40 year bonanzas

'''Bubbles, Bonds, Bonanzas, Booms, and. . . Busts. Will it be different this time?'''



Now twelve years into Peru's fourth great bonanza-period and with plentiful finance to hand, is enough being done to prepare a truly balanced, inclusive and self-sustaining economy for the future? A keynote conference |i in November by an international specialist analysed the past bonanzas and posed the right questions. A flurry of articles in the media have added to the debate and call for stiff New Year's resolutions. Projections for the next period are still good but where are the essential reforms which will turn the provincial cities and Lima's “young towns” into the silicon valleys & Taipei Tigers of tomorrow and Peru's schools and universities into the best in the world? Analysing past errors during the three historical bonanzas can help get policies right for the fourth and current period of bonanza.



=The keynote conference|ii  (27/11/12) Two centuries of extractive bonanzas in Peru, will it be different this time? = 

The talk was given by Victor Bulmer-Thomas|iii and in general dealt with the lessons we can learn from Peru's history of “40-year” economic bonanzas|iv – four including the present one. “The presentation focused|v on the history of extraction activities in our country, the economic bonanza they provide and the outlook for the future in this sector.”

Retrieved from web: http://www.bpcc.org.pe/in/members/desnews.php?id=26





The speaker

The keynote speaker was Victor Bulmer-Thomas, one of the United Kingdom's most experienced economists / economic historians specialising in Latin America. Carlos Anderson|vi a well-known Lima economic analyst was on the platform as commentator. They were presented by the United Kingdom Ambassador. . . . and the President of the Británico. . . . . .The approach of Victor Bulmer-Thomas is in the British academic tradition (in history) of empiricism and clear readable, and in this case listen-able, prose. The projected charts bewitched us into believing that one of the most difficult of topics was an intellectual walkover. Victor Bulmer-Thomas has occupied some of the major institutional posts for his field: director of the Institute of Latin American Studies in London and also of Chatham House, the Royal Institute of International Affairs, as well as professorships in Latin American economics. He is one of the few Latin Americanists to be able to apply statistical and mathematical analysis, including input-output analysis, to a variety of topics.



Part 1 of the talk: the British role after 1821

Given that the lecture was being held in the context of the 75th anniversary of the Británico|vii (see Peruvian Times 16 June 2012) the first part of the keynote lecture was devoted to an analysis of Britain's role during its period of financial and commercial hegemony in Peru (and implicitly the relationship with the first “bonanza” - that of guano). This part, dealing of course principally with the nineteenth century, recounted how Britain|viii, or rather British firms quickly became the predominant investors and traders in and with Peru, because “only Britain had the Balance of Payments surplus” necessary for the task.

Part 2: the four bonanzas in Peruvian history

The second part surveyed the pattern of the “bonanzas”|ix – which Peru has enjoyed or, in the view of some, just frittered away.|x “Those who do not understand (their) history are condemned to repeat its mistakes|xi” VBT pointed out in a public [but poorly advertised] lecture given in Spanish on the “cuatro bonanzas” which have covered a grand part (130/190 th's) of Peruvian economic history since independence was declared in 1821. <p style="margin-bottom:0cm;line-height:150%">

<p style="text-align: JUSTIFY; margin-bottom:0cm;line-height:150%;">Whilst there might be some divergence between economic historians about the tops and tails of these forty year highs, the periodization is approximately as set out in Table 1. There is less agreement as to whether the Peruvian people in general saw much of the benefit (see below “Why bonanzas bottom out”). Notably Jorge Basadre, Peru's much quoted historian termed the first bonanza “La prosperidad falaz”. In fact a three volume section of his 17 volume History of the Peruvian Republic (1960 edition) bore that title.

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<p style="text-align: JUSTIFY;">The risks which may threaten bonanzas.

