Title: THE THEORY OF ECONOMIC DEVELOPMENT, CLUSTERS AND THE NEW LATIN AMERICAN PRODUCTION STRUCTURE.
1- THE THEORY OF ECONOMIC DEVELOPMENT, CLUSTERS
AND THE NEW LATIN AMERICAN PRODUCTION STRUCTURE. - JORGE KATZ
- Universidad de Chile, Mayo 2007
2CONTENTS OF THE PRESENTAION PART I
THEORETICAL FRAMEWORK PART II THE EMPIRICAL
EVIDENCE PART III AN APPRECIATIVE ACC0UNT
OF THE FACTS.
-CLUSTERS AND THE CREATION AND
DESTRUCTION OF PRODUCTION AND
TECHNOLOGICAL
CAPABILITIES. PART IV AFTER THE WASHINGTON
CONSENSUS, WHAT?
3The theory of economic development no longer
exists (Krugman, 1992)
- Once upon a time there was a field called
development economics, a brach of economics
concerned with explaining why some countries are
so much poorer than others, and with prescribing
ways for poor countries to become rich. The
field no longer exists(pag.1). - After 1960, by contrast, economists working on
development had been trained in the formalism of
constant returns general equilibrium and did not
so much reject the posibilities that scale
economies might matter, but simply failed to
notice it (pag.8).
4Modern Growth Theory is based on an equilibrium
algorithm that is scarcely useful when we come
to explore the major issues posed by developing
countries.
- R.Solow, al recibir el Premio Nobel.
-
- The idea is to imagine that the economy is
populated by a single inmortal consumer, (for
whom) every firm is just a transparent
instrumentality, a device to carry out
inte-temporal optimization subject only to
technological constraints and initial endowments.
Any kind of market failure is ruled out from the
begining. The end result is a construction in
which the whole economy is assumed to be solving
a Ramsey optimal growth problem through
time.Inseparable from this is the presumption
that observed paths are equilibrium paths (AER,
Junio 1988) - Y agrega
- we are asked to regard this construction
as a model of the actual capitalist world.I find
none of this convincing. The markets for goods
and labor look to me like imperfect pieces of
social machinery with important institutional
peculiarities. They do not behave like
transparent mechanisms for converting consumption
and leisure desires of households into production
and employment decisions (pag.311) -
5Part I the conceptual framework Neoclassical
and evolutionary models of the development
process.
- In the neoclassical world growth is studied at an
aggregate level, under conditions of competitive
equilibrium. Firms have perfect information and
free access to their production technology. In
the original Solow-Swan (1956) version knowledge
in exogenous. There are no market or
coordination failures, uncertainty or
institutions other that the market. - In the evolutionary world institutions,
uncertainty and differences in firm behaviour
play a major role.Knowledge markets are not - Pareto optimal and knowledge is a rival
and non excludible good. (Romer, 1999 J.S.Mill,
1854). We no longer have a representative firm
and rents and appropriability are key
determinantes of the innovative path of the
economy. Competition acts as a selection
mechanism in the market. - Growth is described as a disequilibrium
process with creation and destruction of
production and technological capabilities.
6Public policies strongly differ in both models
- In Europe and Asia as in china now the State
acts as a coordination agent in the economy,
creating markets, institutions and capabilities.
Countries integrate to the world economy in their
own terms. (Rodrik, 1998). - In Latin America, on the other hand, and
following Washington Consensus ideas, countries
have introduced structural reforms based on
market principles. The idea is that ex ante
equilibrium in macro fundamentals are needed
and the right institutions need to be in place
for entrepreneurs to be able to make the right
investment and innovation decisions. The State
should be neutral and a subsidiary agent in the
economy.
7Formal and appreciative theorizing.
- Although current versions of Modern Growth Theory
incorporate creationand destruction effects
of a Schumpeterian nature there is no real
understanding of the rol of institutions,
uncertainty and differences among firms. - We need different microfoundations to the
neoclassical ones if we are to understand
development processes. The idea of the
representative firm has to be abandoned and also
the notion of equlibrium growth. Instead we need
to bring on board institutions, uncertainty and a
theory of innovation in a volatile macro
environment. Capitalism is highly variable
across countries and a restless model of social
organization. - Formal models can scarcely accomodate such
features.
8Institutions and Organizations as central
components of the development process.
