Tocumen International Airport, terminal 2

Tocumen International in Panama City is a hub for travel between Central and South America. I had the pleasure of spending several hours there on a lay-over with hundreds of fellow passengers.

Some statistics:

1. Number of gates: 28
2. Percentage of passengers speaking Spanish: >90%
3. Percentage of attractive women wearing tight clothing: just right
4. Percentage of unattractive women wearing tight clothing: too much for comfort but enough to make it interesting
5. Number of electronics stores: 5, all mobbed
6. Number of stores selling alcohol and perfume: 4
7. Number of extremely lucrative Lacoste stores: 1
8. Number of news stands and book stores: 0 (can’t explain this one: may have to do with exclusivity deals signed by other airport retailers)

Tocumen International is one environment to see Latin America’s wealthy interact.

7 Collective action problems

Wouldn’t the world be a better place if:

1) It was deemed socially acceptable to jog or run everywhere
2) We all suddenly stopped wearing business casual (a bad compromise of two desirable things)
3) Everyone took the passwords off their WiFi
4) Everyone Twittered their current location all the time
5) People showed up to parties exactly on time
6) Public transportation
7) And the big ones: No more tariffs, no more nukes, no more armies

What makes a city grow?

The city

1. The city, of 1.2 million people, is on the coast and has ports
2. The city’s rich colonial history, distinct local culture, and Caribbean climate are ideal for tourism
3. The city is 70 miles from another key industrial city

The country

1. The country suffers a reputation for killings and kidnappings due to many years of violent drug wars and guerrilla insurgencies
2. In the recent past, traveling between major cities at night was dangerous, causing a reliance on planes for travel and transport
3. Recently, the country has become much safer and the guerrillas are nearly defeated

The world

1. The price of oil is sky high, favoring land and sea transport over air transport
2. A real estate crisis and shaking equity markets in the United States and Europe are pushing capital into new markets
3. Economic power is shifting from first to third world

As this country’s reputation catches up to advances in its security, tourism in this city will boom. International investors are already driving up real estate, and the trend will continue. The city’s ports will swell and require expansion. New local wealth will find local consumption and investment opportunities.

The city is Cartagena, Colombia, which is taking off. You can feel energy in the air. Question: if you foresee this growth, how can you invest?

Just add water

Presidential campaigns are rife with vague and in-actionable policy proscriptions. For example, “supporting fair trade” or “balancing the budget.”

But you got to feel for the candidates — it’s difficult to find silver bullets. Most real change requires a tough combination of money, organizational capacity, structural change etc.

But not always.

There’s one policy change that will increase US prosperity, raise standards of living, reduce global poverty AND bolster our long-term competitiveness.

Best of all: To implement it will require just a single keystroke.

Take the number of permitted H1B visas this year (85,000). Add a zero to the end.

Presto.

(some other ideas here with input from readers)

Reverse cultural imperialism fun fact

Nuts 4 Nuts: Actually invented by an enterprising Chilean and is all over Santiago.

Nuts 5 Nuts: Invented by a slightly less enterprising Chilean who knew a good thing when he saw it.

Branding countries and Uruguayan Caviar

Try playing the word association game with countries. Italy: Pasta. Taiwan: Electronics. Somalia: Hunger.

With Chile, you always hear the same two: Wine and skiing (occasionally sea bass). This is somewhat intentional — the tourism officials don “land of wine and snow” paraphernalia. Chile has successfully branded itself and is seeing a surge in wine (and other luxury goods) exports and tourism as a result

But until very recently I had never thought about country-branding as a development tool.

When playing the word association game with Uruguay, most people draw a blank. Maybe for good reason — the country only has about 3 million residents.

A Urugruyan enterpreneur attended Endeavor’s recent selection panel with the hope of making Caviar the symbol of Uruguay. Caviar has forever been dominated by the Iranian and Russian brands, but apparently Uruguay is a perfect place to farm it. So this entrepreneur going to try to build the Uruguayan caviar industry from scratch, creating jobs and export revenue in the process. But even more, he’s going to build a brand for his country.

