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By Federico Mazzella ,
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Innovation and regional integration were the focus of the INTAL Winter Colloquium, which was attended by US ambassador Noah Mamet, Argentina’s chief of staff, Marcos Peña, and the minister of production, Francisco Cabrera.

 

What future technological breakthroughs will have exponential impacts and cause ongoing changes to traditional forms of global trade? What challenges do new technologies pose for integration within the region and with the world?

The INTAL Winter Colloquium (link in Spanish) took place on June 30, 2016.The event was organized by the Institute for the Integration of Latin America and the Caribbean (INTAL), part of the Integration and Trade Sector (INT) at the Inter-American Development Bank (IDB), together with Argentina’s Ministry of Production and the Inter-American Dialogue. A range of experts from the region took part in the event and shared their experiences designing policies that stimulate creativity, enhance public–private partnerships, and overcome the challenges that technological innovation poses.

Those present were welcomed to the event by INTAL director Gustavo Beliz, who invited the audience to rethink regional and local integration by “learning, unlearning, and relearning” the classic concept of integration, given that we are living through a time of exponential integration that is essentially tied to innovation. Likewise, he underlined that export diversification is fundamental to creating high-quality jobs and laying the foundations for sustainable development. Proactive, carefully planned trade policies are becoming increasingly necessary if we are to increase productivity and competitiveness and reach new markets.

New technologies play a key role in that mission. Production techniques change, bringing about genuine transformations in the way that countries relate to one another on the basis of global value chains that are increasingly complex and sophisticated. Glocal (global + local) phenomena come together to form a new kind of integration, blurring borders as the world becomes more interconnected. This requires new types of institutions that combine forces to create a common agenda that makes this process governable. “It’s about inn-tegration, which combines innovation and integration,” Mr. Beliz concluded, before underlining the impact that certain new technologies are having on production and trade, notably artificial intelligence and robotics, 3D printing and digital manufacturing, nanotechnology, big data, and the Internet of Things.

The next speaker was Noah Mamet, US ambassador to Argentina, who praised INTAL’s initiative to discuss productive transformation in Latin America and noted that Argentina and the United States agree on the importance of small businesses and microenterprises to developing their economies. He argued that human capital is a key component in investment decisions and that Argentina and Latin America as a whole are resource-rich in this regard. He also noted that Buenos Aires could become the tech hub for the region. Mr. Mamet also focused on the enormous development potential for clean technology in the region as a whole, and Argentina in particular. This sector could boost innovative, environmentally friendly economic growth.

Michael Shifter, the president of the Inter-American Dialogue (IAD), observed that a productive transformation is needed to enable Latin America to move beyond its dependence on commodities. To achieve this, there needs to be a transition towards greater technological innovation based on existing natural and human resources. The state and high-quality education play fundamental roles in achieving this goal, which would require improving the quality of public policies. Likewise, Mr. Shifter pointed out that the region needs to bridge the divides within it and generate common policies that allow it to develop and increase the wellbeing of its citizens.

 

 

The last speaker on this first panel, Marcos Peña, Argentina’s chief of staff, focused on the profound changes that have been taking place in the ways that people communicate following the boom in new media and social networks. He highlighted the importance of a transformation that would include policies and institutions, arguing that integration and working together are an opportunity to substantially reduce inequality and eradicate poverty. He concluded by arguing that we need to understand that new technologies and innovation can help create fairer, more balanced societies.

Also at the event was Rafael Salazar, program director for MIT Innovators Under 35, who described the breakthrough technologies that will have the greatest impact on our lives in the next few years (see separate article).

The third panel discussed global trends and future scenarios for Latin America. The first speaker was Sergio Bitar, former Chilean minister of mining, education, and public works, senior partner at the Inter-American Dialogue, and director of the Global Trends and Future Scenarios project. Mr. Bitar argued that Latin American countries need to build their capacity to reflect on strategic issues. To do this, he argued that it is not enough to focus only on matters within their own borders, as the future will depend on the ability to anticipate global issues, look ahead, and move beyond the short term. He suggested that considerable foresight would be necessary for this. In other words, countries need to explore plausible future scenarios and detect global trends and the main processes driving change by using interdisciplinary analysis and qualitative methods and consulting experts who can help comprehend complex phenomena and how different systems interact. In short, they need to explore possible scenarios so as to identify the areas in the region where changes will take place.

At the same time, he presented a plausible group of strategic objectives for Latin America. These included the strengthening of democracy, productive transformation, social inclusion to reduce poverty and inequality, Latin American cooperation and integration, and issues related to climate change, such as food security, disaster prevention, food exports, and access to water.

Finally, he stressed Latin America’s strong points and weaknesses given this outlook of rapid change. The region’s advantages include the fact that it is democratic, peaceful, and abundant in natural resources. The weaknesses he pointed to include its low productivity and the growing gap with Asia, high levels of inequality, limited regional integration, inefficient state administration, low educational quality, and a lack of instruments for foresight analysis which would be needed to start a democratic discussion of countries’ strategic objectives.

