Panama's fear to compete

I have written occasionally on the idiocy of restricting foreigners from working in Panama. Jaime Raul Molina has written an article regarding the subject that discusses these issues in more detail. I think you will find it a good read. Jaime  is a lawyer in Panama specialized in Commercial Law."

Our fear to compete

Jaime Raúl Molina

 

We in Panama have a series of artificial barriers created by legislative action, that make it extremely difficult for businesses in the country to hire the services of highly qualified foreign employees.  This, instead of benefitting Panamanian workers as is the declared intention, results in a reduced competitiveness for Panamanian businesses in a global marketplace.

 

A Mistaken Economic View

 

The view above expressed is a labour policy based on an economic fallacy, that sees job positions as a pie of fixed size, and that the least people there are to share the pie, the greater the specific portions will be for each one.  A zero sum game, in sum.  However, in a globalized marketplace, it is competitive advantages what makes businesses and economic actors more competitive.

 

But this in turn requires the company to be able to employ the technology, personnel and resources that are more apt for each of the stages in the value-creating process.  Just as a business cannot be competitive in our modern world if its clerks lack computers and appropriate software, and instead have to work with manual files and mechanic typing machines, well, in that same manner no business can become really competitive if it is not permitted to hire the best professionals, technicians and capable people available in their respective areas of competence.  This, necessarily, implies the capacity to hire foreigners, for just as the New York Yankees (as well as all good franchises in the Major League Baseball) have understood, the best players some times are foreigners.

 

But, what about protecting the work of Panamanians?

 

The argument most commonly put forth in defense of labor protectionism is that if it were permitted to hire, for example, a foreign Architect, there is a Panamanian Architect that has been left unemployed as a consequence.  But this is a simplistic zero-sum game calculation that does not apply to the real economic world.  It is similar to that businessman who, when evaluating a possible investment in labor-saving equipment, only takes into account the cost of the piece of equipment, and ignores the likely increase in productivity that the machine may bring about.  As nothing is free, if every entrepreneur thought in that manner, no one would ever invest in productivity-enhancing technologies. 

 

In Panama we have had experiences in which hiring of foreign employees in a specific economic activity were broadly permitted for a given period.  One of the best examples is that of the banking sector, an activity that, when the door was opened to the hiring of foreigners, many sounded the alarm (like today), in the sense that Foreign employees would displace Panamanians and that this would result also in worsened employment conditions for those Panamanians that managed to keep their jobs. 

 

But exactly the opposite happened.  The International Banking Centre was thus born, something that would not have happened if international banks had not been permitted to hire foreign executives the way they were.  In those times, the rule for the international banks that came to Panama was to hire foreigners for the top executive positions.  However, as the years went by, those same banks began to increasingly trust executive roles to Panamanians.  Today, the vast majority of the executive positions in the banking sector are occupied by Panamanian nationals.  And the banking sector has become one of the most competitive, and with the best salaries in the country.

 

 

The same could take place with many more economic activities.  If it were permitted that any business, local or foreign, hired freely those persons that it deems the most qualified for the position in question, independent of that person’s nationality, more companies will start to come and set foot in Panama than have done so heretofore. 

 

We don’t want the best

 

Work of foreign professionals in Panama is extremely restricted.  In the first place, an enormous number of professional activities require the person to be a Panamanian national.  Professions like Medicine and Law are just two examples.  The absurdity is such that, if a Nobel Laureate, say, in Physics or Medicine, wanted to come to Panama to live and take a teaching position at the University of Panama, he could not do so.  The reason is that to be a professor in said university, you have to be a Panamanian national.  This is equivalent to shoot your own foot, as while the Americans made the atomic bomb with the participation of European scientists that had run away from the nazi, fascist and communist tyrannies, here in Panama we pretend that there is no single area of human knowledge in which anybody is better than us Panamanians.  We thus renounce to benefit directly from the best brains in the world in their respective disciplines.

 

Note that I use the United States of America as the benchmark here.  The reason is simple: that country has conquered the economic, scientific and military power of the world, precisely because Americans do not have strategic policies based on professional or economic chauvinisim.  Much on the contrary, while Hitler was expelling from Europe everybody who was not from his invented pure Arian race, the United States of America was receiving with open arms all those brilliant brains from Europe that were running away from fanatic nazi persecution.  On the questions of which of these policies is more advantageous in the long term, one has only to look at who ended up being the victor in World War II. 

 

The Labor Code

 

Apart from the prohibitions of practising certain professions to those who are not Panamanian nationals, the other activities that in principle are not prohibited to foreign nationals, are in practice severely restricted by the Labor Code and other related pieces of legislation.  The Labor Code allows, in theory, any business to hire specialized foreign personnel in certain circumstances.  Nevertheless, it sets a long list of requirements and conditions to be met that end up making this very cumbersome and limited. 

 

The basic restriction is that any in any business enterprise, all foreign employees as a whole cannot constitute more than 10% of its payroll, both in headcount and in salaries.  This last piece is the most absurd part of the restriction, as it is evident that the interest from any company in hiring foreigners and bringing them to the country to work is disproportionately directed towards filling positions that require high professional or technical qualifications, which in turn implies that those positions tend to be ones with high salaries relative to the rest in the company.  In this context, to require that the total salaries and benefits paid to foreign nationals within the company does not exceed 10% of all salaries and compensations paid to the whole of the company’s employees, ends in the real percentage of foreign employees in any one company allowed by the law, being much lower than ten percent. 

 

Conclusion

 

Panama wants to be a first world country in terms of economic development, specifically in the areas of commerce and the provision of services, historically our areas of strength.  In many aspects, Panama is indeed much closer to first world countries than to other countries in the region.  But we will never be able to become one in full right until we abandon our fear to compete in all markets, including the labor market.