Soon when you think Uruguay, you’ll think caviar.

Why will there be blood?

There Will Be Blood, an expose of the early 20th century American oil industry, follows an oil entrepreneur who learns drilling technology and travels the country, buying land from local communities to harvest oil. One theme in the movie is the inevitability of violence, caused both by the unsafe drilling operations and the increasingly hostile relationship between the savvy driller and the rural community in California.

I’m not an American historian, but I can believe that violence was an integral part of early American oil exploration. There are plenty of historical and semi-fictional examples of violence surrounding oil, such as: recent history of Iraq, Syriana, Blood Diamond (diamonds and oil are similar), and lesser publicized events such as conflict amongst Ecuadorian Indians.

So it is intuitive that There Will Be Blood. But Why Will There Be Blood?

What does the econ 101 model say? Everyone should be better off with the discovery of oil: the community gains and controls a valuable resource; the entrepreneur has another application for his technology. Win win.

Here are some reasons for the violence (I think all of these boil down to each side believing they should get a larger portion of the pie):

1. Asymmetrical information: the driller knows much more than the local community about how much a field may be worth, how much environmental damage drilling will cause, how to write contracts to avoid responsibility, etc
2. Asymmetrical power: the driller has much more technology, worldliness, and prowess than the local community, and can exercise that power to its advantage in a way that often results in violence; see Guns Germs and Steel; see Spanish General Pizarro meets Inca ruler Atahualpa
3. Uncertainty: in environments of uncertainty (specifically, how much oil, how much environmental damage, who profits) it is always easier to justify your own actions (I took on risk!) or claim you have been cheated (they promised me something and didn’t deliver); violence ensues

In addition to these reasons, conflict can also arise when the government controls the land and doesn’t represent the people who live on it.

Are there other reasons for the violence surrounding oil? Why does the media paint an ugly picture of oilmen (e.g. Syriana) but a more friendly one, say, of wealthy tech gurus, or even (gasp) hedge fund managers?

Language struggles

Speaking to someone who doesn’t know a language well is like having a conversation with Google.

It’s all “keyword” based”

To fill the empty space and compensate for lack of apprehension, one is forced to simply riff off of the few understood words to impress the veneer of actual conversation.

Example of how this works (fictionalized):

Chilean: “My uncle was run over by a Volvo downtown last week. The funeral is Saturday” (words I understood in bold)

Me: “I used to drive a Volvo! Great cars!”

————————————–

Another strategy from Bri:

usually I just take the last word and add a question mark, while nodding my head with look of extreme
concentration and engagement. then I try to make that sound I hear from the Chileans, the mysterious “ah yah.”

Chilean: “My Uncle was run over by a Volvo downtown last week. The funeral is Saturday.”

Bri: “Saturday? Ah yah.”

The real villian

In the vein of Richard Posner, Thomas Sowell can be a arch-conservative whackjob, but he can also be quite insightful. One of my favorites is his thoughts on the “Animistic Fallacy”:

The simplest and most psychologically satisfying explanation of any observed phenomenon is that it happened that way because someone wanted it to happen that way.

What the animistic fallacy yields is the invention of “villians” and “heroes” to explain large-scale phenenema: If it happened, someone or something powerful must have willed it to be.

Generally you hear about the villians more. From gas prices (greedy oil CEOs) the housing bubble (speculators?) campaign idiocy (it’s the media!) . Or here in Latin America Argentines blame fallow soy fields on Bush (US soy demand leads to poor crop rotations). Of course, the world simply doesn’t concentrate power in a way that individuals can perpetrate large-scale phenomena.

The real power of economics is that it provides an alternative to the animistic fallacy. And this is why it should be taught to everyone (e.g. a high school requirement, not a college elective)

Economics teaches an inevitability of large-scale phenomena. Things happen, bad and good. And it’s not always because someone wanted it to be that way. It’s a democratic conspiracy — the sum of the small individual choices we all make day-to-day in pursuit of our individual best interest. And the writing is already on the wall long before the event.

