On December 12-13, 2003 the Center for International Private Enterprse collaborated with The Ronald Coase Institute and the University of Sao Paulo to address the democracy deficit in Latin America by emphasizing institutional reform. The keynote speaker was Professor Douglass North (Nobel Prize recipient in 1993) who highlighted his important work on the cost of transacting business in Latin America and the Caribbean. This conference featured leading experts in the private sector and civil society around the region presenting a portfolio of tools and experience in consolidating democracy and furthering economic reform. We hope that this experience proves useful for shaping the next stage of reform in this region.

Agenda | Day 1 Transcript | Day 2 Transcript

• Introduction to the Conference
• Keynote Address
• Panel on Transaction Costs
• Roundtable Discussion on Transaction Costs and Institutional Change
• Roundtable Discussion on Reducing Transaction Costs in Brazil
• Pursuing a Reform Agenda in Latin America, Part 1
• Pursuing a Reform Agenda in Latin America, Part 2

Introduction to the conference

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“Latin America stands out from the rest of the developing world because of its particularly strong reform history, both by democratization and the debt crisis. However, after a period of moderate economic growth and political stability, the region faces new economic and political challenges that must be addressed. CIPE believes that in order to cope with these changes, it is fundamental to bring to the surface connections between institutions and how they function, between democratic development, as the keys to opening up and unlocking the creativity of the people of the hemisphere. This conference brings together international experts and many ideas on how to generate economic change and most important, on how leaders in the region can get reforms in place.”

John D. Sullivan
Center for International Private Enterprise, USA

“In order to adapt to a dynamic world of continues change, Latin American countries need to improve institutional and economical performance. But before confronting these important challenges and undergo a fundamental transformation, leaders in the region must understand the existing structure of the economy and the transaction costs. They ought to review the history and background of their countries and how institutions work, so that they can identify possible limitations to change. Once they are aware of these structural issues, they will then be ready to improve the way the game is played.”

Douglass North
Nobel Prize Winner, Washington University, USA

“Academics and entrepreneurs throughout the hemisphere are deeply concerned about how we can become more efficient when it comes to measuring transaction costs. Our new instrument [systematic survey] which we call the cost of exchange, measures elements of transaction cost from the perspective of individuals who are involved in the transaction themselves. Our methodology goes back to the idea of having some basic understanding of the processes and institutions in each country, and then developing a strategic survey.”

Lee Benham
Ronald Coase Institute, USA

“By using the same methodology developed by the Ronald Coase Institute, we designed a very meticulous survey to measure the cost to register formally in Sao Paulo, Brazil. Our interest was to look at the real world, not the hypothetical world, so we went directly to the entrepreneurs and worked with them. According to our initial findings, we can observe some progress, but there is still a lot to learn from other countries. Hence market reforms must continue throughout the region.”

Decio Zylbersztajn
University of Sao Paulo, Brazil

“Since we have common problems in many Latin American countries, one particularly powerful aspect of this methodology is that it can allow comparisons using essentially the same instruments to measure the cost of entry firms. In the case of Lima, Peru were we surveyed around 120 firms, we found that most firms have a period in which they operate informally before they start the processes of registering and acting formally. Our survey shows how a vast majority of owners are willing to become formal in order to access new clients and suppliers, thus, formality is not just a matter of getting entry into the market, it’s also a question of staying in the market.”

Miguel Jaramillo
Instituto Apoyo, Peru

“In order to alleviate the bureaucratic burden that affects our countries we must establish a permanent dialogue between the production sector and the government. At the end of the day, entrepreneurs and politicians have to know that formality is cheaper that informality for growth and that simplification is possible and is the pathway for development and job creation.”

Sr. Alencar Burti
Serviço Brasileiro de Apoio às Micro e Pequenas Empresas, Brazil

“Politicians and business owners must work together to strengthen the relationship between the state and the market by showing the importance of institutions for the operation of markets in the development of our nations. By having better laws, an efficient public sector and common values, we are reducing transactions costs and creating incentives to formalize the economy.”