- Institutions are the rules of the game. They
vary strongly across regions, countries and
sectors of economic activity. - Organizations are power structures with a set of
rutines to follow, and a system of rewards and
punishment as a result of performance. - Both should be undertood in a dynamic setting as
process and not as a final, stationary state
of the model. Such dynamics varies between
countries, sectors, historical settings or
epochs.
9Innovation and Schumpeterian rents.The motor
of capitalism.
p
Introduction price.
Innovative rent.
Long term equilibrium price.
q
10Central features of an evolutionary account of
development processes.
- Technical progrss is endogenous.
- Firms differ in structure, strategy and
technoloigical behaviour. - Institutions matter and they have their own
learning and evolutionary dynamics. - Uncertaintly plays a very significant rol in
determining the development path of the economy. - On top of the above, in the Latin America
scenario we have to take into account the
following additional features.
11Specificities of the Latin American scenarios
- 1.Macroeconomic volatility and uncertainty.
- 2.Changes in economic structure as a result of
creation and destruction of production and
technologial capabilities. - 3.Wear public sector organizations and very poor
coordination capabilities in the economy. - 4.Lack of public goods in the economy.
- 5.Structural heterogeneity and punctuated
convergence. - 6.Defensive behaviour and low animal spirits.
12Macro volatility. 19 countries 1990-2004
13Cicles of creation and destruction as a result
of macro volatility.
B
Q
A
Time
phase 1
phase 2
phase 3
14Macro-to-micro interdependencies.
- Phase 1 A highly unstable macro makes
entrepreneurs reluctant to invest. But lower
external protection forces firms to adapt to the
new rules of the game. Some exit the market,
others increase productivity firing labor. - Phase 2. Unvertainty becomes smaller. Inflation
and the fiscal deficit come down and the external
sector improves. But now imports and FDI attain a
major role in most markets. The is Dutch
desease and local firms leave the market. MA.
prevail. - Phase 3. A small number of new firms opens up,
more capital intensive and in sectors close to
natural comparative advantages. These new firms
bring a different model of production
organization. ICTs and outsourcing.
15We can differenciate three different stages in
the adjustment process.
Ínward-directed growth. A command economy.
Macroeconomic dis-equilibrium. Many firms exit
the market. A new market regime sets in. Firms
and markets behaviour change.
ISI
A more open regime.
Creative destruction.
Macro turbulence
1975
16(No Transcript)
17Trade liberalization and market exitsThe Chilean
case.
18Exit and entry of new firms during The
adjustment process.
M 1
M
M
M1
M Productivity before structural reforms. M1
Productivity after structural reformas.
19The aggregate picture in different stages of the
adjustment process.
Fuente CEPAL
20The large majority of the countries in the region
has not been able to substain their rate of
economic growth.
21Areas in which we should examine the impact of
market-oriented structural reforms.
- Productivity and convergence.
- Employment generation.
- MNCs y SMEs.
- External equilibrium.
- Income distribution and equity.
- The development of domestic tecnological
capabilities.
22Manufacturing productivity vis a vis the US.
23The productivity gap vis a vis the US. Is it
getting any beter?.
24Convergence, acording to the World Bank.
25Sectoral productivity gap.Argentina vis a vis
the US.
26 Exit and entry of firms in the Argentine
steel industry.
27Changes in the manufacturing production
structure.
28Genetically-modified soy bean in Argentina.
- Dramatic expansion in four years.
- New sectoral institutions. Cero tillage and
contract agriculture. - WTO,Trips, IPRs and genetic patentes. Monsanto
and PWL of USTR. - The international debate as to the use of
transgenic products.
29An example, soy bean production in
Argentina.1973-74 and 1993-94
- Less firms, more capital intenve, much more
efficient.
30Salmon farming in Chile
- Inception of the industry.Late 1970s-mid 1980s.
- Fundacion Chile and Corfo played crucial
role showing that the technology for salmon
farming could be succesfully adapted to local
conditions. - Rapid physical expansion. Mid-1980s to mid
1990s. - Early entrepreneurial awareness became key
issue in the expansion process. The Public Sector
continued to play an important role building up
the regulatory and physical infrastructure
supporting the industry. - Transnationalization. Mid-1990s to the present.
- FDI and large international retailers
gained an increasing participation in the
globalization process of Chilean salmon farming
activities. Knowledge generation and difussion
continues to be performed by Fundacion Chile,
universities, and public sector labs and
agencies.