The animistic fallacy gives hope to those that try to turn back the effects of inevitable large-scale phenomena. Globalization, shifting comparative advantage, commodity prices. The fallacy is this: Someone is making it happen and someone can stop it! Unfortunately for those adversely affected, this is simply not true.

As Sam often points out, economists turn a blind eye to the disadvantages of a more globalized world. I agree with him completely, but to me it’s a moot point. It’s happening and there’s nothing any one entity can do about it. The only question in my mind is how we should react.

Buddhist consulting

“In the beginner’s mind there are many possibilities, but in the expert’s there are few.”

Beginner’s mind is a concept in Buddhism representing openness or lack of preconception. Simplifying the mental state allows for a clearer picture of reality. In many disciplines, we try to “advance” to higher and higher levels of learning, ability, or complexity. In Buddhism, beginner’s mind is a reminder to focus on the basics. The equivalent in a mathematics class would be to meditate on 1+1=2. Forget the Pythagorean theorem or differentials: do you really know 1+1?

The best consultants channel the power of beginner’s mind because they choose:

• Capacity to learn over veneer of expertise
• “Basic” experience of the client over “advanced” modelling
• Simple solutions over complicated engineering

Most importantly, beginner’s mind reminds us to stay humble. Consultants can do great things only by listening and harnessing latent power of their clients. The smartest analysis is useless if it stays on PowerPoint slides, disconnected from execution.

I suspect that successful people in every field draw advantages from spiritual practices. More examples?

Good old boys in good old (Latin) America

Here’s another reason you know you’re in Central America: good old boys. I suspect that American business was dominated thirty years ago by “good old boys.” George Bush is the perfect example. He joined clubs like Andover and Yale and Skull and Bones because his father did. He enjoyed immediate business prominence (if not success) because of his connections and swagger, not because of analytical ability.

A quick glance at an incoming McKinsey class reveals that times have changed, with Bush’s elite cool exchanged for a distinctly middle-class (but not for long!) ambitiousness. Impeccably prepared and overwhelmingly dorky, the new American super-successes are represented by Bill Gates and Mark Zuckerburg, not new generations of Rockefeller. No Bush will be president from our generation.

Meanwhile Zuckerburg still flounders in Latin America. His brain needs more brawn; he needs connections and a BMW when he turns eighteen; he needs to know the right people and have the cool to get them to join his website; he needs social value and it’s not going to come from anticipating trends in global social networking.

Fifty years down the road, expect to see some convergence to a more technocratic business environment. But for now, good old boys dominate in good old (Latin) America.

My new hobby horse: GPS

As previously expressed here and here and here, I think prevalent mobile GPS technology is a total game changer and holds great promise to improve our offline lives.

Two more applications for the technology:

1) Time is money. And if there’s one place we waste a lot of time, it’s overbudgeting for car trips to account for traffic. If you MUST be somewhere at X time, you plan for the worst and leave a large cushion. Chances are you arrive early. GPS will largely eliminate the friction of time budgeting. It knows fairly precisely how long it takes to get from A to B because others are always driving all along the route you will take. It can ascertain current traffic conditions with unprecedented resolution by piecing together individual car speeds along the route in real time.

2) This is Oskar’s idea: Ever wonder physically how close you’ve been to a certain celebrity in your lifetime? Me neither. But everyone who reads People Magazine has. And they’d love a GPS system that could tell them. (NB .. fairly certain I was once within 37 feet of Steve Buscemi. May 19th 2003)

Facebook vs. Gmail (advantage Gmail)

Web businesses are like tennis stars. Completely dominant for a few years and irrelevant quicker than you can say “AOL/Compuserve/Altavista/Napster/Yahoo/DoubleClick/Friendster/Hotmail.”

You can count on your two hands the number of web businesses that have remained market leaders in their space for more than 5 years. Try comparing that to any other industry.

People tend to think Facebook could be the next internet mainstay for three reasons:

1. It understands the “social graph”
2. It has incredible personal information about their users
3. Switching costs are high (lots of blood/sweat into building your profile)

I think this all is true. But I don’t think Facebook is unique here. Gmail’s got them beat on all three counts.

