Transcript Slide 1

THE NEW CONTEXT FOR DEVELOPMENT
AROUND NATURAL RESOURCES:
An opportunity for Latin America
(and other resource rich countries)?
Carlota Perez
Centennial Professor at the London School of Economics (LSE), UK
Professor of Technology and Development, Tallinn University of
Technology, Estonia
JICA/IPD, Jordan, May 2014
BASIC ARGUMENT:
Circumstances have significantly changed
since our ideas on development evolved
in the post-war period
In the character of energy, materials and food markets
In the potential for innovation in developing countries
In the interests and behavior of global corporations
In the influence of environmental factors as
both obstacle and challenge
And in the level of awareness
of the role of innovation in growth and development
A historical observation:
Fast growth and catching up processes
tend to cluster in certain regions or countries
that move in similar directions for a certain period
What determines the synchronicity?
Development opportunities are a moving target
depending on the nature of
successive technological revolutions
and on their stage of diffusion
It’s no use trying to imitate current successes
they were achieved with past opportunities
Tomorrow’s successes depend
on anticipating the future today
Beware of developing policy theories
using only data from past decades?
SOME OF THE OBSERVED OPPORTUNITIES
of different magnitudes and outcomes;
of single countries or groups of them
• The US and Germany caught up with Britain
from the 1870s in the Age of steel and heavy
engineering
• Australia, New Zealand, Argentina, etc. made a leap
with counter seasonal trade made possible
by steamships and London funding
• Western Europe moved to mass consumption
with the mass production revolution (following US)
• Latin America and Asia grew with protected ISI
when mass production matured (Africa came late)
• Japan and the Four Tigers took the double technological
opportunity of the paradigm shift to ICT
• China (the BRICs?) took the globalisation “train”
Could shifting opportunities explain
Ocampo’s “truncated convergence”?
TAKING ADVANTAGE OF EACH OPPORTUNITY
DEPENDS ON PREVIOUS CAPABILITIES
(technological and social)
ON POLITICAL AND ENTREPRENEURIAL WILL
AND GOOD TIMING
And what different countries get
from using a particular opportunity
is not necessarily the same outcome
Both Latin America and the Asian Tigers
used the ISI opportunity
(when the industries in the North
were maturing and facing saturated markets)
The ISI opportunity for jobs and growth in Latin America from late-50s to late 70s
Mature industries
in the advanced world
looking for market growth
“Third World” governments
looking for paths
to development
METHOD  Import parts instead of finished products. Set up tariff barriers
Accept low productivity and high prices to increase employment
FOCUS  Final stage of fabricating (assembly) industries
for the domestic market (the mature products of ‘Fordism’).
In practice little technological learning and rare innovation
But, together with multiplier effect (suppliers) created its own demand
LEARNING  In the complementary activities and the processing industries:
Construction, infrastructures; transport, commerce, distribution, banking, etc
Management of large and small firms
Processing industries: food, beer, cement, paper, bottles, metallurgy, etc.
And previous learning continued (in some cases intensified)
in natural resources: mining, oil, agriculture, livestock, etc.
SO ISI ACTED AS THE “STARTER ENGINE” OF ECONOMY WIDE (LIMITED) LEARNING
WHILE IT WAS ADEQUATE FOR THE CONTEXT, IT ACHIEVED GROWTH
When world conditions changed and protection was lifted, the model collapsed
THE ASIAN LEAP TO DEVELOPMENT BEGAN WITH ISI, BUT SOON TOOK ADVANTAGE
OF THE WINDOW OF OPPORTUNITY THAT OPENED FROM THE 1970s WITH ICT
They specialised in mass fabrication (assembly) for export markets
They made alliances
to produce
electronics, electrical,
electro-mechanical goods
and textile-clothing
They took advantage
of low-cost labour
AND MADE HUGE
EFFORTS IN TRAINING
AND EDUCATION
When the ICT revolution came, they were ready to make the leap
NOW THEY ARE ABLE TO INNOVATE THEIR WAY UP
A ROUTE FOR A SOUTH AMERICAN (double) LEAP TO DEVELOPMENT:
TAKING ADVANTAGE OF THE WINDOW OF OPPORTUNITY OF THE 2010s?
To specialize in the PROCESSING industries around natural resources
for export markets
To make alliances to produce
energy and materials
(basic and special, natural
and synthetic, macro and nano)
and biological products
(traditional and advanced,
ecological and biotechnological)
adding technology and
innovating up and downstream
When the next revolution comes
(possibly bio, nano, new and green materials, etc.)
the economies can be ready to make the leap
WOULD THAT BE POSSIBLE?
