Blog based on speech given at Wilton Park on event on “Research Collaboration to Drive Innovation”: UK Latin America partnerships (WP1486). 16th – 18th November 2016.
There are reasons to think that a structural road based on a shift to manufacturing will figure much less prominently in the future of Latin America. In addition to growth of China, Cambodia, Vietnam, manufacturing requires higher skills and capital intensity and is less likely to absorb labour (Rodrick 2013). Sustained growth is therefore more likely to depend on what happens at home rather than simply importing technology. The challenge is therefore to design an economic architecture that respects the domestic priorities of individual countries while ensuring that major cross-border spillovers and global public goods are addressed. This requires steady accumulation of skills and human capital, education, health, tax policy, but less off-the-shelf copying. Coherence, systems thinking, investment in a broad front is required so that growth can be achieved beyond the upswing phase of a commodity cycle. Can Asia and China be that partner? In terms of exports, Asia as a whole will be the highest consumption area in the world, with a growing middle class. But consumption in Asia is different to United States and Europe and lower income groups are a higher proportion of the population. In terms of imports, Chinese manufactured imports are cheaper, but it is difficult to do reverse engineering on them. Can China (re)construct the infrastructure of Latin America? Chinese interest in Latin America and Africa are overwhelmingly exploitation of natural resources – copper, oil, rapeseed, fruit and soya -with limited scope for added value. There is some scope for infrastructure, but the potential for diversity of exports to Asia is low and reliance on a narrow export base can lead to “Dutch desease” with an overvalued exchange rate killing off possibilities for manufacturing. Also, the technological content of exports to Asia is much lower. 60% of trade from Latin America to China is raw materials as opposed to 30% to United States and just 25% to rest of Latin America. Thus the fall of exports from Colombia to Venezuela has had a major impact because they consisted of medicine, electrodomestics, candy etc.
What about natural resources as a source of future growth? Some commentators, such as Carlota Perez, have raised the prospect that Latin America should carve a path adding science to the processing of natural resources (biology in mining), following the route of resource rich countries such as Canada and Australia. We have some examples of “resource intensive” models of natural resource growth in Latin America that have led to major environmental disasters (Salmon virus, forest fires, over use of fertilizers and that have affected civil society population very detrimentally). These events have raised questions over the legitimacy of models of intensive natural resource exploitation and the negative externalities it creates. Non‐traditional agricultural products on the other hand is the bet of much of Latin America – horticulture, aquaculture, floriculture, and so on – and could perhaps well act as an intermediate stepping stone out of traditional farm products, but here too the record with labour absorption is not always encouraging.
Let me say a few words about collaboration and inclusive innovation. The danger that exists is that, as the inter-American bank stated: A trade off can exists between merit-based policies and diversity and inclusion (2016 p74). Schumpeter’s Creative destruction has not often worked well in Latin America as markets are not particularly inclusive. An example is the Brazilian agricultural extension services. Land productivity increase over 3% year on year between 1995 and 2006, but according to Alvez and Souza (2014), the modernization of agriculture has benefited just 11.4% of producers.
But inclusive innovation implies direction and can be seen as a focusing device for purposeful social transformation: empowering, claiming rights, democratisation, a chance to re-invest and opening up the system to other actors. There is an extremely rich history of work in the area of appropriate technology, frugal innovation, pro-poor innovation.. but his has tended to remain marginal and poorly financed within policy.
So can inclusive innovation be built through non‐traditional agricultural products? Perhaps for one or two generations. In 2015 I did a study of the Chilean berry producers (strawberries and raspberries). These are highly labour intensive sectors, often women producers predominate. Usually small producers are scattered and rely on local intermediaries to sell and deliver their produce to the wholesale buyer. There is no control over quality or producer capability. But the authorities can make an agreements with wholesalers that will give preference to a buyer on the condition that there is investment in logistics, in storage facilities, to work with sellers to improve quality. Similarly, at the INNOVAGRO meeting held in Santiago in 2015, a case study that won the prize for innovation cane from El Salvador. Schools provide free milk for schoolchildren and was import from Guatemala. The state in El Salvador demanded that national scientists improve the nutrition of milk …the state created a demand and forced the actors to respond with national production of high quality milk. For inclusive innovation to exist there has to be increased demand for knowledge, learning not just in firms, but everywhere, in communities, in health, in education and in production. Some new ideas will come from outside, some from civil society, some from the state. But the state can be an intelligent agent, orientating demand for knowledge.