Tag Archives: politics

Peru: potential growth hindered by politics

Politics and Economics are often grouped together by those who don’t particularly interest themselves in these subjects. As Economics students, we know that they are two very different things. But we often forget the significance of their coexistence. The world is witnessing so many cases where poor governance inhibits economic growth. Countries like Venezuela, which has the potential to be a significantly wealthy country, are held back (and destroyed, in Venezuela’s case) by incompetent and corrupt governments. The result is not only slow/negative growth, but also the lack of ability to grow because those who have wealth are too afraid to invest it in their own country. In the United States, this is not even considered because the US is perhaps the best/safest place to invest in the world. Whether or not this is actually true, what matters is that it is in fact the general belief worldwide.

Peru is a country that falls into this trend, though not to the degree seen in Venezuela. I will say, for purposes of reliability, that I am Peruvian and know a lot of information first-hand (especially about people’s views). It should also be noted that Peru is a country very much divided by socio-economic status and race (though this is improving). The current president of Peru, Ollanta Humala, initially ran for president in 2006 as a supporter of Venezuela’s Hugo Chávez; he lost that election and in 2011 reinvented himself as a “pro-Brazilian social democrat.” When Humala won the election, people feared that he would turn the country into Chavez’s Venezuela or Castro’s Cuba. Like in those countries, his supporters were mostly lower-class. But to many people’s surprise, and relief, Humala “opted to stick with the free-market policies that have brought a decade of strong growth.”

Peru had been growing significantly before 2011:

perupercap

Gross domestic product per capita nearly tripled from 2000 to 2010.

And real GDP nearly doubled from 2002 to 2011:

perugdp

Peru became an important emerging market by 2009, and recognized for its steady growth. Though growth has slowed since 2009, last year the country experienced a 5.6% expansion. Peru’s main exports are copper, gold and silver. As has been discussed by other students on this blog, China’s slow-down has had many repercussions worldwide. The decreased demand for copper, is largely the cause for this slow-down in growth. As for inflation, economists have raised their inflation projection to 2.8 percent from 2.6 percent for this year and maintained their 2.5 percent estimate for 2015. As well as a 5.7% growth estimate for 2014.

So the economy in Peru is doing well. Investment is significant, but it largely from foreigners. Though Humala’s government has done decently on the economic side, people are very distrustful of the government (and not just the current one). In Peru, a common joke among citizens is to compare stupid, incompetent, or corrupt people to those in Congress. Basically, the government has little credibility and this is influencing those with the power to invest in Peru’s financial markets. With this growth, there is an immense amount of money flowing into pockets. While I was there in December, a family friend (a very wealthy one) explained to me that there are so many people with millions that don’t know where to invest them. Since they fear the government’s instability, corruption, and dishonesty, they don’t want to invest their money in the country. And, like you probably guessed, most invest in the United States; the current fad is to invest in real estate (mostly Miami).

Thus, Peru is growing steadily and is looking at a bright future. However, the political situation is still holding back potential growth. If Peruvians saw Peru’s market as a safe investment, there would be a considerable effect on the economy. But the fact that the country has a very long history of corrupt and unstable governments (my own grandfather led a military coup), makes it difficult for people’s fears to subside anytime soon. Before that can even be considered, though, there have to be major changes in the Peruvian government — and that doesn’t seem likely in the near future. Although Peruvians are discontent with the government system, they are accustomed to it.

Examining data: how much extrapolation is too much?

Today the Wall Street Journal reported that the Pandora Internet radio service will now sell advertising services to political organizations in an attempt to target radio audiences strongly aligned with a party’s beliefs. This news comes along with similar articles and tidbits over the past few weeks, including this Washington Post chart that can determine your political views based on liquor preferences and this Time survey that can predict politics from personality. As a strong believer in big data, I think there is validity to analyzing user preferences to predict future behavior. However, a line must be drawn as to how significant and how large a dataset must be before it is deemed useful.

Internet radio stations that rely on advertising revenues have made strong improvements in data collection that have allowed them to increase profits and company value. For instance, Spotify listeners who are playing “Billboard Hot 100” hits will receive an advertisement straight from Lorde – one of today’s trendiest artists – along with a link to hear her newest songs. It is reasonable to assume that those listening to a playlist with multiple songs from a certain artist like that artist’s music. It also is not as distracting or as much of an annoyance to hear a commercial about music while listening to music. When political ads play on repeat, they tend to quickly diminish in value, sometimes ending up doing more harm than good. If targeted correctly, there certainly is a benefit for both the music service and the advertiser, but is there value when generalization becomes a central part of the analysis?

Companies like Facebook and Twitter have been able to effectively advertise politically, but hold the important and distinct advantage of having their users make preferences very clear. On Facebook, “likes” and posts can be tracked to see how political views are being communicated by a user to his social network. WSJ article author Elizabeth Dwoskin writes, “Before the 2011 Iowa Straw Poll, for example, Rep. Michele Bachmann (R., Minn.) advertised to Facebook users who had identified themselves as Tea Party supporters or Christian rock fans, or who had posted messages in favor of tax cuts.” And sure, much of Pandora’s data is as easy to interpret as this Facebook activity.

“Pandora users who listen to country music more often live in Republican areas, while fans of jazz, reggae and electronic music are more commonly found in counties favoring Democrats, the company said.” -WSJ

How valuable are these data? Country music fans are generally found in rural, red states. We already knew that. Much of Pandora’s potential value will come from being able to distinguish the preferences of those near the middle, and music preferences alone simply aren’t enough to determine which way they are leaning. Pandora’s Director of Project Management, Jack Krawczyk, believes that the results are 75%-80% accurate. However, is the 20-25% that aren’t conclusive the audience that advertisers actually care about? Sure, tendencies in data and consumption preferences can lead to some conclusions about lifestyle choices and maybe even political beliefs. But companies should be wary before they buy-in and start to pay for them.