Carlota Perez Universities of Cambridge and Sussex, UK and Tallinn University of Technology, Estonia FLACSO EULAKS Summ

1. TECHNOLOGY AND NATURAL RESOURCES An opportunity spacefor a development strategywithin the current paradigm Carlota Perez Universities of Cambridge and Sussex, UK and Tallinn University of Technology, Estonia FLACSOEULAKSSummer School Mexico, August 2009

2. Be aware of discontinuities Do not try to imitatepast success stories TECHNOLOGY AND INNOVATION ARE THE DRIVING FORCES OF GROWTH AND DEVELOPMENT But to take advantage of themwe must know and understand their changing nature Opportunities are a moving target Tomorrow’s successes depend on anticipating the future today LEAPS IN DEVELOPMENT ARE BASED ON AIMING AT A TECHNOLOGICAL OPPORTUNITY SPACEAND HAVING THE CONDITIONS TO TAKE ADVANTAGE OF IT

3. A technological revolution every 40 to 60 years TECHNOLOGICAL OPPORTUNITY SPACES COME AND GO They can be identified through analysing the historical regularities of technological revolutions • A similar sequence of deployment (with distinctly different business climates) • Each revolution changes the techno-economic paradigm guiding innovation and determining competitiveness • The opportunities for development change as each revolution evolves This lecture uses those regularitiesto examine the current periodin terms of development opportunities for the case of Latin American

4. WINDOWS OF OPPORTUNITYAND CONDITIONS FOR TAKING ADVANTAGE OF THEM 1 THE CONTEXT FAVOURING INNOVATIONIN NATURAL-RESOURCE-BASED NETWORKS 2 TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY 3

5. WINDOWS OF OPPORTUNITYAND CONDITIONS FOR TAKING ADVANTAGE OF THEM 1 The context favouring innovationin natural-resource-based networks 2 Technological dynamism and social inclusion a dual strategy for a dual reality 3

6. The available innovation potential changes radically every half century The ‘Industrial Revolution’ (machines, factories and canals) 1771 Age of Steam, Coal, Iron and Railways 1829 1875 Age of Steel and Heavy Engineering (electrical, chemical, civil, naval) Age of the Automobile, Oil, Petrochemicals and Mass Production 1908 Age of Information Technologyand Telecommunications 1971 Age of Biotech, Bioelectronics, Nanotech and new materials? 20?? FIVE TECHNOLOGICAL REVOLUTIONS IN 240 YEARS Each results in a different great surge of developmentand takes 40-60 years to spread across the world and reach maturity

7. The context for innovation changes significantly along each great surge DEPLOYMENT MATURITY-DECLINE Previous revolution MATURITY-DECLINE GESTATION DEPLOYMENT INSTALLATION Next revolution GESTATION INSTALLATION Technological revolutions and their paradigmsemerge, diffuse and decline in four overlapping periods of 20-30 years Irruption and articulation of the revolution. Creative destruction; concentration of innovation.Learning of the new paradigm and modernisation of the old. ‘Free market’. Financial booms and bubble collapses. New radicaltechnologiescoming togethershaped by theprevious paradigm(until conditionsare ready for the‘big bang’) ‘Golden Age’.Innovation across the board using the new paradigm and the new technologies. Flourishing of full potential.Active role of the State Exhaustion of technologies, market saturation. Search for new opportunities.Return of ‘free market’ Understanding these dynamic regularities and the nature of the paradigmCAN HELP IDENTIFY AND ANTICIPATE THE FUTURE OPPORTUNITIES

8. The technological contextLook forward:Prospective conditions The context of the region Look back:The historical legacy IDENTIFYING WINDOWSOF OPPORTUNITY OPPORTUNITIES FOR DEVELOPMENT ARE A MOVING TARGET Examine the past and future context Previous development: Production profile andaccumulated capabilities Resource endowmentand dynamic advantages Distribution of incomes and skills Socio-politicalconditions The dynamic trends: Stage of diffusionof the revolution [ICT] Direction of innovation (technology and society) Behaviour and interestsof major corporations Discernible new tendenciesand backlashes VIABLE AND SUCCESSFUL STRATEGIES ACHIEVE A MATCH BETWEEN BOTH CONTEXTS AND ESTABLISH POSITIVE-SUM GAMES