<p style="text-align: JUSTIFY;">Sooner or later bonanzas come to an end. Some of the factors include:


 * 1) <p style="text-align: JUSTIFY;">Substitutability – Malayan rubber substitutes Peruvian.
 * 2) <p style="text-align: JUSTIFY;">Protectionism – In the 1930's customer countries protected their markets.
 * 3) <p style="text-align: JUSTIFY;">Over-exploitation of source – Either resources run out or become more expensive to extract.
 * 4) <p style="text-align: JUSTIFY;">Market saturation – too much offered to the world market: Bolivian tin.
 * 5) <p style="text-align: JUSTIFY;">Collapse in world demand - coinciding with cyclical downturns
 * 6) <p style="text-align: JUSTIFY;">Scarcity of labour – possibly the current Peruvian situation

<p style="text-align: JUSTIFY;">Also in the present case

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 * 1) <p style="text-align: JUSTIFY;">Internal political fights and social & environmental opposition can self-destruct a bonanza unless the government has “fair” policies.
 * 2) <p style="text-align: JUSTIFY;">Lotteries should carry a health warning. If your economic health is purely dependent on the international price for your country's resources will there be any perceived link between your work input and your prosperity?

<p style="margin-bottom:0cm;line-height:150%">Britain, US, China and booms

<p style="text-align: JUSTIFY; line-height:150%;">Britain had been the principal commercial partner of the young republic during the first boom period from 1840 to 1880 and for part of the second from 1892 to 1932. It had broadly financed the march to independence and thereafter become the principal nineteenth century investor. There followed a close economic relationship with the United States which only recently is being challenged by China. In all these the international partner was always more important to Peru than vice versa. In fact, as we see today, getting a fair share of the “bonanza” when dealing with strong global partners (UK, US, Japan, Germany|xii have all had their turn at the helm – and now China) is no easy matter.

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<p style="text-align: JUSTIFY; line-height:150%">Will the current bonanza continue?

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<p style="margin-top:0.21cm">''Illustration 1: The present bonanza is interrupted only by the effects felt in 2009 of the international financial crisis. Data show growth rates per annum. The start of the “bonanza” could be said to be 2000 and if past patterns are repeated could it last as much as 40 years? Source: La República 28 Dec 2012.''

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<p style="margin-bottom:0cm;line-height:150%">Bulmer-Thomas was reluctant to be drawn over-much on the question of the future of the contemporary boom. If patterns repeat themselves then Peruvians can expect it to top out between 2020 and 2030 and be over by 2040. The boom is largely a product of the sky-rocketing prices paid for Peru's raw materials, whilst the quantity exported has remained more or less constant. When the prices come down the boom will fade, repeating the same cycle as before unless the country diversifies its industry and ceases to rely exclusively on raw materials Later the speaker noted the behaviour of exports in services where tourism and migrant-remittances are now important elements and in a contemporary media interview|xiii he emphasized, as a means to those ends: education, training and a policy of diversification and redistribution. Peru is also not short of commentators who reinforce these views. Even in the nineteenth century Lima's intellectual class was saying much the same thing – though not exactly. For many the block seems to be a form of ideological “chip” which is preprogrammed to say that the global market alone will do the trick. Breaking out of the bonanza orbit is one thing. Having enough (appropriately) skilled labour to exploit the boom – when only one third of young people are educated beyond a fairly basic secondary level - is another as an interview with an ex-minister of labour emphasized|xiv. In fact the “skilled-labour shortage” factor is already making itself felt in many sectors.

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<p style="margin-bottom:0cm;line-height:150%">'''Is it important to break free of dependence on the extractive industries? '''

<p style="margin-bottom:0cm;line-height:150%">The arguments for a move away from the mineral and other extractive industries do not depend just on the need to ensure more permanent longer-term growth. The present economy is inherently unstable because of this feeling that you can remove Lima from the map and the exportable output of the economy would be largely unaltered. That is Lima needs to find a role as a producer. Can it be competitive enough to challenge East Asia? Could it break into the high-end international services market (software output etc)?

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<p style="margin-bottom:0cm;line-height:150%">Will it be different this time?