 

 

Federica Gómez Decker, integration and trade specialist at the IDB, described Latin America and the Caribbean’s share in the global trade in services and argued that the region needs to take advantage of the opportunities this sector can offer, such as diversifying its export supply into more knowledge- and technology-intensive sectors and integrating effectively into global value chains. Her presentation focused on Uruguay’s experience in this regard and on the lessons the country learned in the process. In this sense, she stressed the importance of actively working to improve the country’s regulatory framework so as to foster better conditions in the business environment for global service companies, as well as developing the government’s capacity to serve the sector. She outlined the challenges ahead: overcoming systematic statistical limitations, the scalability of operations and human capital, adapting the regulatory framework, and getting to know the sector better.

During the last panel discussion, Lucio Castro, Argentina’s secretary of productive transformation, reflected on the state of the Argentine economy today and described the current international context. Mr. Castro stressed that Argentina needs a production plan that sets out a long-term strategy. He argued that the way to end poverty is by generating quality jobs. In this regard, he argued that what are needed are, first, cross-cutting policies that seek to ensure adequate energy supplies, improve transportation and logistics, reduce the tax burden on companies, and provide incentives for investment and exports; second, access to long-term financing at reasonable rates; and third, a suitable regulatory framework. This would require the private and public sectors working together on restructuring and retraining so as to capture the potential competitiveness of the economy by reducing sector-level flaws and obstacles.

Mr. Castro’s presentation was commented on by Jorge Forteza, professor of competitiveness for companies, regions, and countries at the University of San Andrés, and Alejandro Díaz, CEO of the American Chamber of Commerce (AmCham). Mr. Forteza argued that new technologies give Latin America the chance to escape the middle-income trap and that the challenge is transforming the low tech into high tech. He said that achieving this would require changing the production model and rethinking the drivers for future growth. He underlined the need to add technology to the agriculture, life sciences, mining, and energy sectors, and to specialized manufacturing, knowledge-based services, tourism, and infrastructure. Mr. Díaz drew attention to factors that favor productive transformation. Among these were the role of institutions, the reconstruction of a national sense of identity, the need to redefine the role of the state through clear rules of play that favor formal job creation, the role of the business owner as the main creator of high-quality jobs, and the importance of business owners thinking collectively and intensifying the interaction between the public and private sectors.

 

 

Gustavo Crespi, lead specialist in science and technology at the IDB’s Competitiveness, Technology, and Innovation Division, presented certain aspects of the book La innovación y la nueva economía de servicios en América Latina y el Caribe: Retos e implicaciones de política [Innovation and the new service economy in Latin America and the Caribbean: challenges and policy implications]”, (https://publications.iadb.org/handle/11319/7273?locale-attribute=es [link in Spanish]), published by the IDB in October 2015. He pointed out that the fact that the region’s productivity levels are low and are continuing to decline is due to the service sector, which employs 60% of Latin Americans. In this sense, Mr. Crespi outlined three paths to increasing productivity: reallocating resources to more productive service companies, increasing the productivity of service companies by improving static efficiency in resource allocation, and, finally, generating new knowledge-intensive services. Natural resources have the potential to transform these services into a platform for innovation and structural change in Latin America and the Caribbean through the development of knowledge-intensive service companies.

He went on to describe the factors that underlie the success of such service firms, like adapting technologies to the specific context they will be used in, the construction of formal and informal networks with suppliers and users within the value chain and with players in the world of science, the availability of human capital, involvement in global knowledge networks, R&D levels above 10% of sales, and the protection of intellectual property. In contrast, he argued that the factors that limit the success of this type of firm are problems with information asymmetry, resistance to change among those seeking solutions, poor technological infrastructure, limited levels of advanced human capital, and limited understanding among policy makers of what these sectors need. In Mr. Crespi’s opinion, “services are here to stay,” and so improving their efficiency is vital, given their aggregate impact on productivity. Likewise, competitiveness and regulatory policies are key to improving resource allocation within the sector, which also requires active, focused public policies to promote innovation. The region has an opportunity to develop these new knowledge-intensive service sectors using its natural resources as a jumping-off.

 

 

Mr. Crespi’s presentation was followed by comments from Julissa Reynoso, former US ambassador to Uruguay, and Sergio Kaufman, president of Accenture. Ms. Reynoso focused on the role of a smart pro-innovation policy in the United States. She underlined that many of today’s leading tech firms received financial support from the government when they were still small businesses, as has the complex US science and technology development network through institutions such as the National Science Foundation. Mr. Kaufman presented Accenture’s experience with innovation and new technologies. He reported that in Argentina his firm is producing 25 robots per month. He argued that Latin America and the Caribbean cannot compete on costs with other competitors such as India, which is why it is seeking a technological breakthrough that will set the region apart and attract clients. This would generate a second wave of jobs, namely for robot developers. He commented on the difficulties in planning these processes due to the speed at which technological changes are taking place.

 

 

The closing words came from Francisco Cabrera, Argentina’s minister of production, who gave an overview of the status of productive transformation in Argentina and highlighted the renewed interest in investing in the country. Mr. Cabrera claimed that the most serious problem is the demand for formal employment, and he stated his belief that investment is the structural solution that will enable quality job creation. He suggested that this would require better credit terms and working towards lower tax burdens, while also aiming for greater regional integration and coordination with Pacific Alliance countries. He also announced that Argentina is negotiating an automotive export agreement with Colombia.

Those taking part in the event at INTAL-Lab agreed that a regional agenda for productive innovation is needed as a pillar for development and growth with social inclusion. They also agreed that it is essential to incorporate new technologies into regional production processes and value chains so as to increase competitiveness both in traditional sectors connected to natural resources and in services and renewable energies.

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