How can you become a member of The Convergence Club? It is the group of developing countries that are converging toward the productivity results of the developed ones.
Hundreds of studies show that productivity is the determining factor for the long-term growth of nations, and not the amount of resources they may have. The examples of Singapore or Hong Kong have been repeated thousands of times to demonstrate the truth of this argument from the standpoint of prosperity. Now we can add the counterexample of oil-rich Venezuela, which shows the dark side of this paradox.
Productivity in Latin America is cyclical – that is, it increases in boom times and decreases during recessions. And so it will increase this year and next year, but at the rate it is moving, we are being left behind.
Labor productivity recovered after the recession, but this time the bounce was smaller than those of the recoveries of the last 27 years. The rate of growth of productivity grew by 1.5% in 1992; 1.2% in 2004; 0.9% in 2011; and barely 0.4% in 2017.
This productive lethargy is paradoxical at present, when there are more technologies to revolutionize efficiency than ever before in the history of humanity.
As usual, in 2018 new and more productive companies will replace those that emerged from the recession. And that is how countries’ average productivity will increase. But if you judge by the weak results of the past they should be doing more.
Governments must push and pull companies to improve their technical efficiency, especially in public services. They must redouble their efforts to create a culture of innovation and to facilitate the operations of companies to reduce informality, which is tremendously inefficient.
For their part, CEOs and board members should immediately seek out their most trusted geek to tell them what might happen to them if they do not get busy and innovate. Failing to have scientists with white smocks in research and development is not serious. Buying and copying is OK. What is fatal is not spending part of the sixmonth profits to change internal processes to be less analog (more digital) and more productive.
Where to start? In the private sector it is easy: nothing happens if the CEO and the company’s owners do not spearhead the changes. In governments, the same thing will occur if the president and all the ministers do not take the lead. The advantage is that now, with more money in the cash box, we can stop talking and start doing things about convergence.
This article was published in TOP500 2018 edition in Latin Trade