<p style="margin-bottom:0cm;line-height:150%">To return to the headline question for the talk: will it be different this time? The more permanent changes and therefore the more reliable in the long run and which have already taken place in the Peruvian economy  include more women professionals in the economy; more people from the Peruvian heartlands ( andinos  and others) in professional and executive jobs; a crackdown on corruption   and immunity (from the Paniagua and Toledo administrations onwards); a welcoming attitude to information technologies; some dividend from the expansion of  Conafu -universities; a improved public infrastructure; a breakthrough into international markets; low import taxes; more Peruvians abroad (returning reskilled / sending remittances); more irrigated land; a “diversification of spiritual / religious life” (secularization, growth of new religions); some inroads into the “low trust” society; a renaissance of cultural life; some intercultural education; ecologism; some success in titling (titulation of invaded land etc); very dynamic marginal informal sectors with a more robust process of formalization; balancing the national budget (= low inflation); some progress with “continuity” – public servants who finish or are allowed to finish the job; and the list – not written in any particular order – continues (See Peruvian Times 4 June 2011) [ http://www.peruviantimes.com/04/what-should-peru-do-2/12519/ ] Nevertheless, in spite of this impressive list there is still concern that unless the Government introduces more specific policies to encourage non-extractive sectors and to redistribute via public infrastructure projects (quality education, piped water and electricity for all, rapid transit to suburbs, high-speed rail Quito – Lima – Santiago, etc) then it will be back to square one when the bonanza fades.

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<p style="margin-bottom:0cm;line-height:150%">Stop press: Alternative Strategies for Mining-Based Economies <p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> A conference in London on 4 March 2013 promoted by the Peru Support Group 9am - 5.30pm  Institute for the Study of the Americas

<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">Senate House, Malet Street, London, WC1E 7HU

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<p style="text-align: JUSTIFY; line-height:0.56cm;">Mining activity has the potential to bring significant developmental benefits to countries in the Andes. However, as resources are exhausted, governments are turning to exploration in less desirable areas and proposing projects which may cause serious environmental damage. This has increasingly resulted in conflict with local communities and raises questions about how to manage and regulate the extractive industries. There are also broader debates about the risks and dangers associated with depending on a handful of commodities to sustain national economies, particularly when these are non-renewable.

<p style="text-align: JUSTIFY; margin-bottom:0cm;border-style:none;padding:0cm;line-height:0.56cm;"> Even while governments pursue “extractivist” policies, innovative alternative development proposals are emerging from civil society and from governments themselves. Both the Bolivian and Ecuadorian governments have included the language and principles of  vivir bien  in development plans and laws. Others prioritise in-country processing of raw materials or a move away from export-based, growth-centred strategies. Another approach is simply to better regulate large-scale mining investment so as to maximise its spread effects and contribution to local development.

<p style="text-align: JUSTIFY; margin-bottom:0cm;border-style:none;padding:0cm;line-height:0.56cm;">This day-long conference will feature debate involving an international panel of speakers, including

<p style="text-align: JUSTIFY; margin-bottom:0cm;border-style:none;padding:0cm;line-height:0.56cm;">:

<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Anthony Bebbington Ph.D. - Higgins professor of environment and society, Clark University and research associate,  Centro Peruano de Estudios Sociales.

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Jose Pimentel Castillo  - Vice-president of COMIBOL, the Bolivian state mining company, and former mining minister of Bolivia.

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Carlos Monge Ph.D. - Latin America regional coordinator of Revenue Watch Institute and senior researcher at Peru's Centre for the Study and Promotion of Development.

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">Joan Martinez-Alier Ph.D. - Professor of economics and economic history, Universitat Autonoma de Barcelona. <p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">

<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Carlos Larrea Ph.D. - Professor of development, Universidad Central del Ecuador.

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Mirtha Vasquez  - Lawyer and director of Peruvian environmental NGO GRUFIDES

<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">

<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;"> Rosemary Thorp CBE  - Emeritus fellow, St Antony's College, Oxford, and former director of the university's Latin American Centre.

<p style="text-align: CENTER; margin-bottom:0cm;line-height:0.56cm;">______________________________________________________________

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">A bibliography relevant to the topic of “bonanzas” and a list of publications written by the speaker is available on Zotero/perustudies/.

