLO victory. A two round system lends itself to political bargaining– with the two top contenders assiduously courting the runners up and their votes. This at times makes strange bedfellows – for instance recently in Peru, when the left and right of the political spectrum galvanized around former banker turned politician Pedro Pablo Kuczynski (PPK) to defeat the initial front runner, Keiko Fujimori. Runoffs of course have their limits. While the president has a more robust mandate, they often face a divided congress, which can lead to gridlock. And because two people can win in the first round, it encourages more candidates to run, leading to a proliferation of political parties and the problems therein. But Mexico’s other electoral rules—namely the combination of single member districts, where just one person wins a senate or congressional race, and the plurinominales, where party leaders’ choose who makes the longer proportional representation list —will head off a more Brazilian fate (at least in terms of the number of political parties).  What a second round will help Mexico deal with is the longer term political fracturing already under way. This is due both to changing social mores and the rise of independent candidates. Mexican voters no longer identify as they once did with the traditional parties. As recently as the turn of the 21st century, nearly 3 out of 4 voters identified with one of the main political parties: PRI, PAN, or PRD. Today, just half of the electorate declares any allegiance to an identifiable party. The young and educated in particular don’t commit, shifting with candidates or splitting their tickets between parties. With the new generations of voters increasingly unmoored from the lifelong identifications of the past, politicians have growing incentives to differentiate themselves from the party masses. Add to this the new legal framework for independent candidates. While the recent reforms allowing these mavericks are a win for representation, it further fragments the political scene. Looking toward the 2018 presidential race, Mexico could see five or more options on the ballot, particularly if a few of those vying for a traditional party nomination make good on their threats to go it alone if not chosen. And even if their appeal remains quixotically in the single digits, the inherent dispersion among so many choices will weaken the election’s winner by granting him or her just a fraction of the popular vote. President Peña Nieto has come out against instituting a second round in Mexico’s electoral system, saying that the majorities such rules create are “fictitious.” Yet fictions can serve a purpose -- building trust among politicians and with society, and forming a programmatic basis for political coalitions. Peña’s opposition likely results from other reasons. The president may believe the PRI’s famous “hard vote” is still enough to win the 2018 contest. If the PAN fractures or if El Bronco or other independents jump in, then with even less than 30 percent of the vote the PRI candidate could in fact squeak by—though at the cost of legitimacy and governability. But perhaps the president’s real worry is as he looks around the table, the most likely second round coalition—between the PAN and PRD—would exclude him and his chosen successor. And that is something a PRI president can’t abide.  Yet if these short term partisan preferences win out, Mexico will lose. True, a second round won’t solve all of the nation’s ills. But it will help shift away from an imperial presidency to one where power comes from an electoral mandate. This would give the next president the citizen’s backing to deal firmly with a potentially erratic northern neighbor. And most importantly, it could galvanize Mexico’s political system to finally implement the desperately needed changes to improve security, better education, and increase long term investment, making its economy competitive for the twenty-first century in ways that will benefit society more broadly.