As I discussed Monday in Part 1 of this column, the likely collapse in Miami of the Free Trade Area of the Americas negotiations will be at worst a blip, at best a benefit to the countries concerned — FTAA, as an idea, was misguided from the word “Go”. In this part 2, I consider the available alternatives, for the United States and for Latin America.

For the United States, the alternatives to FTAA are pretty clear; they consist largely of intensifying trade and investment relationships with those countries which, unlike Latin America, are natural economic partners of the U.S. To the greatest extent possible, this should be done, not on an exclusive bilateral basis like the agreements entered into in 2003 with Singapore and Chile, but through aggressive championship of global free trade, putting all the U.S. cards such as agriculture subsidies, textile quotas and anti-dumping agreements on the table. As the world’s most sophisticated economy, with its largest and most efficient capital market, the U.S. is uniquely poised to gain from worldwide free trade. However, free trade is and must be a two way street; allowing protectionist special interests to poison U.S. relationships with the agricultural exporters, textile exporters and steel producers of the Third World is unquestionably not in long term U.S. interests, either economically or politically.

As for Latin America, with the exception of Mexico, the countries of Latin America should be taken at their majority-expressed word in their disdain for the United States, and allowed to seek their own destiny in an independent manner. This is unlikely to make Latin America turn to terrorism; the cultural and religious divide from the fanatics of al-Qaida is sufficiently great that even an impoverished and moderately alienated Latin America is likely to prove an arid recruiting ground for global terrorism, as distinct from the local kind. In any case, deepening U.S. involvement in Latin America, as is the current policy, appears to intensify resentment rather than reduce it.

For Latin America itself, by far the greatest need is a consistent application of good economic policy, that can allow those countries to build on their natural resource and human assets, while reducing markedly the excessive inequality that blights their societies. To achieve this, Latin America needs to find trading partners and role models outside the United States, among countries that are not resented for their success, and can be dealt with on an equal basis, without faux-colonial resentments.

Chief among such countries are those in East Asia, many of which are still little richer than the more developed parts of Latin America, but most of which have developed habits of hard work, entrepreneurship, high savings, long term thinking and reticent wealth that Latin America desperately needs to imitate.

Of the East Asian countries, Japan is par excellence the country from which Latin America can learn the most. Poorer than most Latin American countries in 1950, it has today a standard of living that rivals that of the United States and Western Europe and its economy, freed at last from the 12 year backlash from the 1985-90 bubble, is poised once more to expand on a sound basis. For Latin America, Japan has the following advantages as a partner and mentor:

— Enormous amounts of excess capital

— A superb and rigorous education system

— Management techniques that require the rapid upgrading of the workforce’s standards, while granting it greater dignity than in many U.S. and European companies

— A social structure that, while not egalitarian, frowns heavily on ostentatious displays of wealth or ghettoes of extreme poverty

— A high level of business integrity, and reasonable public sector integrity

— A severe shortage of both natural resources and youthful, low-cost labor.

The possibilities of fruitful long term business relationships between Japan and Latin America are thus enormous. Politically, Japan represents no threat to Latin America, nor to the United States, while its own expansion into Asian markets is somewhat blocked by its enormous and much cheaper competitor in China. Furthermore, a free trade and investment agreement between Japan and Latin America cuts across the obvious geographical blocs, and therefore tends to hinder the unpleasant cartelization of the world economy that is otherwise a threat.

It is thus a Japan-Latin America agreement, not the FTAA, that should be a first priority for the thoughtful Latin American statesman. Hopefully, by relying on Japan instead of the United States as mentor, Latin America can achieve that most necessary requirement for economic success: the ability to elect and re-elect economically competent governments.

Outside Asia, Latin America also needs to deepen its relationships with Europe; not so much with its Franco-German core but with some of the peripheral countries. In particular, relationships should be deepened with Spain, where there is enormous cultural affinity and goodwill, and where some problems similar to Latin America’s have in recent years been met and overcome. Britain too is a useful source of capital and investment expertise, that avoids some of the disadvantages of excessive dependence on the United States.

However, an additional crucial relationship that needs to be expanded, at least on a “technical assistance” basis, is that with Scandinavia. Latin America has in the past proved only too willing to experiment with income redistribution, but its continuing inequality and high level of corruption demonstrate that its attempts in this direction have laughably failed. Brazil’s minimum wage, for example, is held up as a political carrot at every election, and was a centerpiece of 2002’s successful campaign by Luis Ignacio (Lula) da Silva. However, in practice an increase in the minimum wage in Brazil affects primarily public sector wages and pensions (which are set at a multiple of it) and totally fails to increase the well-being of the truly poor — the unemployed, informally employed and subsistence farmers. Consequently, through corruption and ineptitude, what appears to be a social program actually increases rather than reduces Brazil’s GINI coefficient of inequality, already among the highest in the world.

Scandinavia is famous for its levels of social provision, and yet manages to maintain a competitive economy. Extraordinarily Finland, with a very heavy public sector, was recently ranked the most competitive economy in the world by the World Economic Forum, because of its technological innovation and the responsiveness and lack of corruption of its public sector. While one could argue that a government sector the size of Finland’s automatically has a severely negative effect on competitiveness, there is no doubt that Finland, and Scandinavia in general, have managed to reduce the level of corruption and inefficiency in their social provisions to remarkably low levels.

If Latin American countries wish to reduce poverty through social programs, Scandinavia is the model they must follow. Ideally they will incorporate Finnish or other Scandinavian management, design and control systems directly into such programs, taking them out of domestic political control altogether and removing the temptation to play populist games with them at election time.

A final need for Latin America to flourish is the removal of tariffs and trade barriers between Latin American countries themselves. When a Bolivian gas pipeline, that can earn vital foreign exchange for the country, is blocked by protesters because it runs through Chile, it is clear that ancient quarrels are getting in the way of business. If France and Germany can cooperate, so can Bolivia and Chile.

Mercosur, the common market of the southern tier countries of Latin America, was a good idea but it needs to be expanded to cover the whole continent south of Mexico, and deepened and solidified so that short term stresses like the Brazilian 1999 devaluation do not cause it to cease functioning.

With the exception of Brazil and Mexico, Latin American domestic markets are tiny by world standards. If the continent wishes to proceed independently of the United States, it is essential that it give itself the economies of scale without which a modern economy cannot function. High intra-Third World tariffs and trade barriers are probably the greatest single barrier to economic development; for nowhere except possibly sub-Saharan Africa are they a greater barrier than in Latin America.

For both the United States and Latin America, not only do there exist alternatives to FTAA, but there exist very much better ones, which can allow both the U.S. and Latin American economies to achieve their potential without the political disruption and economic inefficiency that FTAA would inevitably bring.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.