9. BY SETTING UP A FRAMEWORKFOR INDUSTRIALISATIONTHROUGH PROTECTEDIMPORT SUBSTITUTION(ISI) How did Latin America take advantage of the window of opportunity in the last stages of the mass production (Fordist) revolution? A POSITIVE SUM STRATEGYWITH SIGNIFICANT (THOUGH LIMITED) RESULTS

10. Mature industriesin the advanced worldlooking for market growth Third World governments looking for paths to development ISI policies brought together two sets of interests METHOD  Import parts instead of finished products.Accept low productivity and high prices to increase employment DECLARED FOCUS  Final stage of fabricating (assembly) industries for domestic market. The mature products of ‘Fordism’. But… little learning; little innovation. THE REAL LEARNING OCCURRED IN THE COMPLEMENTARY ACTIVITIES:Construction: roads, ports, structures, etc.Commerce and distributionBankingManagement of large and small firmsInfrastructure: water, electricity, telephone, transport, etc. Process industries: food, beer, cement, paper, bottles, metallurgy, etc. AND PREVIOUS LEARNING CONTINUED (in some cases intensified) Raw materials production: mining, oil, agriculture, livestock, etc. ISI ACTED AS THE “STARTER ENGINE” OF ECONOMY WIDE LEARNING WHILE IT WAS ADEQUATE TO THE CONTEXT, IT WORKED!

11. Average real annual growth of groups of Latin American countriesby relative size 1961-2005 Protected ISI (and subsidised export) policies Globalisation(Opportunities taken by Asia) “Lost decade” Debt crisis Structural adjustmentliberalisation, privatisation 1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00 2001-05 NASDAQCollapse Installation of ICT revolution and its flexible production and networks paradigm LARGE: Argentina, Brazil, Mexico Chile, Colombia, Ecuador, Dominican Republic, Peru, Puerto Rico, Uruguay, Venezuela MEDIUM: Bolivia, Costa Rica, El Salvador, Haiti, Honduras, Guatemala, Nicaragua, Panama, Paraguay SMALL: Deployment, maturity and decline of mass production revolution 8 7 6 5 4 Ave. annual real % growth 3 2 1 0 Source: World Bank WDI 2006 (original data in constant 1995$)). Period indications by the author CHANGING CONTEXT; CHANGING POLICIES… AND THEIR RESULTS

12. Alliances for the ASSEMBLY of electronics, electrical electro-mechanical goods and textile-clothing THE ASIAN LEAP TO DEVELOPMENT: WHAT? Specialisation in mass fabrication (assembly) for the world WHEN? Deployment and maturity of the Fordist paradigm and installation of ICT

13. CONDITIONS IN ASIA: IDENTIFYING AN OPPORTUNITY SPACE FOR LATIN AMERICACOMPLEMENTARY WITH GROWTH IN ASIA SPECIFICITY AND ADVANTAGES OF LATIN AMERICA • Abundance and variety of natural resources • Much lower population density • Traditional capabilities in natural resources and their processing • Near to high consumption markets • Prospective increase in demand and rising prices of energy and materials (raw and processed) • Companies producing and usingraw materials are currently engaging in strategic reorientation Abundance of extremely low-cost labour High specialisation in assembled products Growth by incorporation of new consumers and new territories Insufficient natural resources(materials and food); high and growing import demand COULD NATURAL RESOURCES BE A PLATFORM FOR DEVELOPMENT?

14. A ROUTE FOR A LATIN AMERICAN LEAP TO DEVELOPMENT: Alliances and specialisation in PROCESSING industries:energy and materials (basic and special, natural and synthetic, macro and nano)and biological products (traditional and advanced, ecological and biotechnological)according to each country’s specific endowment WHAT? Specialisation in production and processing of natural resources with innovation WHEN? Deployment of the ICT paradigm and installation of the next (biotech, nanotech?)

