Understanding Nicaragua

One of my goals before I came to Nicaragua was to understand how things work here. It was hard to conceptualize before coming here what life would be like on a daily basis for most people. So many little things are different here that at first I didn’t know how I’d try to make sense of it all, but after being here for just over two weeks I have a better sense of the organizing logic of existence. Admittedly, I have a bias towards focusing on what people have in common and it’s through that lens that I look at the institutions and culture here. I truly believe that most of the differences that exist between countries and groups of people are because of historical and environmental rather than more fundamental differences. I don’t mean to downplay these differences, because the Nicaraguan people have a unique cultural heritage and psychology, but part of my task here is to relate to the communities the best I can and share my observations with you.

I believe that in a nutshell, the main cause of the difference between Nicaragua and the US is a lack of physical and human capital. This fairly obvious fact leads to an oversupply of labor relative to capital and becomes interesting when this relationship is traced through its consequences in the economic, social and cultural landscape. For example, businesses are extremely small and specialized here because people need multiple sources of income when they can’t find good-paying jobs. To get tortillas you can go to any one of several houses in town that just make tortillas. To get bread or purified water, stop by one of the many little ‘pulperias’ (convenience stores). To get internet access, go to a ‘cyber’ (consisting of seven or eight desktops, 50 cents an hour). Another consequence of an oversupply of labor is low wages. Most families need at least two or three incomes, leaving women to start these cottage-industry cooking or sewing businesses out of home. Since there isn’t enough money for washing machines or other durable goods, much more time needs to be spent doing laundry, dishes, cleaning, and cooking. This incentivizes either a stay-at-home wife, daughter or domestic help, which then in turn provides a part of another family’s income. One benefit of this decentralized and highly differentiated small town economy is the high interdependence and consequent social bonds that keep communities together.

Typical street in a larger city. Nowhere near the craziness of a high-density area of vendors, but it shows a bit of the constant movement, colors, and tiny shops.

The high labor-to-capital ratio also creates interesting phenomena in bigger towns, with thousands of people walking the streets selling juice or water from plastic bags tied at the top, street food, toys, ice cream, dvds, mototaxi rides, or any other tiny niche they can find. There are so many of these informal small entrepreneurs that it’s overwhelming how much stuff you’re offered every second in any population center. If you get on any bus in a large city you will be offered at least 5 different products in 5 minutes by walking vendors that board the bus in the front, walk through the crowded isles, and leave out the back. The lack of physical capital fundamentally changes the shape of people’s daily lives, but I believe that it helps give a logic to the outcomes that I see daily and makes me realize that the differences between people of different cultures and circumstances can be understood and overcome.

The lack of resources also affects a huge sector of life that I took for granted in the US, and that is public services. Schools, healthcare and social supports are one facet, but a whole other side is the lack of trash collection, the lack of full-time running water or of electricity in many parts of the country, the crowded public transportation, the decaying roads, and fewer police officers. One humorous effect that the lack of law enforcement has on daily life here is that instead of ticketing drivers who speed they make extensive use of speed bumps. If you don’t slow down to about 5mph every time you cross one then you’re going to wreck the suspension and give everyone in the car a bruised head and behind! This is also a good example of how a lack of resources can contribute to a further decline in resources. It may not be much, but to my eyes these speed bumps reduce fuel efficiency, increase wear and tear on the cars, and undermine the point of speed limits(a focus on human safety is replaced with a focus on not damaging the car). All of these features of Nicaraguan life can be at least partially traced to the lack of physical and human capital and this realization helps me greatly in relating to the people and lifestyles here.

The next questions to be asked are: How the country became so poor and what can be done to change it now? The first question is easier to answer than the second and anyone who is inclined to think that the poor are solely responsible for their own condition may want to think again. Any country that has a difficult climate (extreme rain followed by extreme heat), tropical diseases, natural disasters, few exportable natural resources, and small land area, was colonized and exploited by external forces for 250 years, gained independence and then was occupied by U.S. marines, then had military regimes supported by the U.S., a brutal civil war followed by a counter-revolutionary force financed almost exclusively by American taxpayers (see Ronald Reagan, Iran-Contra), and then finally gets a break right around 1990 can’t be expected to simply ‘pull itself up by its bootstraps.’ Geography and history have not been kind to this country, and Spain and the US have a great deal of responsibility for the damage that was done.

What we can do now is support through sustainable development(the Peace Corps mission), improvement of governance and infrastructure, educational development(my current assignment), and economic opportunity through responsible global business ventures.

