Tue | Dec 10, 2019

Walter Molano | Panama versus Singapore: A contrast in style

Published:Friday | November 8, 2019 | 12:31 AM
In this February 25, 2019 photo, a Panama Canal railway train transport containers from the Atlantic to the Pacific Ocean alongside the Panama Canal in Gamboa, Panama.

Panama is one of the better managed economies in Latin America. Boasting an investment-grade rating and with the highest per capital income in Latin America, Panama is the envy of its neighbours.

However, it has not always been that way. Panama has always been a land of dreams, and a graveyard of nations.

The gateway to the Pacific, it provided Europeans with their first glimpse of the much-sought Pacific Ocean from the perspective of the new-found continents of the Americas. It soon became the land bridge which allowed Spanish colonists to transport their looted silver from the Inca empire to the waiting galleons on the Caribbean coast, while ferrying the much-needed men and supplies for the settlements on the Pacific side.

However, Panama also became the site of pitched battles and long sieges, as marauding pirates attacked the fortified settlements along the coast. The heavy Spanish losses marked the beginning of its decline, while the pirate booty helped boost the coffers of England, France and Holland. These funds helped finance their subsequent rise.

At the same time, the Panamanian jungle, known as the Darien, became the stage for one of the darkest episodes in Scottish history. At the end of the 17th century, Scots came up with a scheme to build a trading outpost on the Isthmus of Panama. It was a way to steal a march on the large European countries that had established colonies throughout the New World.

Not only would the Darien settlement give it quick access to the Atlantic and Pacific, it would be very close to the wealthy colonists across Central America and the Caribbean.

Their idea was to provide a more competitive trading alternative to the exorbitant prices charged by official Spanish merchants. A national subscription soon took up a fifth of Scotland’s wealth to buy the ships, supplies and wares, as well as to hire the crew to outfit the expedition.

Unfortunately, the gambit was a disaster. Stiff military opposition by the Spanish and English, along with the ravages of tropical diseases, destroyed the expedition. It also crushed the Scottish economy, pushing it into the arms of the waiting English. It was thanks to the Darien Debacle that Scotland acquiesced to the Act of Union, thus allowing it to become a member of the United Kingdom.

Two centuries later, the isthmus again became the locus of dreams and disappointment, when adventurers raced across the land bridge in a mad dash to reach the gold fields of California before the precious metal ran out.

Scores of people succumbed to con-men, bandits and tropical diseases. Three decades later, buoyed by his success in building the Suez Canal, the Frenchman Ferdinand Lesseps embarked on a majestic project to build a waterway across the Panamanian Isthmus. It would also end up in economic ruin.

Hobbled by blind hubris and ignoring engineering realities, Lesseps convinced his countrymen to pour their national wealth into the project, only to see it end in corruption, scandal and disaster.

A few years later, the United States, led by President Teddy Roosevelt, picked up the pieces of the ruined French project and was able to finish it. Nevertheless, the various episodes demonstrate the enormous opportunities by Panama’s strategic location.

Indeed, strategic location is as much a comparative advantage as a treasure trove of commodities.

Singapore provides another excellent example. Adjacent to the Strait of Malacca, Singapore has a commanding position over one of the most important waterways on the planet. A quarter of the world’s goods transit the narrow waterway, along with a third of all of the planet’s maritime-shipped oil.

Five decades ago, as the country gained independence, it was poorer than most Latin American countries. Today, it is one of the richest countries on the earth.

How did Singapore somersault over Panama? The countries share many similarities.

They both sit next to large wealthy countries, whose citizens are desperate to move their money offshore. This has allowed both to establish large financial industries.

They are both large providers of shipping services, ranging from logistics to insurance.

Both countries are implicitly and explicitly protected by superpowers.

And they both have powerful minorities that have provided enormous entrepreneurial capabilities.

In some way, Panama is better positioned, because of its larger land mass and plethora of natural resources. Yet, Singapore has done so much better. Why? Most likely some people will point to the forms of colonisation – British versus Spanish – but a better explanation could be in the form of political organisation.

Panama has been democratic, while Singapore was autocratically controlled by Lee Kuan Yew and his successors. A true visionary and benign leader, he nonetheless was a despot who quelled any dissent.

Most social scientists strongly believe that market economics go hand in hand with democracy, but there are enough cases, such as Panama versus Singapore, that raise questions about the adequacy of democracy in deriving an optimal economic path for countries.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC. Email wmolano@bcpsecurities.com.