Shadow Government

Why the U.S. should be happy about Panama

I am in Panama for the second time in seven years, and it certainly is a very different place today. Skyscrapers are sprouting up all over the city and there has been explosive growth here. Constant sunshine, no earthquakes, fabulous location, peaceful Costa Rica to the north and a natural buffer of the Darien region to the south make Panama a stable and peaceful democracy. Americans are not perceived as an alien presence but a welcome partner. To be an American in Panama, especially an American who speaks Spanish, is to feel very, very welcome.

The Embassy estimates as many as 45,000 American citizens down here while the Panamanian government estimates as many as 250,000. One of the reasons for the discrepancy in estimates is that many Panamanians, for legacy reasons, possess U.S. passports and dual citizenship. In short, the U.S. legacy in Panama is obvious. At one point the U.S. had 35 military bases here to protect the canal from Japanese attacks in World War II, but today there are no U.S. bases in Panama. Many of the former U.S. bases have become urban renewal projects similar to the Presidio in San Francisco, and the new U.S. Embassy is built in one of these old sites.

Though this past year Panama's growth rate was 8.5 percent, services account for over three-quarters of the economy and English is a big need here. There is a shortage of skilled workers, and English is not as strong as it might be, or as strong as many locals think (although many call centers have been built here). The weakness of English in Panama is the legacy of dictator Omar Torrijos, who deemphasized English, going so far as to ban the teaching of English in public schools and stopping an entire generation from learning the language. Anecdotes tell of English teachers at public schools who have a hard time conducting visa interviews with the U.S. embassy in English.

For years, the Panamanians have been stalling building the last piece of the Pan-American Highway through the Darién region, and the U.S. has supported them for a number of reasons -- preventing the northward spread of foot and mouth disease, environmental worries, and perhaps other security concerns relating to narcotrafficking.

When I was last here, there were discussions about building an extension of the Panama Canal. The expansion is well underway, and ideally the expanded canal will be up and running in 2014 though more likely this will happen in 2015. You may have heard of the "Panamax" class of boats, but the expansion was needed for the "New Panamax" class of ships. At its narrowest portion, the canal can only run one way at a time right now for the largest ships, but after 2015 it will be able to run both ways at all points. The U.S. administered the canal as a public utility until 1999 and therefore hardly made any money. Today, the Panamanians run the canal like a business and it generates around $1 billion annually in profits for the Panamanian Treasury. This figure will increase considerably after the expansion.

In October, Congress finally approved the Panama Trade Promotion Agreement. It took way too many years under the current administration to sign this agreement. Though it is more a signaling effect, the upshot of this is the elimination of tariffs that were making it difficult for American goods to compete in Panama.

As far as security for U.S. interests in the region, there is little concern here over Hugo Chavez's influence except perhaps rumors of mischief with labor unions, and there are likewise no murmured concerns about Chinese influence. Nor do there seem to be any agricultural, mineral, or fuel resources that attract the attentions of China. In fact, Panama has kept official relations with Taiwan over China. I also asked about the ownership of Pacific and Atlantic ports through Hong Kong's Hutchison Port Holdings. It was met with a series of shrugs from U.S. officials and old Panama hands.

The FARC has used Panama's Darién region as a base of "rest and relaxation" but the current center-right government has taken a notably harder line than in the past. The FARC is almost exclusively interested in drug trafficking here, unlike in Colombia, where the group poses a threat to the state. According to U.S. officials, Panama yearly seizes about 40 tons of drugs in partnership with the U.S. There are also gang problems here but nowhere near the level of trouble that other Central American countries have been having over the last decade or so. Perhaps the biggest challenge to Panama's future is the weakness of its institutions and the persistent whispers of endemic corruption in the society. If Panama can confront this challenge, it will be on its ways to being as wealthy as the United States.

Two hours by plane to Mexico City, 40 minutes to San José (Costa Rica), less than an hour to Bogotá, and 4.5 hours to Washington. Panama, with a population of 3.4 million, is truly the hub of the region and a great American ally.

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Shadow Government

What should the role of the private sector be in international grant making?

American power overseas comes from many sources, including the power of our ideas, our research, and our entrepreneurial private sector. One of our greatest investors in the American entrepreneurial model has been the Ewing Marion Kauffman Foundation based in Kansas City, Missouri. The Kauffman Foundation is at a cross roads as its former CEO, Carl Schramm, recently retired after 10 years as CEO and as it picks a new leader. The Foundation's board should be cognizant of its important role internationally, especially in the field of international development and the emerging field of expeditionary economics as it makes a new CEO hiring decision and as the board deliberates about future directions for the Kauffman Foundation.