I say ‘responsible’ because it’s easier to exploit people who have few resources. It’s interesting to hear about my brother’s job working for an UnderArmour clothing factory. I was hearing his friend who works with him say that they make the equivalent of about US$35 per week, which is a good wage in Nicaragua, but a drop in the bucket compared to the selling price of the products they make. Consider that one UnderArmour long sleeve shirt costs approximately $50 in the US and I can only imagine that each worker on average makes 20-30 of them per day. I’m not sure whether to feel grateful for the above-average wage, or angry at the money that they could be making if the corporation weren’t taking the money as profit. Is it exploitation, or is it opportunity? I’ve heard these questions before, but this is the first time I’ve come smack dab in the middle of them. The globalization issue is complex and I’ll have to do more observing, asking, discussing and thinking about it before I can pass judgment. I’d love to hear your thoughts on any of these observations, too!

This post is mainly about my thoughts on the economic life here, but if you’re curious about my personal experiences, I’ve begun an online photo album where you can see some of where I live and who I’m with. I continue to be in excellent health and to be challenged in wonderful ways each day. I hope you are all having a beautiful fall, and please do go out and drink in the autumn colors for me.

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5 responses to this post.

  1. Posted by Michael Martin on September 18, 2010 at 6:40 pm

    Very interesting analysis of the economy–I really enjoyed hearing your thoughts. As I often do in our conversations, I will briefly mention to be careful when blaming the “big bad corporation” while underarmor did net over $40 million in the last twelve months, a similar company, Abercrombie, only netted $300k in the year ended in January 2010–there are many many other costs to producing, selling, and marketing clothing than simply labor costs. Though I certainly would encourage a Company that is netting $40 mm to pay its workers a “fair” wage. Anyway, I’m sure we will have much to discuss upon your return!

    Reply

  2. Posted by Chuck Spargo on September 19, 2010 at 9:11 pm

    I have to weigh in with Mr. Martin in his comments.

    I note in the first sentence of your second paragraph that you indicate the difference between the U.S. and Nicaragua is the lack of physical and human capital (presumably in Nicaragua), yet later you indicate that there is a relative surplus of labor (human capital) in Nicaragua, so I would suggest that they don’t have a lack of human capital! They apparently lack natural resources (physical capital) and the cash to invest in assets for making life easier and for businesses. Why would you be against a corporation investing capital there and providing people with “above average wages”?

    In terms of profit, you make it sound like a company is not entitled to earn a return (profit) on the investments they have made for factories, supplies, labor, marketing, distribution channels, depreciation of the assets, etc.? Isn’t a company entitled to earn a margin/profit on their investments just as a laborer is entitled to earn a wage for working?

    Keep in mind that return on investment must to be in proportion to the risk involved in the investment. Treasury rates in the U.S. are low because of the relative security of those investments compared to corporate investments one could make. Investments made in foreign countries are inherently more risky than investments made in the U.S. Remember that in some countries (with unstable politics), company investments have been confiscated by the government with no recourse by the investing corporation; this has a dramatic impact on risk and the return has to be higher to reflect that risk.

    Clearly, companies have made decisions to invest in foreign countries despite the higher risk of investment loss because of the relatively lower cost of labor and other inputs. Presumably they are willing to risk the higher exposure of their assets in Nicaragua because they feel that they can earn a higher return on their investment there (with the higher risk) than in the U.S. with the higher cost of labor and other inputs along with the lower risk.

    I look forward to your additional observing, asking, discussing and thinking and investigation!

