The Structural Transformation of Latin America: A Catalyst for a Sustained and Inclusive Development

By Luis Sanchez-Masi

Since the 1980s, the pace of Latin American economic growth has been erratic and notably lower than the world average. As a result, the region has been losing relative importance in the global context, as evidenced by abundant statistical information. Latin America's lag is multifaceted; it includes the economic, scientific, technological, social, and institutional fields. The productive structure of Latin American countries continues to be characterized by comparative advantages concentrated in primary sectors, as in past times, and its development dependent on the price and demand of primary products; the social marginalization endures and the income distribution in the region is the most unequal in the world; the technological divide with developed countries and with several Asian countries is ample and widening, and the socio-institutional environment persists as an important constraint to a sustained and inclusive development.

The seriousness of this situation is aggravated by the fact that this is not a recent occurrence; four decades have already been lost. The current development model will only preserve this troubling reality; and yet, there is no perceived concern in the region about this situation; it would seem that there is a neglected conformism or ignorance about this Latin American reality. If this trend were to continue much longer, it could dangerously aggravate the frustration, mistrust, and skepticism of Latin Americans with their democratic regimes and institutions, symptoms of which have already surfaced. At present, Latin America faces a difficult crossroads: continue on the same path as in the last four decades, or conceive a new paradigm that could transform and modernize its productive structure and lead to a better future.

This Essay examines the nature of the Latin American productive structure and outlines the conditions for its transformation in today's world. It identifies the most relevant circumstances that are hindering the development of Latin American countries by impeding their structural transformation. Finally, it postulates the framework for an eclectic development approach that combines government designed objectives and strategies with instruments and incentives typical of a market economy. The core of this eclectic paradigm is the transformation of the productive structure as the "catalyst agent" for a sustained and inclusive development. If Latin American countries do not succeed in transforming and modernizing their productive structure it will be difficult, if not impossible, to create the conditions for a sustained an inclusive development, as attested by the experience of the last four decades.

• Language: English
• Publisher: BookBaby
• Release date: Jan 15, 2022
• ISBN: 9781667820408

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Copyright © 2021 by Luis Sanchez-Masi

All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review.

Print ISBN: 978-1-66782-039-2

eBook ISBN: 978-1-66782-040-8

Contents

P R E F A C E

C H A P T E R 1

THE ESSENCE OF THE DEVELOPMENT PROCESS

C H A P T E R 2

THE DEVELOPMENT OF LATIN AMERICA IN THE LAST SEVEN DECADES

C H A P T E R 3

ACCESS TO FIRST WORLD KNOWLEDGE AND TECHNOLOGY

C H A P T E R 4

THE SOCIO-INSTITUTIONAL ENVIRONMENT

C H A P T E R 5

THE NEOCLASSICAL MODEL IN LATIN AMERICA

C H A P T E R 6

AN ALTERNATIVE PARADIGM FOR LATIN AMERICAN DEVELOPMENT

E P I L O G U E

A P P E N D I X

THE REMARKABLE DEVELOPMENT OF VIETNAM

A RELEVANT PARADIGM FOR LATIN AMERICAN COUNTRIES

B I B L I O G R A P H I C R E F E R E N C E S

P R E F A C E

This Essay is a compendium of concepts and narratives contained in books and articles I have written on the development of Latin America and summarizes the evolution of my ideas on that subject. The result of this process has led me to suggest in this Essay the framework for an alternative paradigm for the sustained and inclusive development of Latin American countries.¹

Throughout this Essay, reference is made to Latin America as a representative profile of a common reality in the region. In fact, this generalization hides differences between countries, mainly in certain aspects perceived at first glance such as size, population, geography, and others of analogous kind. Peru’s features are not similar to Paraguay’s; nor are Argentina’s and Mexico’s alike. However, when examining certain intangible or conceptual aspects with a long-term view, similarities are much more common than differences. Thus, for example, the characteristics of the socio-institutional environment, such as corruption, legal unpredictability, social marginality, and inequality are quite common phenomena in all countries, with a long historical tradition. Likewise, political volatility and changes in the orientation of economic policy, sometimes radically, are frequent in the region.