31Each evolutionary stage is characterized by the
nature of the constraints that needed be solved
and by learning in firms and public sector
organizations.(1)
32 Each stage can be characterized by . (2)
33New sectors developing in the Chilean economy
after structural reforms.
- The mining cycle. Escondida Codélco.
- The forestry cycle. Fiscal subsidies and local
conglomerates. - The salmon farming cycle. Chile and Norway.
Clustering and the transition to a mature
oligopoly inserted in world commodity chains - The vineris cycle. FDI (Torres) and the role of
brokers and world food chains.( Wall Mart
others)
34A microeconomic interpretation of the Chilean
growth process. Cycles of new industry inception
- New sectors opening up in the economy.
-
- Sector
1 Mining -
Sector 2 Salmon -
Sector 3 Retail -
.New plants. -
.Professional management. -
.New competitive capabilities. -
.New institutions. -
.New competitive regimes
GDP
Time
35Structure and behavious of the National
Innovation system.
- Firms, universities, banks, regulatory bodies,
municipalities, etc. - Frail and uncoordinated structure.
Universities, Public sector labs.
Public Sector regulatory agencies
Banking System
Enterprises, Import, create and adapt technology
Foreign Regulatory bodies
Foreign Training education
Imports of technology
36 ID expenditure as of GDP (2002)
Fuente RICYT, 2004
37Institutions of the NIS, and their recent changes.
- Rent creation mechanisms. Property rights on
natural resources. - Intellectual property rights. Trips and Trips
plus. Byhe-Dohle and university ID. Niches of
flexibility - Venture capital. Private and public resources.
- Enterprise university relationship.
- Open competition and public resources. Neutral vs
sector specific policies. - Local scenarios. Regional clusters and local
institutions.
38Domestic technological capabilities in the
inward-oriented growth stage.
- Nature of the firm in the inward-oriented
growth model - Domestic adaptive RD efforts. Nature and size
of such efforts. - Product design, process and production
organization knowledge generation activities.
Codifiedand tacitknowldege. - The degree of vertical integration and the
wideness of the product mix. - Domestic RD efforts, exports and FDI of LDCs.
- Structure and behaviour of the National
Innovation System in Latin American countries
during the inward-oriented growth strategy.
Agents, incentives and conduct. - The limits of the inward-oriented growth
strategy. Economic and political dimensions of
the sustainability issue.
39Domestic technological capabilities after
structural reforms.
- Macroeconomic volatility and the nature of the
firm after trade liberalization policies. - The re-structuring of the production structure in
the direction of static comparative advantages.
Natural resources and the maquiladora model. - IED, MA and the expnsion of the service
industries. Telecoms, energy. The new role of
Spanish capital in Latin America. - The transition to a digital production
organization environment. SCM and CRM among
largefirms. The growingn gap with SMEs. - The new institutional international architecture.
Trips and Trips-Plus.
40Third Part An appreciative account of the
facts.
- The aggregate picture, ligths and shadows.
- Differences across countries.
- Differences across industries and new patterns
of - production specialization.
- Cross-firms differences in performance within
a give - industry.
- Catching Up O Lagging Behind
41 An appreciative account of the facts 2.
- Entry and exit of firms and changes in
industry regime. - A younger capital stock structure.
- . Externalization of the sources of technical
progress. -
- De-verticalization of production organization
processes, - and new forms of coordination with foreign
sources of - technology.
- Trips, Trim. Gats, and the new institutional
architecture.
42A global overview of the LA scenario
- Low average productiviy, far behind world
standards. Strong structural heterogeneity - Production structure back to static comparative
advantages. Southern Cone and the Carribbean. - Cycles of creation and destruction of
capabilities. - New sectorial competitive and technological
regimes. Higher concentration and foreign control
. - New patterns of insertion in international
markets. Commodities vs. Specialites. - Very low coordination capabilities from the part
of the public sector.
43The National Innovation System and the
development of domestic capabilities.
- New forms of University-Industry interactions.
Industrial parks, incubators, support for SMEs. - New forms of comparative advantages based on
natural resources. Biotechnologies, Genetics, - A new Public/private set of interactions. Venture
capital and the introduction of new knowledge
intensive firms and industries. - The domestic market. Equity considerations and
the neww for new technologies on the local
scenarios. Education contents, Health services,
enviroment protection, water quality, urban
development.