15. Changing views on the role of natural resources in development • End 19th Century and early 20th = ADVANTAGE Major asset to favour and finance development (US, Canada, Australia, New Zealand, Argentina, Scandinavian countries) • Post WWII = DISADVANTAGE 1940s-50s: Increasing advantage goes to manufacturing industry. Price Scissors (Prebisch 1945, 1951; Singer 1949)1970’s: Dutch disease (The Economist 1977, Corden 1982)1980s and 1990s: “Resource curse” (Sachs and Wagner 1995, Auty 1995) • 2000s = ADVANTAGE?

16. Windows of opportunityand conditions for taking advantage of them 1 THE CONTEXT FAVOURING INNOVATIONIN NATURAL-RESOURCE-BASED NETWORKS 2 Technological dynamism and social inclusion a dual strategy for a dual reality 3

17. Multiple engineering services Design, construction, adaptation and maintenance THE PROCESSING INDUSTRIES WITH THEIR INNOVATION AND OPERATION NETWORKS • Mining • Metallurgy • Chemicals, petrochemicals • Custom materials • Livestock • Agriculture, hydroponics • Agro-industries • Biotechnology • Fisheries, aquaculture • Forestry, paper • Ceramics, glass • Packaging • Energy • Refining • Electricity • Nanotechnology • Etc. • EACH INCLUDING COMMODITIES AND SPECIALITIES • Software and systems services • Capital goods: Equipment and instruments Design, construction, adaptation, installation, compatibility, etc. • Laboratory servicesQuality control, evaluation, measurement, certificates, etc. • Conservation and packagingR&D, engineering, design, production, services • Transport, marketing and distributionStandard, adapted and specialised • Technical service to users • Market intelligence • R&DImprovements and new products • Patent lawyers; contract negotiation • Training and education of specialised personnel • Etc, etc. Success depends on continuous improvement of technologies, companies, products, human capital and networks

18. Investment(incl. exploration) Processing A1 Processing B1 Equipment Inputs Processing B2 Processing A2 RD&E Services Packaging, branding, etc. Transport, marketing, distribution The unit of analysis and the object of the strategy is THE NATURAL-RESOURCE-BASED NETWORK NR-Production Dynamism for growth and development results from THE INTERACTIONS AMONG THE MEMBERS OF THE NETWORKIN A SYSTEM OF INNOVATION

19. MARKETREQUIREMENTS S&T ADVANCES Generalised ICT and its paradigm and other new technologies MARKET VOLUME MARKET CONTEXT FORCES DRIVING INNOVATION IN NATURAL RESOURCE-BASED PRODUCTION NETWORKS NATURAL RESOURCE-BASED NETWORK

20. Fast growing demand for materials and foodintensifies the traditional challenges for natural resource producers • QUALITY OF DEPOSITS, LANDS, WATERS, etc. • Natural variety Develop premium niches • Diminishing quality or access ‘Remedial’ innovation • Limited and immobile supply Develop new exploration techniques; enhance productivity; improve access; innovate in alternatives GROWING MARKET VOLUMEAS INNOVATIONDRIVER • PROCESSING • Low value/weight of unprocessed materials Increasing cost of transport likely to induce processing in situ • Economies of scale in processing Innovate in flexible and mobile equipment and processes • Etc. etc. etc.

21. MARKET REQUIREMENTSas innovation drivers • Segmentation and differentiation Identify market segments for new products with new qualities; specialised niches; new business models; ‘gourmet’ products, etc. • Importance of qualities and demand for innovation User-producer links to identify specific requirements and cooperate in RD&E; increase flexibility and adaptability to fulfil user needs • Public opinion + environment ‘Organic’ produce; Fair Trade networks; pollution abatement techniques, ‘clean’ fuels;yes or no to GM crops, etc. • Importance of relative costs Savings in energy and transport may counterbalance lower labour costs and promote innovation to change economics of location • Etc. etc. etc.