In addition to these particularities of the socio-institutional environment, there are other characteristics quite common among the countries of the region, such as the traditional dependence on the production and export of primary products, the scientific and technological backwardness in relation to countries of the first world, the low quality of higher education, the slow and erratic economic growth in the last four decades, and the low productivity compared to other regions or countries. Despite these similarities, there are still other important differences in various circumstances but at least in the aspects examined in this Essay, they do not seem to invalidate the reference to Latin America as representative of a common reality in most of the countries of the region.

The main purpose of this Essay is to examine Latin American development from the perspective of the transformation of its productive structure. Historical evidence shows that structural transformation is inherent to the development process. However, as explained in this Essay, the productive structure of Latin American countries, dependent on primary products, has not evolved significantly in recent centuries. For Latin American countries to achieve a sustained and inclusive development, they will need an urgent transformation and modernization of their productive structures. This in no way ignores that in the circumstances of most of the countries in the region other objectives and policies will also be necessary to achieve a sustained and inclusive development, such as maintaining a stable and predictable macroeconomic context, improving economic and social infrastructure, alleviating marginalization and social inequality, and many others. However, if new and more productive comparative advantages are not created, the economic growth will remain erratic and insufficient to achieve the strategic objectives of an inclusive development.

The need for the structural transformation of the Latin American countries is not a novel idea. Back in the 1950s, Raul Prebisch and his colleagues from the Economic Commission for Latin America and the Caribbean (ECLAC), for the first time in the region, advanced a comprehensive proposal explaining the reasons for a needed structural transformation of the Latin American economies, as well as the strategy to accomplish such objective. For varied reasons, that notable intent did not succeed beyond the 1980s.

In this Essay we discuss the nature of the productive structure and the process to achieve its transformation under the conditions of today’s world. We identify some of the most relevant circumstances that are impeding the structural transformation of Latin American countries and that, therefore, are hindering their development. Finally, we postulate the framework for an eclectic development paradigm that combines government designed objectives and strategies with instruments and incentives typical of a market economy to encourage entrepreneurship from the private sector. The transformation of the productive structure is the core of the paradigm and the catalyst agent for a sustained and inclusive development.

The Appendix to this Essay includes an overview of Vietnam’s remarkable development over the past three decades, as this experience may be relevant to Latin American countries. In 1975 Vietnam was a country wrecked by years of a bloody war, extremely poor, dependent on the production and export of primary products. In 1986 the Vietnamese government introduced a series of reforms in the economic and institutional fields. Since then, Vietnam’s development has taken on an extraordinarily inclusive and rapid pace.

This Essay has been motivated to a large extent by the current situation of Latin America in the world context and its uncertain future, something that I have been expressing in various papers over the last few years. Since the 1980s, the pace of Latin American economic growth has been erratic and notably lower than the world average. As a result, the region has been losing relative importance in the global context, as evidenced by abundant statistical information. Latin America’s lag is multifaceted; it includes the economic, scientific, technological, social, and institutional fields.

The seriousness of this situation is aggravated by the fact that this is not a recent occurrence; four decades have already been lost. The persistence of high levels of social marginality and inequality are especially disturbing; in addition to being socially unjust they constitute an obstacle to the democratic governance of Latin American countries (ECLAC, 2019). The current development model will only preserve this troubling reality; and yet, there is no perceived concern in the region about this situation; it would seem that there is a neglected conformism or ignorance about this Latin American reality. If this trend were to continue much longer, it could dangerously aggravate the frustration, mistrust, and skepticism of Latin Americans with their democratic regimes and institutions, symptoms of which have already surfaced. An optimistic objective is that this Essay will somehow raise awareness of the shortcomings of the current development model and contribute to imagining alternative paradigms for a more promising future.

Luis Sanchez-Masi

November 2021

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1 See the latest works published by L. Sanchez-Masi in the Bibliographic References of this Essay.

C H A P T E R 1

THE ESSENCE OF THE DEVELOPMENT PROCESS

The productive structure

The aggregation of the different productive activities that occur in a country at a given time constitute its productive structure and define the productivity in those activities. Therefore, the productive structure and productivity are the results of the processes used by businesses in the production of goods and services or, from another perspective, in the way in which they combine the different inputs in the manufacturing of goods and services. The consequence of a given productive structure is evidenced in the nature of the goods and services produced by a society, as well as in the nature of the relationship among the different agents involved in the production processes.

At the center