    Reply

  3. Thank you both for your responses! Of course I acknowledge that companies have many other costs besides just the labor costs involved in production (including risk assessment), which is why I say that I absolutely support ‘responsible’ foreign investment. ‘Responsible’ to me means more than paying workers the least possible amount that they can to make their offer marginally better than the alternatives. To me it means taking a broader look at what can be done to give workers a fair return and communities that they are affecting a positive environment. I don’t know all of the details, but the discrepancy between wages and sale price really took me by surprise and prompted me to ask some of these questions.
    Dad, in response to your points, I separated human capital and labor as concepts because I do believe that Nicaragua lacks one and not the other. As a quick reference, Wikipedia defines human capital as “the stock of competences, knowledge and personality attributes embodied in the ability to perform labor,” and not labor itself. What is lacking here are the skills, both technical and general, to break into the modern economy (not that every part of the modern economy is good for a country). I should have specified the ‘labor’ I referred to as unskilled labor, but the lack of human capital is still a crippling factor.
    Also, I would argue that a company can and should be held responsible for using its power only to secure returns for its stockholders. If workers are treated as simple inputs just like the raw products that Underarmour uses to make shirts then we risk losing sight of humanity by focusing on profit. We tend to relegate concerns for respect of human dignity to the individual, competing in a supposedly free market. The problem is that when resources are concentrated in such high levels, like in the case of corporations, the playing field is not even and human welfare suffers. This is all ignoring the direct role that the US has played in destabilizing the country, impoverishing the people, and devastating the infrastructure that has so benefited companies like Under Armour(a US company).
    I realize that I am essentially arguing against the very existence of corporations as they currently legally exist, but I think that they are part of a systemic problem inherent in letting markets that are undemocratic ($1=1vote rather than 1person=1vote) decide resource distribution in an unjust world.
    At least these are the thoughts that are bouncing around in my head right now. I’m interested to start reading Ayn Rand’s The Fountainhead, and I certainly understand the logic of the ‘freedom to choose’ as an organizing principle for an economic system. Thanks again for the comments, and I look forward to hearing more!

    Reply

  4. Posted by Courtney on October 7, 2010 at 7:47 pm

    Hi there sir!
    Some very interesting concepts that you bring up in your post. It is interesting to hear your perspective on outsourcing. While I am not living overseas, I do set the wages for all of our overseas staff. It’s hard to grapple with the fact that we can pay one overseas staffer in France more than what I make in the US (considerably) and then pay a staffer in India so little. But, part of that problem is having the built in perspective of the standard of living you are used to. I look at the people we pay in India (an equivalent of less than half of what I make in a year) but, in India, have a high paying job. Is it right that we could afford to pay them more but don’t? Perhaps not. It is interesting, because I am wiring over their entire year’s salary, in dollars. It’s hard to comprehend the value once it is truly overseas.

    As you said, the people working in the UnderArmour factory are making more than what most people are making. I think it comes down to other benefits too. They probably work in a comparatively safe, clean environment considered most other options. But, I think you are right in pointing out that it seems to always be a dilemma between whether it is taking advantage of the resources (or human capital) or whether it is bettering them.
    You also talk about companies being more responsible than just turning a profit. It’s even harder now to hold them liable, since they now have corporate personhood. But, I think that’s why knowing where your products come from, how they are made and the conditions in which they are made is so important. Because, if you can look at a company like UnderArmour, who is paying decent wages regardless of the fact that they could get labor for cheaper, maybe that is exactly who you should be buying from. Every dollar is a vote.

    Reply

  5. Posted by Juan Badami on July 15, 2017 at 10:42 am

    Looking at these responses I want to simultaneously laugh and puke.

    Are you guys all Mormon? Sounds like it.

    The US military is the most corrupt, immoral bully on Earth and has been since World War II.
    US evangelicals abroad are no more than theological henchmen of that hypocritical and brutal anglo-crisjun imperialism.
    Why don’t you terrorize/exploit/annoy* any NUCLEAR nations? COWARDS!
    *=US military/corporations/missionaries

    DEMOCRACY? What a genocidal joke. The US is the LEAST democratic nation amongst all the ‘first/second-world’ nations’:
    – The electoral college
    – Easily manipulated electronic voting machines
    – Unrestricted corporate interference in elections

    I hear “anglo-republican fundamentalist” in the voices of all these responses. You are all citizens of a banana republic; if you didn’t have nukes, no way would the global community have tolerated your brutal invasions of autonomous nations from Vietnam to Granada, Panamá to Iraq (twice). Including, of course, NICARAGUA.

    Regarding all respondents baldly pro-capitalist economic ramblings, the practical issues ALL boil down to the US nuclear billy-club protecting US corporate adventurism. The ‘aesthetic’ issues all boil down to personal motives and priorities; both of producers and consumers.

    If you describe yourself as being on an “educational mission”, be VERY careful what you teach!

    Frankly though, none of this matters.
    ALL empires fall, and the US is currently in the process of going down. From Egypt to the Soviet Union, Rome to “America”(arrogance), history has taught us that military over-extension and cultural intrusion inevitably lead to internal collapse. Regardless of the fact that the ‘white-right’ is precipitating the US’ decline, the fall* itself is historically pre-ordained.

    A little heads-up to all of you flag-wavers:
    After being pursued back to the walls of Rome, up until the last centurion fell they were chanting “U-S-A!”

    *you requested news of “Autumn”:
    The “Fall” is ugly, with a gloomy forecast.

    Reply

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