22. High profitability due to SPECIAL QUALITIES Markets protected by DIFFERENTIATION, INNOVATION,TECHNOLOGYBRANDS AND PATENTS Increasingly numerous specialty niches Profitability attained through VOLUME Markets protected through LOW-COST AND RELIABLEBASIC QUALITIES AND DELIVERY COMMODITY Standard CUSTOMAdaptable PRICE COMPETITION Advantages in costand in process technologies COMPETITIONIN ADAPTABILITY Advantages in access to clients,quality, flexibilityand rapid response MARKET HYPER-SEGMENTATION and the differing conditions for competition and profitability And this applies from raw materials to all manufacturing and services and to each activity along the value network

23. Design of landmark buildings (Ex. Beijing Stadium) Major information systems Airport design and construction R&D in special areas Instruments for nanotech Tourism in Chichen Itza or in the Amazon Organic food “Boutique” steel Intelligent materials Starbucks Coffee “Gourmet” fruits Parmesano Reggiano Scratch-free paint Electric automobiles iPhones Diagnostic kits Adventure tourism SPECIAL UNIQUE Specialised niche markets Dell computers Blue jeans to size Zara clothing Kenya ready salads E-government software Personal services Technical support Programmable hearing-aids Health tourism (ex. Hipoperations in India) Raw materials Wheat; meat Auto parts Computer disk drives Standard software Standard mobile phones Call centres Beach tourism CUSTOMISED BASIC Standardised markets Higher profitability and less vulnerability result from repositioning Some examples of positioning through innovation that strengthens existing expertise and advantages in whatever sector

24. Generalised ICT and its techno-economic paradigm • New possibilities and challenges Various intelligent control systems (irrigation, processing, etc.); quality sorting; distance monitoring (livestock, oil wells, fishing areas); ‘precision agriculture’; distributed control for flexible processing, etc. • Ease of distance coordination of production, logistics, admin, etc. Capacity to cooperate in local and global networks for technical, organisational and business model innovations • Ease in handling variety at all levels Innovate in product mix from design to distribution Transport services for multiple destinies and small quantities • Drastic reduction in time and cost of innovation and adaptation Ease of innovation in-house and linked with global networks; compu-synthesis of chemicals and materials; computer-aided experiments, etc. ADVANCESIN SCIENCEAND TECHNOLOGY • Other new technologies • Advances in biotech, nanotech and new materials Gear radical technologies to their applications in all phases of natural resource production, processing and distribution • Etc. etc. etc.

25. Current Export Markets New (additional )specialised markets NATURAL RESOURCE PRODUCTION AND PROCESSINGINDUSTRIESforeign or local FOREIGN FIRMS AND INSTITUTIONSin research, high-tech production and knowledge-intensive services LOCAL CLUSTERS OF FIRMS AND INSTITUTIONS doing researchhigh-tech productionand knowledge-intensive services NETWORKS FOR THE TECHNOLOGICAL UPGRADING OF THE NATURAL-RESOURCE EXPORT-PROFILE

26. GLOBALISATION OF PRODUCTION • The global corporation (GC) Positioning within globalised networks (outsourcing, off-shoring, etc.);Upgrading and repositioning through innovation; Forming local networks of high tech suppliers;Turning successful local companies into GCs, etc. • Geopolitics  Taking intelligent advantage of competition for access to natural resources to engage in bold and innovative negotiations with potential investors • ENVIRONMENTAL CHALLENGES • Prospective change in relative costs (energy, materials, transport, labour) Location advantages for energy and materials producers; processing in situ • Expected environmental policy and regulation across the world Innovation in renewable materials and energy; low-energy processing; water-based chemistry; biodegradable materials; etc. MARKET CONTEXT

27. THE UNAVOIDABLE PATH OF THE CURRENT GLOBALISATION PATTERN Rising prices of oiland raw materials Rising packaging and freight costs Visible effects of increasing global warming Rising climatic risk CHANGEIN BUSINESSSTRATEGIES CHANGE IN THE ECONOMICS OF THE PRODUCTION,TRANSPORT AND DISTRIBUTION OF TANGIBLE GOODS CHANGEIN GOVERNMENTPOLICIES Massive relocation and geographic re-specialisation of physical production into optimal local, regional and global networks Greater tendency to locate processing next to the raw materials

28. Windows of opportunityand conditions for taking advantage of them 1 The context favouring innovationin natural-resource-based networks 2 TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY 3

29. A strategy based on thempromises rising incomes and better quality of lifefor the participants TAKING THE LIMITS INTO ACCOUNT THE PROCESSINGINDUSTRIES require increasinglyqualified personnel BUT THEY ARE NOT LABOUR INTENSIVE Latin America has a very serious income distribution problem HOW CAN WE ACHIEVE GROWTH WITH SOCIAL EQUITY?

