March 19, 2006

Competitive Costa Rica

The LA Times writes about Costa Rica's success and, probably without meaning to, its potential downfall:

... [Costa Rica] ranks third behind powerhouses India and China as the most competitive offshore destination, according to a 2005 report on outsourcing by two consulting firms.

... Costa Rica's conversion from a largely farm-based economy to a tech-led one has its roots dating back more than a century. The nation made primary education free and compulsory in 1870, according to the Costa Rican Investment Board, a private entity.

But what really launched the nation on its upward trajectory was its decision to scrap its army in 1949. The resources that had gone to the military were reallocated to higher education, universal healthcare and other human development programs that have paid huge dividends over the decades.

Known as the "Switzerland of Central America" for being an oasis of peace in a region torn by conflict, Costa Rica boasts the region's oldest democracy, its highest per capita income and a 95% literacy rate on par with the United States.

"Costa Rica invested in its people," said Rosalía Morales Acosta, executive director of the Costa Rican Chamber of Information Technology and Communication. "That set the stage" for everything that followed.

... The World Trade Organization has declared the tax-free benefits offered to foreign companies in Costa Rica's free-trade zones an illegal export subsidy that must be phased out by 2009. Exporters such as Santa Clara, Calif.-based Intel say such incentives are crucial to keeping Costa Rica competitive. But lawmakers haven't come up with an alternative that would pass muster with the world trading body.

And Costa Rica has yet to ratify a Central American free-trade agreement that also is to include the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the United States. ...

They invested in their people and prospered, which is a good lesson our own government would do well to remember. One can only hope that Costa Rica, however, will learn from the lesson of Mexico and stay the heck away from that free trade agreement.

Particularly when they run up against the hard truth that while they might be sanctioned by the WTO for trade subsidies, such sanctions can barely be enforced at all against a country like the US. Virtually every state and large local government in America offers some sort of local business subsidy, often with targeted, preferential tax breaks for key industries.

Posted by natasha at March 19, 2006 12:00 PM | International | Technorati links |