LATIN AMERICA-TECHNOLOGY: More Investment Needed in Technology

By IPS Correspondents Reprint | | Print |

Gustavo Gonzalez

SANTIAGO, Jul 9 1996 (IPS) - Nations of Latin America and the Caribbean are moving higher on the index used to measure the level of technology used in exports, but progress is slow and they still lag behind Asia’s thriving economies, according to a new U.N study.

The Economic Committee for Latin America and the Caribbean (ECLA), with headquarters in Santiago, Chile, concluded that both regions have reduced their technological-commercial gap with the powerful Group of Seven (G-7) industrialised countries and some advanced European countries.

But Latin America’s progress on the Index of Technological Specialisation (ITS) is being impeded by the low levels of investment in technological innovations on the part of private enterprise, among other factors.

ITS measures the average contribution of a country or group of countries of products of high and medium technology, on the one hand, and low technology on the other, to markets of the Organization of Economic Cooperation and Development (OECD), a grouping of the world’s 24 richest economies.

The report, the work of Ludovico Alcorta and Wilson Peres, was jointly financed by ECLA and U.N Industrial Development Organization (UNIDO).

Alcorta and Peres distinguish between South Korea, Hong Kong, Singapore, and Taiwan — the four traditional Asian tigers, whose technological-commercial advantages over Latin America is well- known — and the so-called “potential tigers”.

This second group, which includes China, Indonesia, Malaysia, and Thailand, reflected in 1987 an Index of Technological Specialization (ITS) far lower than that of Latin America and the Caribbean. By 1994 however, they had reached the same levels.

Of the Latin American countries surveyed, Mexico recorded the biggest increase in ITS — from 0.50 to 1.63 between 1977 and 1994, in particular as a result of the establishment in its territory of so-called “export processing zones” (EPZs).

Mexico’s technological progress is based on a small number of products: cars and auto parts, electrical equipment and household appliances, internal combustion engines, and television and telecommunications equipment.

However, the export processing zones, or maquilas, do not have strong links with the Mexican economy as a whole, although their importance has increased with Mexico’s membership of the North American Free Trade Agreement (NAFTA), according to the report.

Brazil’s ITS fluctuates between 0.22 and 0.32 in the period of 18 years examined in the study, as does Argentina’s — from 0.12 in 1977 to 0.09 in 1994.

Average ITS for the region in 1994 was close to 0.50, but if Mexico is excluded, it remains constant at 0.10 for the period of 18 years, an index similar to that which the potential tigers had in 1977, the study points out.

According to Alcorta and Peres, “the goal for Latin America to advance towards products with more value added in the structure of its exports has been as elusive as it was during the first period of industrialization based on import substitution”.

The reason is simple: the region continues to have its largest source of income from external sales in natural products and prime materials, while the G-7 and its Asian competitors have evolved into areas of technological specialization in the past years.

The four Asian tigers made the transition from textiles, shoes, apparel, and toys, to telecommunications equipment, automatic data- processing equipment, and electrical domestic appliances.

ECLA and UNIDO experts anticipate that towards the end of the century, the tigers will have the same export structure as the members of G-7, with potential tigers showing an even more accelerated rate of specialization.

China, Indonesia, Malaysia, and Thailand — who until recently sold primary agricultural and petroleum-derived products — today also offer equipment for data-processing and telecommunications as well as electrical household appliances.

With the exception of Mexico, “Latin America and the Caribbean have little to show from the point of view of the modernization and development of industries with more technological input and greater capacity to compete with the more demanding international markets”.

In addition to this assertion, the ECLA-UNIDO study notes that the region’s capacity to export goods with technological specialization is the same now in the decade of macroeconomic stabilization as it was in the “lost decade” of the 1980s.

In 1990, there were some 5,223,614 scientists and engineers in the world dedicated to research and development, of which only 162,930 were in Latin America and the Caribbean, while the developed world as a whole had 759,816.

In that same year, the cost per professional dedicated to research and development was 86,643 dollars, worldwide, while it was only 17,554 dollars in Latin America and the Caribbean, an amount which is even below the average cost of 24,118 for all the developing world.

The percentage of the gross national product devoted to the costs of research and development and science and technology — again according to the 1990 data — was 0.93 in Cuba, 0.78 in Brazil and 0.71 in Chile, the three Latin American countries with the most inputs in those areas.

It will be difficult for Latin America and the Caribbean to win the race for technological and commercial specialization if they maintain such low levels of investment in research and development compared to the Asian countries, the study points out.

Scientists and other professionals in the region dedicated to research and development do not have the necessary resources to carry out their activities, Alcorta and Peres also point out.

They also add that approximately 80 percent of the total spending in these areas is financed by the government, most of it going to basic research at the universities, which in turn does not necessarily favor technological modernization in the private entrepreneurial sector.

It is from this observation that the study derives its most important conclusion: that the slow rhythm of technological specialization of regional exports is due in large measure to the fact that private entrepreneurs do not invest in innovations.