FALLING SHORT IN
he accumulation of technological capabilities is at the heart of the development
process. Technological capabilities refer
to the resources and organizational abilities needed to generate and manage technological change. In a changing national
and global context, accumulating those
capabilities is the key to sustained productivity growth
and high-end economic development.
The results of 25 years of neoliberal policies in Latin
America speak volumes about the current state of technological capabilities in the region. Latin American
economies grew at an average annual rate of 2. 7 percent
between 1980 and 2008. That is half the rate of growth
during the import-substitution period and substantially
lower than in any other developing country group. Productivity growth has fared even worse. Labor productivity grew at an annual rate of 0.2 percent compared to 2. 5
percent during the prior period.
1 To be sure, economic
growth for most of the 2000s was considerably higher
(though still lower than in other developing country
groups). But that was primarily the result of the commodity price boom and remittances from Latin Americans living in the United States.
The set of reforms adopted in the late 1980s and early
1990s, including the lowering of tariff barriers, reduction of public subsidies, elimination of price controls,
and freeing of interest rates (the so-called Washington Consensus), led to the de-industrialization of Latin
American economies. The share of manufacturing as a
percentage of GDP declined from 27 percent in 1980 to
17. 9 percent in 2009, which puts it roughly at the same
level as the Eurozone ( 18. 1 percent), and substantially below developing East Asia and Pacific ( 31. 4 percent).
American countries reverted to comparative advantages
in natural resources with a few new ones like natural
gas and soybeans added to the old ones like copper and
iron ore. Central American countries, and to some extent Mexico, developed specializations in low-skill, labor-intensive, assembly-based production, facilitated
Eva Paus is professor of economics and the Carol
Hoffmann Collins Director of the McCulloch Center
for Global Initiatives at Mount Holyoke College.
by privileged access to the U.S. market through special
provisions of the U.S. tariff schedule and broad tariff-free access through the Caribbean Basin Initiative and,
in the case of Mexico, the North American Free Trade
At the same time, other developing countries performed much better over the last 25 years, most importantly China—both in terms of economic growth and
the development of comparative advantages in more
technology-intensive activities. With an investment ratio double that of Latin America and a strategy of controlled market liberalization, deliberate expansion of
technological capabilities, and strategic incorporation
of foreign investors, China has become competitive in
both technology-intensive and labor-intensive products.
Given the difference in technological capabilities between China and Latin America, the region’s bilateral
trade deficit with China skyrocketed from $863 million
in 2000 to $32 billion in 2009. Only Brazil, Chile and
Peru had a significant trade surplus with China in 2009,
based on their exports of iron ore, copper and soybeans.
INDUSTRIAL POLICIES UNDER
ALL CARROTS, NO STICKS
he industrial policies of the ISI period
have been maligned by the proponents
of neoliberalism. But it is important to
distinguish the economic and development logic of the strategy from the detrimental ways some of the policies were
carried out. Industrial policies under ISI
Under ISI, upgrading production meant creating policies
and an environment that would foster industrial activities.
Industrial production promises longer-term development
benefits than natural resource extraction and primary production. It offers greater potential for technological learning and spillover effects into other areas of the economy
for increasing returns and higher value-added production.
And manufactured products enjoy higher income elastici-ties of demand in international markets.