Introduction
Latin American countries have made substantial progress with respect to some socioeconomic indicators in recent decades. Indeed, many countries in the region now enjoy middle-income status within the international context. This progress was accelerated by the “commodity super-cycle” during the ten years from around 2003 to 2012, as China’s demand for commodities led to price and volume increases for many Latin American exporters of those products. Now the region faces two kinds of challenges. On the one hand, the commodity cycle is over for the foreseeable future, so another kind of strategy must be sought to maintain high growth rates. On the other hand, the commodity boom did not resolve all of Latin America’s socioeconomic problems and may even have exacerbated some of them. Thus, the gap increased between nations, regions, and social groups that benefitted and those that did not. Moreover, productivity failed to rise in line with international trends.
One way of thinking about the situation that faces Latin America in the coming decades focuses on the so-called middle-income trap. As a number of scholars and policy makers have pointed out, the middle-income trap results when advanced developing countries are squeezed between low-wage and high-productivity competitors.1 To combat the middle-income trap, this book argues that Latin America must strive to achieve two main goals—greater innovation to increase productivity and greater inclusion to incorporate more of the population into the benefits of economic growth. We define innovation as “the application of new ideas to the products, processes, or other aspects of the activities of a firm that lead to increased ‘value’” (Greenhalgh and Rogers 2010: 4). Inclusion is enabling the majority of the population to share in the benefits of economic growth and social services.
Innovation is relevant because it is an important way to raise productivity and incorporate more advanced technology into the productive sectors, leading to higher, sustained rates of investment and growth. Latin American countries have lagged behind the industrial countries as well as the emerging economies of East Asia with respect to research and development (R&D). A much lower share of gross domestic productivity (GDP) is devoted to these activities in Latin America, and skilled workers in scientific and technological fields have not been produced in adequate numbers. While there are small pockets of excellence, these are not widespread. An important policy question is whether there are lessons that Latin America can learn from countries that have been successful in stimulating innovation.
Inclusion is a separate, but related, goal for Latin America in the twenty-first century. No growth strategy can be successful if it leaves the majority of the population behind and inequality increases. Of course, there are many ways in which inclusion can be pursued. In our case, we focus on those aspects that are complementary to the innovation process. Thus, the two topics that will be central are education, including the training of skilled workers for employment in the high-technology industries, and the formation of links between large, advanced firms and small and medium-sized enterprises (SME) that act as sub-contractors. Again, the question is whether Latin America can learn from countries that have been successful in promoting inclusion.
The topics of innovation and inclusion are intimately interrelated as will be seen throughout the book. There are several ways in which the two are connected. One is through a normative argument: It is morally unacceptable that a small part of the population profits from innovation and growth at the expense of the majority. Another argument is political: If the fruits of greater productivity are not widely shared, the result may well be political instability, which will make it more difficult to attract the investment needed to stoke future growth. While we agree with both of these arguments, we concentrate on a third one. Innovation cannot occur without the necessary skills among the population. Creating those skills can simultaneously increase well-being if quality education is widely spread. In other words, education and training are drivers of both innovation and inclusion, and together they can help to overcome the middle-income trap.
To move forward with greater innovation and inclusion, of course, several contextual factors must be taken into account, such as greater institutional capacity, prudent macroeconomic management, and sensible interrelationships with the increasingly global economy. We are particularly concerned about the role of institutions. Indeed, many social scientists have argued in recent years that institutions are the key factor in ...