Published On: Tue, Aug 28th, 2012

ECLAC Proposes an Integrated Approach to Development for the Region

SAN SALVADOR, (ECLAC) - In the long term, no Latin American or Caribbean country has achieved the magic combination of strong growth in employment and productivity - which is a prerequisite for overcoming poverty and inequality.

This is one of the conclusions reached by ECLAC in the document Structural change for equality: An integrated approach to development, which is its strategic proposal for the next few years that was launched at the thirty-fourth session being held from today to Friday 31 in El Salvador.
According to ECLAC, since the debt crisis of the 1980s, Latin America and the Caribbean has found it difficult to rediscover a path to rapid growth, and the positive GDP growth rates achieved between 2003 and 2010 did not match those from the 1970s or those observed in developing countries nowadays.
Between 1971 and 1980, the region's annual GDP growth rate was 5.7%. In contrast, between 2001 and 2010 the growth rate was just 3.8%. In the latter period, regions such as East Asia and the Pacific, Sub-Saharan Africa and South Asia posted rates of 4.2%, 5.2% and 7.5%, respectively.
In order to overcome the barriers preventing the region from making the leap towards development with equality and environmental sustainability, the Economic Commission for Latin America and the Caribbean (ECLAC) suggests that the region's countries should diversify their economies by applying active industrial policies in conjunction with macroeconomic, social and labour policies. Coordinating such policies would boost the production structure, make economies more resilient to external shocks and guarantee social protection.
This structural change involves implementing qualitative changes in the production structure of the region's countries. The purpose of this is to boost and strengthen (with environmental sustainability) knowledge-intensive sectors and a rapid growth in internal and external demand, so as to generate a greater number and quality of jobs. According to ECLAC, this is the key to achieving development with equality.
"Social progress is not limited to social policies. When the production structure is very polarized, purely redistributive fiscal-social mechanisms do not solve problems of inequality and slow growth", explained the Executive Secretary of ECLAC, Alicia Bárcena, who added that the structural change proposal is not a set formula, but that national situations should be taken into account.
"We need a State that adopts industrial policies aimed at increasing the capacity and competitiveness of activities with clear potential to specialize and incorporate technical progress. These industrial policies have also to diversify the production structure by creating or strengthening new sectors and activities that are highly productive and more environmentally efficient", explained Ms. Bárcena.
Profit differences among activities guide investment, according to the document, so to the extent to which greater profit is associated with less knowledge intensity (such as extraction of natural resources), the production structure will remain blocked. We need policies that prioritize innovation, dissemination of technology and learning. The State must provide the right incentives, as expanding the technological base will not arise spontaneously based on prices or the free market system.
ECLAC states that public investment plays a key role in guiding and driving structural change by encouraging and promoting additional private investment and identifying activities with more technological buoyancy and future demand. Public investment must be protected from the vagaries of the business cycle and should be closely linked to industrial policy objectives in order to sustain long-term growth.
Similarly, fiscal, monetary and foreign-exchange policies must not only promote nominal stability and smooth the economic cycle, but they should also be concerned with long-term impacts. Very strong exchange-rate appreciation or prolonged periods of recession have implications for investment and the production structure that go beyond short-term considerations.
A diversified economy is in a position to grow more steadily over time, with fewer fluctuations in GDP, employment, wages and trade flows, according to ECLAC in its document that continues the discussion that began in the 2010 publication Time for equality: closing gaps, opening trails.
The new document compared the region's performance with that of Asian countries, including the Republic of Korea, where active industrial policies were combined with macroeconomic policies that encouraged competitiveness.

In the period 1996-2009, developing Asia invested three times more in research and development (R&D) than South America and six times more than Central America (1.3% of GDP versus 0.4% and 0.2%, respectively). In 2011, that region obtained 33 times as many patents per million inhabitants than South America and 74 times as many than Central America. In a country comparison, in 2011 the Republic of Korea obtained 311 times more patents per million inhabitants than Mexico, 229 times as many as Brazil, 124 times as many as Chile and 210 times more than Argentina.

Meanwhile, small and medium-sized enterprises (which have very low productivity) account for over half of the region's employment, which has a negative impact on income distribution. The most highly productive sectors produce two thirds of GDP, but generate only 19.8% of employment in the region. In contrast, the least productive sectors represent 10.6% of GDP but account for 50.2% of employment.
Lastly, ECLAC emphasizes the need for a new relationship between the State, the market and society, including fiscal and social covenants that confer legitimacy and resources on this process of structural change. Without such agreements, it would be impossible to implement the State policies needed for equality and development in a democratic context.

Source: Caribseek

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