High technology with low productivity

How to explain the persistent poverty and economic backwardness of Latin America and the Caribbean? There are, of course, a great deal of explanations, but many analysts would highlight the lack of economic reforms. When we look more closely, however, we realize that the region has been undergoing successive reforms since at least the 1990s. In fact, the region has promoted economic openness and established trade and investment agreements, relaxed laws in different economic realms, adopted new monetary and fiscal policies, among many other measures. But why does poverty remain high and economic growth, frustrating?

To help unravel the question, consider one important variable: productivity. The region accounted for 40% of the overall American productivity in 1980, but today it corresponds to only 26%. Figures are similar when compared to European countries. There is definitely something wrong with this important variable. There are several explanations for low productivity, but let us take one in particular. Empirical evidence suggests that there is a lag in the use and application of state-of-the-art technologies and this would help to greatly explain the differences between countries in terms of productivity.

As an example, think of a very simple and familiar case: the cell phone. In addition to conventional communication and social networks, the cell phone has broadened access to a gigantic list of information and databases, sophisticated applications for professional purposes and access to the market, academic, knowledge, learning and training applications, among many other services with a potential impact on productivity. Despite all this, and the fact that so many people in the region have cell phones – in 2020 there were 102 enabled mobile phone lines for every 100 people –, evidence shows that the use and exploitation of this technology for professional purposes was quite discrepant between people in the region and in advanced countries. A similar instance is observed in the use of computers, robots, transport equipment, civil construction and other technologies. How to unravel this enigma of high technology and low productivity?

The most powerful explanation is associated with deficiencies in human capital, from low education to relevant indicators for the adoption and use of technologies, such as cognitive development, specific skills in technological areas, availability of engineers and scientists, and availability of universities and research centers. Evidence shows that the region's enormous backwardness regarding these indicators has implications such as resistance to the adoption and use of new technologies and work methods, inability to manage new technologies, low quality of products and services, lack punctuality with clients, as well as insignificant development of new technologies, even in areas where the region's countries already have a relevant productive presence, such as mining and agriculture.

In fact, history shows that when technology is underdeveloped or misused, it can be punitive. Take the case of Chile in the late 19th and early 20th centuries. At the beginning of the century, the country accounted for around 40% of the world copper market, but, by 1911, that share had fallen to less than 4% due to primitive production practices and poor knowledge of geology and advanced processing methods, which led the country to experience a significant drop in production. Only with the acquisition of Chilean mines by foreign companies owing advanced technologies the country would resume a leading role in the sector. A similar case occurred in Mexico during the same period. As a counterpoint, the development of the U.S. mining industry in the 19th century was followed by heavy investments in human capital and in scientific and technological development, which would give rise to a wide range of diversified and sophisticated downstream activities and to a growing leadership in several manufacturing sectors of the corresponding value chain. The question, therefore, is about how and not just what is produced.

Brazil’s experiences are revealing. Until around the 1990s, the country was a net importer of food, but the large investments in knowledge, science and technology, training and extension initiated in the 1970s would lead the country to incorporate, adapt and develop technologies and increase productivity to become one of the largest agricultural exporters in the world. Another experience was the heavy investments initiated decades ago in the training of engineers, technicians and scientists in the oil area, which would lead the country not only to incorporate, but also to develop technologies in advanced areas such as super-deepwater, pre-salt and post-salt production and become one of the largest oil producers in the world.

A third experience is in the aerospace industry. A determined policy of training engineers and technicians, also started decades ago, would lead the country to initially incorporate and then develop technologies that would lead it to take on a relevant position in the world aeronautical industry and other advanced technologies. While experiences such as these are quite important, they also reveal the need to ground the human capital agenda in favor of the entire economy and not in a localized manner, in such a way as to promote a broad and generalized increase in productivity, which is the most important, perennial recipe for breaking with economic and social backwardness.

Investing in human capital, management, science, technology and innovation will be essential for the region to realize its unparalleled business potential in climate change, bioeconomy, sustainable agriculture and mining, industrial segments and many other sectors and to develop solutions that are fit for the local context. After all, we have already learned that simply importing technologies does not get us far. Only this way will it be possible to grow at higher rates, generate quality jobs and promote a decent quality of life for the entire population.