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<p style="text-align: LEFT; margin-bottom:0cm;line-height:0.56cm;">_________________________________________________________________________________ <p style="text-align: CENTER; margin-bottom:0cm">Endnotes

<p align="CENTER" style="margin-bottom:0cm"> iDescribed as a charla magistral  in the publicity.

====iiThe title of the lecture with projected images and discussants was “2 siglos de bonanza minera en Perú, será diferente esta vez?” and the description was given as “En el marco de la celebración de sus 75 años. El Británico, conjuntamente con Cambridge University Press, presenta al distinguido economista británico Dr. Victor Bulmer-Thomas.====

====iiiDr Bulmer-Thomas is Emeritus Professor of Economics at the University of London and Honorary Professor at the Institute of the Americas of the same university. Professor Bulmer-Thomas, who holds a PhD degree from the University of Oxford, presented this talk in Spanish on Tuesday 27 November at 8 pm at the Convention Centre Daniel Alcides Carrión of the Medical Association of Peru (Centro de Convenciones del Colegio Médico). Dr Bulmer-Thomas es miembro asociado del Programa Regional para las Américas de la "Casa Chatham", donde fue director desde el 2001 al 2006. Actualmente es Director del Fideicomiso de Inversión Nuevo india y del Fideicomiso de Inversión de JP Morgan, Brasil.==== <p style="margin-left:0.53cm;text-indent:-0.53cm;margin-bottom:0cm;line-height:100%;">ivAs an informative neighbour in the conference hall commented using a somewhat mixed metaphor “When the sun shone on Peru we refused to bask and when the clouds came out the money had mysteriously drained away. Of the 190 years following Independence 130 were, according to the graphs and charts, bonanza periods but mostly they sure didn't feel like it!”. He ruefully reflected that the 1944-84 bonanza produced it seemed only the Garcia hyper-inflation and Sendero Luminoso (the Shining Path insurgency).

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vSee summaries on the Peru-Britain Chamber of Commerce webpage and the website http://lamula.pe/2012/12/04/las-bonanzas-efimeras-en-la-historia-del-peru-analisis-del-economista-britanico-victor-bulmer-thomas/combase9 <p style="margin-bottom:0cm;line-height:150%">vi And also previous postgrad colleague from London vii The “Asociación Cultural Peruano Britanica” often shortened to the “Británico” viiiReflecting the objectives of the organisers. “For the Británico this is yet another way of enhancing our role as active agents in the cultural exchange between Great Britain and Peru, sharing perspectives on an economic activity as significant and of such great impact as mining,” commented Thomas Malcomson, General Manger of the Británico. Cited from the Peruvian British Chamber of Commerce webpage. <p class="sdendnote" style="margin-left:0.48cm;text-indent:-0.48cm">ix Bonanza was the preferred term. Booms and busts tend to be cyclical or regularly recurring whereas a jackpot bonanza lasts “but a moment long” as many mining ghost towns might testify. However in the case of Peru the “moment” appears to have lasted 40 years. Surely long enough to allow something to be put aside for a rainy day. Definition of BONANZA 1: an exceptionally large and rich mineral deposit (as of an ore, precious metal, or petroleum) 2a : something that is very valuable, profitable, or rewarding <a box-office bonanza> b : a very large amount c : extravaganza <channels planning all-day viewing bonanzas > Origin of BONANZA Spanish, literally, calm sea, from Medieval Latin bonacia, alteration of Latin malacia, from Greek malakia, literally, softness, from malakos soft First Known Use: 1829. (Definitions from Webster)

xOr “sequestered” by others as dependency theory might have it -and as actually happened in the case of the Tarapacá nitrate deposits (see War of the Pacific 1879 to 1883). <p style="text-align: JUSTIFY; line-height:150%;">xi “Quien no comprende la historia está condenado a repetir sus errores” xiiJapanese and German investment and trade, if taken together came to threaten US dominance in the 1970's during the Nixon crisis years. xiiiLa República November 2012. Webref: <p style="margin-bottom:0cm;line-height:100%">xivJulio Gamero, ex viceministro de Promoción del Empleo.http://www.ideeleradio.org.pe/web/wNoti.php?idN=5935&tip=principal