Guilherme Afif Domingos
Associacao Comercial, Brazil

“The rules of the game are changing in Latin America. In the case of Brazil, we are experiencing gigantic changes. We have the overlapping of the old traditions in terms of mentality and institutions and the new vision which emphasizes simplification, transparency and the rule of law. We definitely have new challenges, that is why Brazilians have started a path of no return, there is no going back to an institutional environment of the past, we must continue looking for new initiatives and taking advantage of our resources.”

Dr. Mailson da Nobrega
Former Minister of Finance, Brazil

“There is an extremely rich case to be analyzed in terms of large institutional reforms in Brazil. If we look at the country’s history, we find that all important reforms, like the creation of income tax and the social security system have taken place within authoritarian regimes, all of them dictated by a strong central power. The big question then, is why are changes slow when they are conducted in a democratic environment? Is that becoming a trend in Latin American Countries?”

Dr. Guilherme Dias
Faculty of Economics, University of Sao Paolo, Brazil

“Among the many challenges Latin American countries face, is the need to change the concept of governance, from one of rule and control to one of providing services for constituents. Governments should be limited and dedicated to protecting liberties and not imposing a false order. Leaders in the hemisphere have an enormous compromise with public education; citizens in the local communities should be allowed to participate in the decision making process and learn how to manage their own government, this is what democracy is all about.”

Steve Johnson
The Heritage Foundation, USA

“Venezuela is a perfect example of how historically many of our countries have had to deal with political crisis and at the same time pursue a reform agenda. This is obviously an extremely hard task. The business and think tank community has played a key role in contributing to this effort. Our involvement includes working with political, social and labor leaders to influence national public policy and working at the grassroots level especially with the informal economy.”

Aurelio Concheso
Center for the Dissemination of Economic Knowledge, Venezuela

“Even though Central American countries have been quite successful in implementing economic reforms, there is still a lot to do in order to integrate to the world markets. If we are looking ahead to become part of a hemispheric free trade zone, we must enhance the dialogue between the private and public sectors to push a new reform agenda that should include competitiveness, a bureaucratic reduction and the removal of basic obstacles for doing everyday business.”

Hugo Maul
National Economic Research Center, Guatemala

“The negotiations concerning the creation of the Free Trade Area of the Americas (FTAA) have understandably attracted the interest not only of specialists but also of the wider public. Most Brazilians seem to be quit skeptical about this idea; many don’t even know why they are against it. We at the Instituto Liberal believe that the idea of free trade is good. However, we also realize that we have to continue promoting and explaining the benefits of free trade.”

Roberto Fendt
Institute for Legal and Regulatory Studies, Brazil

“There is a big debate going on about the need to promote corporate governance in emerging and transitional economies. The case of Colombia is quite unique. Our organization has been successful in selling these new concepts to local entrepreneurs. Our movement has reached all sorts of audiences including students, journalists, public officials, scholars and small owners. It’s only about being creative and working with the right people.”

Paola Gutierrez
Colombian Confederation of Chambers of Commerce, Colombia

“Many people in the region say that the Washington Consensus and the economic reforms of the last decade have been a total failure. People argue that economic growth has not been achieved and even worse, corruption has increased. However, are people really informed about what is behind these reforms? Or maybe, they are being influenced by the so called neo-populist movement? If we expect to move forward with our liberal agenda we must change the strategy of how we are communicating our ideas throughout the hemisphere.”

Rafael Merchan
Political Science Institute, Colombia

“Chile is said to be a success story, many people in the region talk about the Chilean case. Let me tell you why we were able to succeed. Our government was able to make reforms in a coherent way, in a much more radical and profound way. One of the best examples is the way we changed the electoral law, creating a majoritarian rule, which facilitated agreements between members of Congress. This is an example of an institution that is a key element of our success.”

Cristian Larroulet
Freedom and Development, Chile