3 Why’s of the Costa Rican Economy

This morning, we made our way to the ULatina campus, where Dr. Juan Diego Sanchez lectured us on the Costa Rican Legal and Economic Analysis. Throughout the presentation, we were asked to think of three “why” questions surrounding the Costa Rican system of government.

  1. How can the Costa Rican economy benefit from the elements of a right-handed economic approach and a left-handed economic approach?

Dr. Sanchez began by addressing the two different approaches a government may take to regulate its nation’s economy: the right-handed approach and the left-handed approach. These two approaches seemed to resemble the two extremes of a spectrum. After declaring that Costa Rica has a middle-right economy, Dr. Sanchez stated that the economy was leaning closer to the left-hand recently. Dr. Sanchez displayed a strong preference for the right-handed approach, and he seemed quite disappointed that the president to be inaugurated tomorrow has a left-handed approach, because he senses that there will be little positive change.

The right-handed approach involves more of a capitalist ideology with a free market, private property, and specialization. On the other hand, the left approach is closer to that of communism, where everything is common property, and all people are equal no matter how much work they do in comparison to their peers. Seeing as though Costa Rica is a smaller state, they have limited productive resources, therefore, they specialize in what they have available. Additionally, government intervention is less of a necessity in a nation so small. Similar to the United States, the government intervenes when necessary, often with regulations such as taxes. The government has some control in what businesses can and cannot do.

Using a table of different Latin American nations’ average annual salaries per capita, Dr. Sanchez displayed that the most impoverish countries were those that have extremely left-handed economic approaches such as, Nicaragua. The wealthiest of the countries was Panama with an extremely right-handed economic approach. Although the table demonstrated a clear divide in wealth by approach, it is important to maintain a balance of both approaches. A free market needs some government intervention to operate successfully seeing as though both parties in any transaction, the buyer and the seller, are only trading in their own best interest.

  1. Costa Rica has constantly struggled to balance their economic growth rate in comparison to their annual inflation rate, why is that?

The Costa Rican government is not taking enough action putting money back into their own economy. Instead, they are focused on paying the unnecessary 700,000 government employees they have for a population of 2 million Ticos. As shown through Dr. Sanchez’s political cartoon, it seems as though a small percentage of those employees deserve the salary, because they are doing the difficult work. Dr. Sanchez’s political cartoon portrayed one individual doing the difficult work, while the others stood there and watched without doing anything themselves. The corruption of the current government allows for many employees to take it easy and “piggy back” onto the work of their peers.

Because there is only a small amount of money circulating, sellers of various products are not making enough profit to support themselves, so they react by raising prices; consumers do not have a sufficient amount of disposable income to react to this increase in price therefore they save their money. As a result there becomes an increase in inflation that remains higher than the increasing rate of economic growth, because of this, the growth is not significant as it is masked by inflation.

  1. Why has the role of coffee industry changed over time in Costa Rica?

Initially, in the 1970’s, coffee served as the main source of income to the Costa Rican government. The approach to trading coffee was strictly maintained by the government. Gourmet coffee was a primary export, whereas the lesser coffee, the scraps, were left to the local Ticos. Throughout the 1980’s the government adjusted to a more raw materials approach where coffee was the country’s brand. Foreign exchange became for prevalent and the middle class began to rise. In the 1990’s the coffee industry was at its peak. Costa Rica’s first Free Trade Agreement was signed with Mexico. The 2000’s brought great change to the industry. Ecotourism began to takeover as an industry, and the trees that had been cut down for the construction of coffee bean plantations, were being replanted to foster growth of the natural landscape.

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