30. Economic growthand global positioning Full employment and well beingfor all TWO DIFFERENT AND COMPLEMENTARY GOALS TWO DIFFERENT YET INTEGRATED PARTS OF THE ECONOMY

31. A DUAL INTEGRATED MODEL Combining low- and high-employment activities COMPETITIVE TECHNOLOGIESFOR GLOBAL MARKETS ENGINES OF GROWTH Constantly upgraded production networksaround natural resources An active State facilitating and promoting local initiative INFRASTRUCTURE, FUNDS, ENABLING INSTITUTIONS AND ‘HUMAN CAPITAL’ interconnected specialised ‘local’ economies (clusters) Objective:Growth and generation of foreign exchange Objective: To raise the quality of life of all inhabitants Differentiated development of each part of the territory based on the local productive vocation, identified or promoted

32. Capacityto handleheterogeneity Hyper-segmentation of markets Three guiding features of this paradigm Networkorganisations(global and local) THINKING GLOBALLY AND ACTING LOCALLY at both ends of the dual strategy

33. MULTIPLE FORMS OF LOCAL AND GLOBAL NETWORKS Along the value chain Agreements from initial inputs to final distribution Including internal disaggregation,outsourcing and various formsof joint ventures, contracts alliances and agreements, local or at a distance Around a large company(local orglobal) Clustersof small firms Usually combiningcooperation and competition Strengthening the specialised support from universities and S&T infrastructure

34. Simple Complex Artisanceramics Biotechnologicaldiagnostic kit Niche Work ata distance ‘Call centres’ Interpretationof geological data Localoutsourcing Diet foodservice Data securityservice Exquisite local cheese Fault detectionservice “Glocalisation” Environmentalprotection Organic fruit Bacteria to digestoil spills There is ample space for innumerable and profitable small companiesin high-tech and low-tech segments Taking advantage of them requires imagination, information, knowledgeand competent support institutions at both ends of the dual strategy

35. Prepare to make a leapin development with the next technological revolution by developing capabilities,companies and global networks in the sectors of the future(biotechnology, nanotechnology,bioelectronics, new materials?) TAKING PARADIGM SHIFTS INTO ACCOUNT A STRATEGY IN TWO STAGES Achieve growth now taking advantage of the current window of opportunity for natural resource producers That is what Asia did –without planning it-- with the ICT revolution

36. TAKING TIMING AND COMPETITION INTO ACCOUNT • This window of opportunity was not available 30 years ago and is not likely to be available 20 years from now • There are many countries and continents with ample natural resource endowments that could try to take advantage of it • The battle for secure access to natural resourcesis already raging between advanced and emerging countriesand among the main companies involved Early action creates externalitiesand prime mover advantages THERE IS NO TIME TO LOSE!

37. A STRATEGY OF DIFFERENTIATED INTEGRATIONWITH HEALTHY INTER-COUNTRY TRADE The more advanced countries in each sector can serve as dynamic leaders OFSPECIFICREGIONAL NETWORKS TAKING ACCOUNT OF VARIETY Latin American countries have highly differentresources, climates, sizes,experienceand capabilities

38. The convergent creativity requiredcannot result either from pure marketsor from government decisions ENSURING SYNERGIES Natural-resource-based networks can serve in this period for making a significant leap in development

39. CONSENSUSVISION Private Sector Public Sector Society THE UNDERSTANDING OF THE OPPORTUNITY NEEDS TO BE SHARED BY ALL Success may depend on reaching an agreed direction for guiding marketsand insuring the future