Shortcuts to Growth
Latin America’s GDP grew by an average 2.1% per year between 2000 and 2020. At this rate, the region’s economy could double in size every 33 years. As a reference, the GDP of emerging and developing countries grew by 5.1% over the same period, i.e. they could double in size every 14 years. In the 2010–2020 period, their growth was 1.1% and 4.3% and, in 2020, the year of the pandemic, dropped to -8.1% and -3.3%, respectively. Regrettably, the outlook for the future is not much brighter, as the IMF projects a 2.8% growth for the region in 2021–2025 and 5.2% for emerging and developing countries. These figures show not only that our region is growing at a slow pace, but is trending away from other emerging economies.
In addition to the pandemic and its immediate consequences, growth-fostering policies would be justified for at least five reasons. The first is that, as modern history shows, low growth is not neutral and may have significant implications for people’s attitudes and values, with negative consequences for political stability and democratic institutions. This issue is especially relevant for young democracies. While consumption pattern is an important element of this equation, even more relevant is the process to improve that pattern and the distribution of dividends of growth.
The second reason is that only growth can yield the resources needed to address many of our most serious economic problems, such as low savings and investments, limited capacity to create jobs, and government funding. The third is that economic growth is the most viable way to heal our deepest social wounds, namely poverty and inequality. The fourth reason is that low growth is reducing our economic relevance. In 2010, the region’s GDP accounted for 7.7% of global GDP, while in 2020 it accounted for 4.9%. IMF estimates suggest that share will continue to decline until at least 2025. The loss of economic density and critical mass is not neutral and can redirect investment, human capital and other resources away from the region, and feed a harmful vicious cycle of low growth.
Lastly, the fifth reason is that the region needs to grow at a particularly critical time for international economic relations, when profound structural changes are redefining countries’ roles and outlooks in the global economy. Consider the digital economy and platform economy, trade, investments, and increasingly intense flows of intangibles and new means of payment. Think about the increasingly intensive use of knowledge to develop, produce, sell and finance products and services and support clients. Think of the new production and production management technologies, new trade and investment agreements, and new production chain architectures.
Consider also the changes caused by the pandemic, which are reshaping markets, preferences, consumption patterns and creating new business models. And think about the new energies and the green economy, which are redefining paradigms and leading the global economy to a broad new agenda of innovations, technologies and investments. Except for isolated cases, the region is not present in these agendas, despite the many tremendous opportunities we have.
As shown by cases of war-torn countries, such as South Korea, or countries like China until a few decades ago, our economic backwardness should in principle not be seen as an inescapable fate or unsurmountable problem. But we must acknowledge that now times are different and that the consequences of a slow start differ from those of decades ago. And thus, we no longer have time to stage reforms incrementally, as South Korea, China and other countries did when they were at a similar stage in their economies. Nor should we expect conventional economic policy measures to yield the same results for growth as in other times and contexts. At this point, we will need to be bold, skip some steps and find shortcuts that shorten the paths that may lead us to actively participating in the new economic order that is taking shape.
These shortcuts should save us time and resources, attract private investment and lead us as directly as possible to the boundaries of diversifying production and adding value, and expanding markets, while accelerating our regional and international integration.
There are at least two sets of businesses that should be considered. The first relates to the value creation opportunities associated with the industrialization of our comparative and competitive advantages. This is the agenda of knowledge, innovations, technologies and investments associated with areas such as biodiversity, new energies, green business and environment, agriculture and mining, forestry and water, and complementary sectors.
The second group is about the many opportunities for innovation, technological development and new business management in the digital economy, and digital capabilities and their applications for new and old problems, including those associated with the challenges of emerging and developing economies.
Growing at high and sustained rates will require ambition, a road map, focus, planning, refined design, execution and governance of public policies, and search for partners to join us on this journey.