On the social graph (1): Facebook has your hundreds of “friends.” Gmail has your thousands of email contacts. Any measure of the strength of a social connection is skewed by Facebook usage patterns  (e.g. your real friends never write “Happy Birthday” on your wall. Facebook power users do). On the other hand, your friends do email you in rough proportion to the strength of your relationship. The folks that show up on my gChat sidebar are a pretty damn good measure of who is most important in my life at any given time.

On personal information (2): Facebook profile data is nice because it is standardized, but contains far less personal information than what’s locked inside my gmail account. The shear volume of information there is incredible and just a smart algorithm away from being a huge strategic asset.

On Switching Costs (3): Switching costs for leaving Facebook for another service do exist. Building profiles is annoying. So is porting pictures. The data portability movement is going to snipe away at Facebook switching costs soon enough and we are already seeing it open up more. Gmail owns me. And even if a moderately better service existed, I would not switch. My inbox and outbox are the two most important pieces of property in my life. Unfortunately I don’t own them. Google does and therefore has me captive.

Gmail’s got the staying power and is going to be around for a while. Facebook may or it may not. Time will tell.

Economy (mis)meaured

I must admit that I myself fell into the trap several months ago, on my way to Nicaragua: “I’m visiting the poorest country in Latin America.” By GDP per capita, my statement was true (excluding Haiti from Latin America): Nicaragua has just $1,004 per capita GDP, or just $2.70 per person, per day! In comparison, the lucky bastards in Honduras ($4.54) or Guatemala ($7.26) are rolling in dough. Who knows what the Guatemalans do with the extra $4.51.

My belief in Nicaragua’s poverty was easily reassured when I arrived at my new office in Costa Rica, where everyone seems to know that Nicaragua is the poorest country in Central America. My coworkers spend all day researching Central American economies, and they would certainly know.

So naturally I was surprised to find that by many standards of “development,” Nicaragua ranks ahead of Honduras and Guatemala. Nicaragua has higher life expectancy at birth and lower under-five mortality rates. It also beats Guatemala in literacy by 8 percentage points. The UN’s composite Human Development Index ranks Nicaragua ahead of both Guatemala and Honduras in overall development.

But what about $2.70 vs. $7.26?! It’s amazing how much we can read into these little numbers and create incredible stories around them as if they summed up countries. Poorest country in Latin America. We may say that without any regard for income distribution, food availability, education standards, social mobility, and a number of other characteristics that determine people’s opportunity in life.

In fact, GDP completely misses one of the most important characteristics of the economy, specifically how well a country focuses its resources and productive activity to benefit its people. A quick example: the United States spent $5,711 (per capita) on health care in 2003 compared to $2,317 for Great Brittain. These figures are essentially per capita GDP in health care. Should we celebrate our high health care GDP? No! The object of health care is good health, not high bills. Our health care system is broken, and the high cost is a reflection.

So spread the good news (or bad if you live in Guatemala): By many measures, Nicaragua is not as screwed.

The entrepreneurial ecosystem

Was chatting with the head of Endeavor Chile the other night about the current state of the entrepreneurial environment in the country. Although he was too modest to attribute everything to Endeavor, he was confident that the environment had changed quite a bit in the last ten years. What he was describing was not simply the emergence of new entrepreneurs. He was describing the formation of entrepreneurial infrastructure — an ecosystem to support entrepreneurship.

Think about what’s required to start a successful company from nothing:

• You need angel investors to put in the initial capital and a culture where wealthy investors want to take active investment roles
• You need employees/lawyers willing to defer salary in exchange for equity (still very rare in Chile)
• You need publicity. This includes journalists who write about start-ups and readers who want to read about start-ups .
• You need VCs willing to provide capital in exchange for shares AND a sufficient number of start-ups that they can adequately diversify their risk

Silicon Valley has all of these and it is no wonder the place is the world’s entrepreneurial engine. Many emerging markets do not. We think of entrepreneurship as the solitary, unsupported work of individuals. The truth is there is a support apparatus that makes it all possible.