There are concerns in the international development community that the Kauffman Foundation will turn inward towards U.S. programs only as a way to more fully honor the "donor intent" of the original donor of the Foundation -- Mr. Ewing Kauffman -- with an intensified focus on all things Kansas City. Over the years, the donor intent has been interpreted to include U.S. based institutions including the World Bank and the U.S. Army via West Point or the Army War College. (In the full disclosure department, I have received modest grant funding from Kauffman (under $50,000) over the years and have worked closely with the Kauffman folks in my last three day jobs -- hosting (with no funding support from Kauffman) DC-based events around Global Entrepreneurship Week since 2008.) 

The Kauffman Foundation has funded research that demonstrates the power of entrepreneurship, the traits of being an entrepreneur and the impact that public policy has on allowing for entrepreneurship to flourish. The Kauffman Foundation also has endowed chairs all over the world supporting the study of entrepreneurship at business schools -- creating a very robust network of scholars, researchers and thinkers. Its research continues to shape the debate.

Kauffman has been one of the voices that has made entrepreneurship and support for private sector lead development to be "politically correct" -- something international leaders and policy makers now must say but often times don't back up with appropriate allocations of resources.

Partially as a result of Kauffman research and support, there is rhetorically a bipartisan consensus about the attraction of entrepreneurship as an American export and as part of our foreign policy. That consensus, however, is not backed up by allocations of people, time, or money in the international aid architecture -- neither in the U.S. bilateral or multilateral systems. Over the last ten years, resources have reluctantly flowed to supporting private enterprise. The fact is that even with all the intellectual arguments on one's side, foreign assistance budgets are still allocated through a mix of pressing foreign policy crises, bureaucratic politics and domestic interest group politics.  The two most critical investments one can make in international development -- supporting economic growth and democracy and governance are "orphans" in the perennial fight for limited foreign assistance dollars.

That is where Kauffman comes in. Kauffman has an unfinished agenda internationally that no one else will pick up if they move in a different direction with their grant making.  Kauffman has won the argument enough that almost everyone involved in development business will talk about the power of the private sector and even the importance of entrepreneurs in prosperity. Kauffman's challenge internationally is to help finish moving the international consensus so that far greater allocations of scarce dollars flow in this directions. Many foundations have succeeded in doing just this over a ten to fifteen year period -- the Green Revolution in the 60s, spending on HIV/AIDS since the late 90s, increased spending on Malaria over the last five to ten years and the increased resources and attention around agriculture and food security are the results of long term, strategic investments by other U.S. foundations. 

One innovation the Kauffman Foundation has also funded with strong support from the British Government under Gordon Brown is Global Entrepreneurship Week, which has literally spawned a global movement for entrepreneurship. It is not surprising that Global Entrepreneurship Week has generated so much energy -- there is a global hunger for policies, training and financing to start businesses and the American System has proven most adept at facilitating that and people the world over admire that and want to emulate it. For example, the Gallup World Poll has found that 20 percent of young Africans (both men and women) plan to start their first business sometime in the next twelve months.

Another area of critical focus that could be at risk is the work started over the last three years in "Expeditionary Economics" -- the use of a variety of instruments by government to help quickly jump start an economy after a conflict or a humanitarian disaster. One may quibble with where Kauffman would like to house this function (I always read between the lines ..."at the pentagon") or quibble with their sense that we should be funding a series of "Afghan Steve Jobs" that may or may not exist but the increased focus on standing up private enterprise (e.g. cell phone companies, hotels, water and electric power) are central functions from security and development perspectives and need better instruments and need to be better supported by government agencies. Kauffman helped force the national security community and secondarily the development community to think about what works, what does not and what instruments and authorities are going to be needed in future conflicts or disasters. The U.S. military and the U.S. foreign policy and aid communities have not settled on "where" these should be housed and there is a still significant work around the sorts of instruments, policies and authorities needed for these challenges but Kauffman has succeeded on putting this firmly on the agenda.

Kauffman's research and work in the international field has helped position the arguments and bring about a rhetorical consensus. Its work internationally is only partially complete. If it makes a major change in direction away from its current international commitments it puts at risk much of the progress it has supported. 

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