The region faces numerous challenges in deepening its innovative capacity. To begin, there are desperate lags in the fundamental building blocks of an innovative society. Entrepreneurship is the watchword.
Two puzzles from the distant year 1900 speak to the current debate on Latin American growth and trade policy. First, if natural resources are intrinsically cursed, how was it that foreigners were able to take the stagnant regional mining sectors and remake them into dynamic industries that persist today? Second, if business climate and institutions in the region were so discouraging, then why were immigrants able to make contributions to industrialization so vastly disproportionate to their numbers where locals did not? The answers to both lie in the absence of an indigenous modern, cosmopolitan, and technologically savvy entrepreneurial class, as well as the supporting institutions for technological adoption and innovation. As a crude measure of both, Sweden and Denmark had five times as many domestically trained engineers per capita as Chile and Argentina at the same level of income. In the case of mining, this meant Latin Americans were unable to apply the new advances in metallurgy and chemistry; more generally, it meant that the region was profoundly unprepared for the Second Industrial Revolution.
A century later, despite renewed assertions that it is the composition of regional exports that is holding back growth, Latin America still has trouble innovating across the wide range of goods that we already export. In 1980, México and Korea were both engaged in the assembly of electronics and computers and had similarly low indexes of patenting in these sectors. But, after 30 years of HP and IBM in Guadalajara, we connect on our Samsung Galaxy instead of an A(zteca) phone. And, it was a Massachusetts firm that invented the Frankenfish – the genetically engineered super fast growing salmon – rather than Chile for whom the product is iconic. In each case, the export appears identically in the trade statistics – copper, computers, salmon – yet yields radically different development outcomes depending on the country’s ability to innovate around the product. Policy needs to focus more on how we produce rather than what we produce.
Latin America faces numerous challenges in deepening its innovative capacity. On the supply of knowledge side, the region falls in the bottom third in the Oecd’s Pisa global education quality test suggesting desperate lags in the fundamental building blocks of an innovative society. At a higher level, too few students are sent abroad – Korea and Taiwan send double the share of college graduates to the U.S. than does the Latin leader and neighbor México – and yet the advanced countries are where the knowledge frontier is demarcated, business opportunities identified, and trade and finance networks established. In terms of local knowledge institutions, surveys by the World Economic Forum’s Global Competitiveness Report suggest the private sector thinks relatively little of their quality and interacts infrequently with them. Often public think tanks lack clear mission and appropriate incentives for excellence, and universities have not yet fully embraced their third mission of partnering with industry. Monitoring the functioning of the overall innovation system, and ensuring the articulation and quality of the components state institutions, is often overlooked as a policy priority.
But it is the firm, not universities or think tanks, that generates economic growth, and the manager of the firm provides the impetus and vision to innovate. Strikingly, the recently established Stanford-LSE World Management Survey that compares managerial quality among manufacturing firms of over 50 employees globally ranks Argentina, Brazil, Chile and Colombia among the worst in their sample. The region justifiably celebrates its high functioning multilatinas, but the average firm does not have a strategic vision, routines for adopting new technologies, or forward looking personnel management strategy. To develop the capacity to exploit TLC-opened markets, or even to imagine doing R&D, it’s necessary to follow Korea, Japan, Singapore and Spain in developing coherent systems of technological extension and entrepreneurial support for SMEs as Colombia is attempting. Programs to facilitate entry into new markets and “road mapping” diagnostics to identify bottlenecks and coordination failures in clusters work to create demand for efficiency and innovation.
The 21st century Latin America is a world away from 1900. Latin companies operate at the technological frontier of sectors once ceded to foreigners in a state of abject technological dependence. Entrepreneurship is the buzzword of every new business school. The progress needs to accelerate.
*William F. Maloney is lead economist in the World Bank’s Development Economics Research Group. He received his Ph.D. in economics from the University of California, Berkeley and his B.A. from Harvard University.
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