Structural Change and Productivity Growth - 20 Years later Comments and Reflections

1. Structural Change and Productivity Growth -20 Years laterComments and Reflections Luc Soete UNU-MERIT Maastricht University High-Level Seminar at the 32 Second session of ECLAC, Santo Domingo, Dominican Republic, 9-13 June 2008

2. Old or new problems and new or old opportunities • A very interesting study in the best tradition of ECLAC • An excellent and extensive literature overview covering many different areas, • New insights into facts and figures with respect to structural change in the ECLAC countries and world-wide, • A in-depth and systematic comparison with policies in a large number of reference countries • From old to new problems: • Globalisation, China and India and impact of ICT on global aspirations • Is current global growth sustainable? • Exploiting new or old opportunities • Learning through exports, FDI and M&A • Structural shift in terms of trade in agriculture and natural resources

3. 1. Old or new problems: globalization and ICT • Over the last fifteen years, quite suddenly, consumption, job and life aspirations have become globalized thanks to ICT and Internet. • As ECLAC study points to impact of such globalization still insufficiently brought in our current policy discussions: not just ICT in high-tech manufacturing but also in low-tech industries and services. • Global Gallup opinion survey, McKInsey Global Institute study on China’s urban billion all point to the dramatic growth in urban consumption, also picked up in the ECLAC study. • One might argue that GDP appears today in a certain sense a measure of industrial past; with population, or more specifically urban population, becoming the indicator of future growth and future market opportunities, so too in a certain way the distinction between high and low tech.

4. Old or new: is current global growth sustainable? • This exponential demand led urban consumption growth “explosion” emphasized in the ECLAC study resembles in many ways Richard Freeman’s (2005) concerns with respect to global labour supply shock: • In Freeman’s case China, India, Russia and Central and Eastern European transition economies’ entry in the global economy represents a doubling of the world’s labour force with long term global labour/wage adjustment for 30 years. • What would be the demand impact of e.g. a doubling of urban consumption aspirations on world growth? • Macro-simulation study of Izurieta and Singh, 2008 suggests that in present world growth rates are unsustainable because of resource constraints. • The natural resource constraint on global growth has become, in other words, structural, no longer primarily cyclically driven. • Relationship with technological change on the supply and demand side becomes essential: on supply side natural-resource expansion through more sophisticated extraction technologies, higher productivity in production versus on demand side natural resource saving and substitution technologies • Shift in terms of trade shifts also power amongst firms operating alongside value chains in favour of natural resource extracting/producing suppliers and in disfavour of processing firms. This shift provides Hirschman type windows of opportunities for upstream entry.

5. 2. New or old opportunities: Learning through exports • ECLAC report is still very prudent about growth and technological opportunities through exports, FDI, mergers and acquisitions (Chapter 5). • Old missed opportunities: Import substitution strategies were probably most damaging with respect to missed learning opportunities from abroad… • New opportunities: • Globalization introduces a lower bound for quality. Very clear with respect to the degree of product variety and product quality of intra-European versus extra-European trade. More product variety within Europe’s internal trade, and higher quality but less variety with respect to extra-European global trade. Firms select their best products for global markets (see also evidence in Chapter 3 on Cuba). • Particular role of users particularly with respect to ICT use: the long tail of diversification. Particular new relevance of global “collaborative innovation”. Will niche players be global or local? • China and India: from domestic R&D to foreign M&A: acquiring developed countries technological capabilities to guarantee lower quality bound in international trade. Quid about the Latin American and Caribbean countries?

6. Structural change in agriculture • A brave attempt in ECLAC study to investigate some of the structural change features in agriculture (Chapter 3) highlighting amongst others the unused opportunities to increase the quality of agricultural products… • Nevertheless surprising that so little attention paid in current food crisis debate on characteristics of agricultural production during that period: • Rich literature on the nature of technical improvements in agriculture production; • The role of extension schemes; • The crucial role of publicly funded research; • The limited role of intellectual property protection of seeds; • The dominance of local production over international trade; • The limited product variety more closely linked to seasonal production; etc. • And on how to attack current major issues • GMO’s and global trade restrictions • Common Agricultural Policies in developed countries… • why not in ECLAC? CAP provides strong identity, regional integration might well be the second best solution for global free trade, appears also ecolologically more justifiable and socially sustainable.

7. Technological change/learning in natural resources • An old growth opportunity for Latin America, but also an old curse well reviewed in the ECLAC study (from Prebish, Hirschman to Rosenstein-Rodan)… : • What is new today? • Like in agriculture, a dramatic structural shift in terms of trade following globalization with winners and losers also however within the group of ECLAC countries. • Offering new growth opportunities but also new curse dangers • Central new curse element appears like a form of Dutch knowledge disease • Within the framework of rising terms of trade in favor of natural resources, opposite set of incentives for investment in natural resource saving technologies: strong in countries poorly endowed with natural resources (Japan, Europe); weak in countries well endowed with natural resources; • A new technological gap emerging between in new and improved industrial technologies with respect to energy- and material-saving, emission-free and carbon-neutral technologies, in recyclable waste treatment and cradle2cradle technologies , etc. between Japan, the EU, the US but increasingly also China and India on the one hand and LA on the other? • Strongly reflected in ECLAC report. Not a word over need for such sustainable technologies and innovation…