The ideas about the role of natural resources
in development
have changed over time
 End 19th Century and early 20th = ADVANTAGE
Major asset to favor and finance development
(US, Canada, Australia, New Zealand, Argentina, Scandinavian countries)
 Post WWII = DISADVANTAGE
1940s-50s: Increasing advantage goes to manufacturing industry.
Price Scissors (Prebisch 1945, 1951; Singer 1949)
1970’s:
Dutch disease (The Economist 1977, Corden 1982)
1980s and 1990s: “Resource curse” (Sachs and Wagner 1995, Auty 1995)
 2000s = COULD THEY BE AN ADVANTAGE NOW?
REVISITING THE NATURAL RESOURCES ISSUE. WHAT HAS CHANGED?
Price level and trend?
Probably higher (demand greater than supply)
Volatility?
Continues
Corruption?
Still a problem
Nature of markets?
From mainly commodities to hyper-segmentation
(while much of manufacturing and services has been
commoditized).
Long tail in products long tail in materials
Market growth?
Strong in emerging countries (Engels law prolonged,
if full globalization occurs).
New billions to middle class need to be fed
Technological dynamism? Much greater, facilitated by ICT,
spurred by differentiation in demand and increasingly
shaped by environmental and health concerns
Type of innovation?
From mainly process innovation (to lower the cost of
homogenous products and to overcome local limits)
to special product innovation and customization
with higher profit margins and possible barriers to entry
REVISITING THE POTENTIAL FOR TECHNOLOGICAL CATCHING-UP
Behavior of MNCs?
From enclave with affiliates to global networks
with suppliers and partners (much greater interest in
transfer of technology to ensure final quality)
From cartel-type behavior (or market control)
to East West competition for access to resources,
creating conditions for a stronger negotiating position
Access to information?
Significantly enhanced
Access to markets?
Much greater variety of distribution outlets and
transport systems for different quantities and qualities,
all enabled by ICT
Initiating local production? From domestic to global markets; protection difficult;
possession of natural resources becomes important
advantage; Asia has become the factory of the world
(huge advantage in experience and labor costs)
Nature of markets?
From homogeneous (three tier) to hyper-segmented
diversity, adaptability, special products (long tail).
Coexistence of multiple technologies. New pricescissors between standard and “long tail” products?
From supply-defined industries to user-defined sectors
SPECIFICITY OF LATIN AMERICA (with significant differences between countries)
Natural endowment?
Abundance and variety of resources
Population density?
Much lower than in Asia
Technological capabilities? Tradition and learning in NR activities and
in the processing industries: strong in agro-industry
but also chemistry and metallurgy
Infrastructures?
Relatively well developed physical and business
support infrastructure: ports, roads, electricity, water,
telecom, banking, transport, construction industry, etc.
Social capabilities?
Educated middle class with organizational and
business experience (basis for improvement)
Main limitations?
Unchanging traditional power structures;
high levels of poverty, corruption, poor education, etc.
Can these countries use Asian markets to achieve
technologically dynamic and inclusive growth by innovating around NR?
A successful strategy would need to encompass
THE WHOLE NATURAL-RESOURCE-BASED NETWORK
from capital goods and services to processing and delivery
Investment (incl. exploration)
NR-Production
Equipment
Inputs
Processing A1
Processing B1
Processing A2
RD&E
Processing B2
Services
Packaging, branding, etc.
Transport, marketing, distribution
The potential for technological dynamism for the innovation system
would driven by the changes occurring
in the market context
THE NATURAL RESOURCE INDUSTRIES WITH THEIR INNOVATION NETWORKS
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Mining/Metallurgy
Chemicals, petrochemicals
Pharmaceuticals
Custom materials
Livestock
Agriculture, hydroponics
Agro-industries
Biotechnology
Fisheries, aquaculture
Forestry, paper
Ceramics, glass
Packaging
Energy/Electricity
Refining
Nanotechnology
Tourism
Etc.
EACH INCLUDING COMMODITIES
AND SPECIALITIES
• Multiple engineering services
Design, construction, adaptation and maintenance
• Software and systems services
• Capital goods: Equipment and instruments
Design, construction, adaptation, installation, compatibility, etc.
• Laboratory services
Quality control, evaluation, measurement, certificates, etc.
