In addition to the IFC's criteria, reform retail obviously has to include expanding the opportunities for your population to get an education at all levels and investing in the logistical infrastructure-roads, ports, telecommunications, and airports-without which no reform retail can take off and collaboration with others is impossible. Many countries today still have telecommunications systems dominated by state monopolies that make it either too expensive or too slow to get highspeed Internet access and wireless access, and to make cheap longdistance and overseas phone calls. Without reform retail in your telecom sector, reform retail in the other five areas, while necessary, will not be sufficient. What is striking about the IFC's criteria is that a lot of people think they are relevant only for Peru and Argentina, but in fact some of the countries that score worst are places like Germany and Italy. (Indeed, the German government protested some of the findings.)
“When you and I were born,” said Luis de la Calle, “our competition [was] our next-door neighbors. Today our competition is a Japanese or a Frenchman or a Chinese. You know where you rank very quickly in a flat world... You are now competing with everyone else.” The best talent in a flat world will earn more, he added, “and if you don't measure up, someone will replace you-and it will not be the guy across the street.”
If you don't agree, just ask some of the major players. Craig Barrett, the chairman of Intel, said to me, “With very few exceptions, when you would think about where to site a manufacturing plant, you would think about the cost of labor, transportation, and availability of utilities-that sort of stuff. The discussion has been expanded today, and so it is no longer where you put your plant but now where do you put your engineering resources, your research and development-where are the most efficient intellectual and other resources relative to cost? You now have the freedom to make that choice... Today we can be anywhere. Anywhere could be part of my supply chain now-Brazil, Vietnam, the Czech Republic, Ukraine. Many of us are limiting our scope today to a couple of countries for a very simple reason: Some can combine the availability of talent and a market-that is, India, Russia, and China.” But for every country Intel considers going into, added Barrett, he asks himself the same question: “What inherent strength does [the] country bring to the party? India, Russia-crummy infrastructure, good educational level, you have a bunch of smart folks. China has a little bit of everything. China has good infrastructure, better than Russia or India. So if you go to Egypt, what unique capability [does that country have to offer]? Exceedingly low labor rates, but what is [the] infrastructure and education base? The Philippines or Malaysia have good literacy rates-you get to employ college grads in your manufacturing line. They did not have infrastructure, but they had a pool of educated people. You have got to have something to build on. When we go to India and are asked about opening plants, we say, 'You don't have infrastructure. Your electricity goes off four times a day.'”
Added John Chambers, the CEO of Cisco Systems, which uses a global supply chain to build the routers that run the Internet and is constantly being wooed to invest in one country or another, “The jobs are going to go where the best-educated workforce is with the most competitive infrastructure and environment for creativity and supportive government. It is inevitable. And by definition those people will have the best standard of living. This may or may not be the countries who led the Industrial Revolution.”
But while the stakes in reform retail today are higher than ever, and countries know it, one need only look around the world to notice that not every country can pull it off. Unlike reform wholesale, which could be done by a handful of people using administrative orders or just authoritarian dictates, reform retail requires a much wider base of public and parliamentary buy-in if it is going to overcome vested economic and political interests.
In Mexico, “we did the first stages of structural reform from the top down,” said Guillermo Ortiz. “The next stage is much more difficult. You have to work from the bottom up. You have to create the wider consensus to push the reforms in a democratic context.” And once that happens, noted Moises Nairn, a former Economy Minister of Venezuela and now editor of Foreign Policy magazine, you have a much larger number of actors participating, making the internal logic and technical consistency of the reform policies much more vulnerable to the impact of political compromises, contradictions, and institutional failures. “Bypassing or ignoring the entrenched and defensive public bureaucracy-a luxury frequently enjoyed by the government teams that launch initial reform measures-is more difficult in this stage,” Nairn said.