Poor investment, low productivity and inadequate education have condemned Latin America to a period of economic failure even worse than the “lost decade” of the 1980s, according to the top UN economic official in the region.
José Manuel Salazar-Xirinachs, new head of the UN’s Economic Commission for Latin America and the Caribbean (ECLAC), said the stagnation of the past decade is not only in contrast to the 5.9 percent annual growth of the 1970s not, but also the 2 percent that was achieved. in the 1980s, a turbulent decade for Latin America marked by a wave of debt crises.
“It’s terrible, it should really be a big red light,” he said of the fall into stagnation, with average annual economic growth in the decade to 2023 set at just 0.8 percent. “The challenge is how to get back to this line of 5.9 percent a year,” he said.
Speaking to the Financial Times from ECLAC’s base in Chile, Salazar-Xirinachs also called on the region’s three newest leftist leaders to prioritize growth over a desire to share the spoils of wealth. Brazil, Colombia and Chile have all elected leftist presidents in the past year.
“In general, the progressives in Latin America are engaged in distribution, but not in wealth creation,” said the Costa Rican economist. “We need both and they go hand in hand.”
Latin America has grown more slowly than almost any other part of the world over the past decade. The region has been hit hard by the pandemic, suffering more than a quarter of all recorded coronavirus deaths despite only 8.4 percent of the world’s population.
Salazar-Xirinachs said the underperformance was due to a lack of investment and poor education, both of which hurt productivity. “We invest too little in infrastructure and we have an education system that does not produce the talent we need in terms of numbers and quality,” he said.
Yet he also emphasized that spending more money on education is not necessarily the answer, noting how his native Costa Rica has significantly increased education spending but has not seen the expected results.
“Was . . . at about 7 percent of GDP, but the Pisa scores are very bad,” he said, referring to the OECD’s measure of educational attainment. “There are countries [spending] 4.5 percent with much better education systems. The problem is that quality has been ignored in the education industry.”
ECLAC, often known by its Spanish initials CEPAL, has long been wedded to “dependency theory” – the idea that commodity producers are trapped in an unfair global economic system that prevents them from moving up the value chain – and has in the past advocated state-led industrialization as a response.
But Salazar-Xirinachs, who previously worked at the International Labor Organization and the Organization of American States, said he was keen for the region to escape economic stagnation by adopting what he called “productive development”.
This meant leveraging public and private money to develop high-value-added goods and technology-enabled services in sectors such as medical devices, electric vehicles, green energy and pharmaceuticals. This is best achieved by creating “clusters” near universities and research institutes.
Salazar-Xirinachs said that Spain’s Basque region has used the model successfully, but that it has only been used sporadically in Latin America, for example in the Bogotá region of Colombia or in the automotive sector in Mexico.
“It must become a more coherent policy. . . and to leave aside those debates about whether it is the state or the market. What is good about the [cluster] focus is that it is a very pragmatic way to work together.”
William Maloney, chief economist for Latin America and the Caribbean at the World Bank, agreed that low investment and poor productivity are at the heart of the economic problems. “The region is looking for this nut of low job and productivity growth and there is a lot of common ground to work on with CEPAL,” he said.
Other priorities include improving the efficiency of government spending, making tax systems more progressive and increasing the supply of trained mid-level technicians, engineers and managers, Maloney added. “The region was very weak in technical capabilities,” he said.
Latin American countries trade less with each other than any other region, with their economies geared instead to exporting raw materials to the US, Europe and China.
Salazar-Xirinachs wants to see a greater focus on practical measures to facilitate inter-regional trade, including trade in services, rather than the grand political declarations that have characterized previous attempts at Latin American integration.
Trade negotiations have produced sophisticated agreements with the US or Europe, but not good regional agreements.
“In the past, regional integration was seen as an alternative to insertion into the global economy,” he said. “Now it is clear that it is more complementary. For Latin America to successfully become part of global value chains, it needs local production chains.”
Cards by Rafe Uddin in London