• Conservation and packaging
R&D, engineering, design, production, services
• Transport, marketing and distribution
Standard, adapted and specialised
• Technical service to users
• Market intelligence
• R&D
Improvements and new products
• Patent lawyers; contract negotiation
• Training and education of specialised personnel
• Etc, etc.
Success depends on continuous improvement of technologies, companies,
products, human capital and networks
The forces driving innovation in the natural resource networks
Segmentation and differentiation
Importance of qualities
(custom materials)
Public opinion + environment
Pro-recycling and renewables
vs. pollution
MARKET VOLUME
Challenges to
overcome:
Diminishing quality
of deposits, lands,
etc.
Greater difficulty
of access
Limited and
immobile supply
of different qualities
Economies of scale
in processing
Etc.
NATURAL RESOURCE-BASED NETWORK
EQUIPMENT
INPUTS
SERVICES
RD&E
INVESTMENT (Incl. exploration when
relevant)
PRODUCTION
PROCESSING (1,2,3…N)
PACKAGING
DISTRIBUTION
Globalisation of production
Outsourcing-off-shoring
and corporate social responsibility
Competition between China
and the West for scarce resources
Prospective change in relative costs
(energy, materials, transport, labour)
favouring processing in situ
MARKET CONTEXT
Ease of distance
coordination
Ease in handling
variety at all levels
Drastic reduction in
time and cost of
innovation and
adaptation
Biotech, nanotech,
applications
to NR activities
Green chemistry
Etc. etc. etc
ICT AND OTHER S&T ADVANCES
MARKET REQUIREMENTS
TAKING THE LIMITS INTO ACCOUNT
THE PROCESSING INDUSTRIES
require increasingly
qualified personnel
A strategy based on them
promises rising incomes and better quality of life
for the participants
BUT THEY ARE NOT LABOUR INTENSIVE
Latin America has a very serious
income distribution and employment problem
HOW CAN GROWTH BE ACHIEVED WITH SOCIAL EQUITY?
TWO DIFFERENT AND COMPLEMENTARY GOALS
Economic growth
and global
positioning
Full employment
and well being
for all
TWO DIFFERENT YET INTEGRATED
PARTS OF THE ECONOMY
A DUAL INTEGRATED MODEL: TOP-DOWN AND GRASSROOTS-UP
with converging processes of growth and innovation
Objective:
Growth and
generation
of foreign
exchange
An active State
facilitating and
promoting
local initiative
Objective:
To raise
the quality
of life of all
inhabitants
ENGINES
OF GROWTH
Constantly upgraded
production networks
around
natural resources
COMPETITIVE
TECHNOLOGIES
FOR
GLOBAL
MARKETS
INFRASTRUCTURE, FUNDS, ENABLING INSTITUTIONS AND ‘HUMAN CAPITAL’
interconnected specialised ‘local’ economies (clusters)
Differentiated development of each part of the territory
based on the local productive vocation, identified or promoted
FOR DOMESTIC OR FOREIGN MARKETS
The promise of this particular strategy is not much greater than that of ISI
but it can be ambitious when taking paradigm shifts into account:
A LEAP IN DEVELOPMENT IN TWO STAGES
Achieve growth now
taking advantage
of the current
window of opportunity
for natural resource
producers
Prepare to make a leap
in development with the next
technological revolution
by developing capabilities,
companies and global networks
in the sectors of the future
(biotechnology, nanotechnology,
bioelectronics, new materials?)
That is what Asia did –without planning it– with the ICT revolution
Yet it requires intense efforts in training, education, RD&E
and innovative cooperation at all levels and in all stages
DOES LATIN AMERICA HAVE THE SOCIAL CAPABILITIES FOR THIS?
Can this strategy be applied
by other natural resource producers?
Yes. The most likely is that
there will be competition among producers
as well as among the companies and countries
that require the resources
Advantages will probably go to:
• To those who have already acquired
basic technological and social capabilities
for producing, negotiating, networking and innovating
• To those possessing the resources
with more dynamic demand and higher prices
• And to those with first mover advantages
The diversity of resources will result
in a variety of competition conditions
THE OBSTACLES AND THE UNCERTAINTIES
Prices?
Corruption?
Dutch disease?
Climate change?
Environmental policies affecting demand?
Biotech and other radical innovation risks?
Over-exploitation of resources?
Political resistance?
Etc
All strategies face different obstacles and uncertainties
Successful strategies are about facing them
while taking advantage of the opportunities
THE GREATEST RISK IS MISSING THE BOAT!