Carlota PerezUniversities of Cambridge and Sussex, UK and Tallinn University of Technology, Estonia

FLACSO EULAKS Summer SchoolMexico, August 2009

An opportunity spaceAn opportunity spacefor a development strategyfor a development strategywithin the current paradigmwithin the current paradigm

TECHNOLOGYTECHNOLOGYAND NATURAL RESOURCESAND NATURAL RESOURCES

Be aware of discontinuities

Opportunities

are a moving target

Do not try to imitatepast success stories

Tomorrow’s successes depend

on anticipating the future today

TECHNOLOGY AND INNOVATIONARE THE DRIVING FORCES

OF GROWTH AND DEVELOPMENT

But to take advantage of themwe must know and understand their changing nature

LEAPS IN DEVELOPMENT ARE BASED ON

AIMING AT A TECHNOLOGICAL OPPORTUNITY SPACE

AND HAVING THE CONDITIONS TO TAKE ADVANTAGE OF IT

•A technological revolution every 40 to 60 years

TECHNOLOGICAL OPPORTUNITY SPACES COME AND GOThey can be identified through analysing

the historical regularities of technological revolutions

•A similar sequence of deployment (with distinctly different business climates)

•Each revolution changes the techno-economic paradigm guiding innovation and determining competitiveness

•The opportunities for development change as each revolution evolves

This lecture uses those regularitiesto examine the current period

in terms of development opportunities for the case of Latin American

THE CONTEXT FAVOURING INNOVATIONIN NATURAL-RESOURCE-BASED NETWORKS

WINDOWS OF OPPORTUNITYAND CONDITIONS FOR TAKING ADVANTAGE OF THEM

TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY

The context favouring innovationin natural-resource-based networks

WINDOWS OF OPPORTUNITYAND CONDITIONS FOR TAKING ADVANTAGE OF THEM

Technological dynamism and social inclusion a dual strategy for a dual reality

Each results in a different great surge of developmentEach results in a different great surge of developmentand takes 40-60 years to spread across the world and reach maturityand takes 40-60 years to spread across the world and reach maturity

FIVE TECHNOLOGICAL REVOLUTIONS IN 240 YEARSFIVE TECHNOLOGICAL REVOLUTIONS IN 240 YEARS

The ‘Industrial Revolution’ (machines, factories and canals) The ‘Industrial Revolution’ (machines, factories and canals) 17711771

Age of Steam, Coal, Iron and Railways Age of Steam, Coal, Iron and Railways 18291829

Age of Steel and Heavy Engineering (electrical, chemical, civil, naval)Age of Steel and Heavy Engineering (electrical, chemical, civil, naval)18751875

Age of the Automobile, Oil, Petrochemicals and Mass ProductionAge of the Automobile, Oil, Petrochemicals and Mass Production19081908

Age of Information TechnoloAge of Information Technologygy and Telecommunicationsand Telecommunications19711971

Age of Biotech, Bioelectronics, Nanotech and new materials?Age of Biotech, Bioelectronics, Nanotech and new materials?20??20??

The available innovation potential changes radically every half century

MATURITY-DECLINE

MATURITY-DECLINEExhaustion of technologies, market saturation. Search for new opportunities.Return of ‘free market’

Previous revolutionMATURITY-DECLINEMATURITY-DECLINEDEPLOYMENT

Technological revolutions and their paradigmsemerge, diffuse and decline in four overlapping periods of 20-30 years

GESTATIONGESTATIONNew radicaltechnologiescoming togethershaped by theprevious paradigm(until conditionsare ready for the‘big bang’)

DEPLOYMENTDEPLOYMENT‘Golden Age’.Innovation across the board using the new paradigm and the new technologies. Flourishing of full potential.Active role of the State

INSTALLATIONINSTALLATION

Understanding these dynamic regularities and the nature of the paradigm

CAN HELP IDENTIFY AND ANTICIPATE THE FUTURE OPPORTUNITIES

Understanding these dynamic regularities and the nature of the paradigm

CAN HELP IDENTIFY AND ANTICIPATE THE FUTURE OPPORTUNITIES

Irruption and articulation of the revolution. Creative destruction; concentration of innovation.Learning of the new paradigm and modernisation of the old. ‘Free market’. Financial booms and bubble collapses.

GESTATIONGESTATION

Next revolution

INSTALLATIONINSTALLATION

The context for innovation changes significantly along each great surge

Examine the past and future context

The technological context Look forward:

Prospective conditions

The context of the region Look back:The historical legacy

Previous development:

Production profile andaccumulated capabilities

Resource endowmentand dynamic advantages

Distribution of incomes and skills

Socio-politicalconditions

VIABLE AND SUCCESSFUL STRATEGIES ACHIEVE A MATCH BETWEEN BOTH CONTEXTS

AND ESTABLISH POSITIVE-SUM GAMES

IDENTIFYING WINDOWS

OF OPPORTUNITY

The dynamic trends:

Stage of diffusionof the revolution [ICT]

Direction of innovation (technology and society)

Behaviour and interestsof major corporations

Discernible new tendenciesand backlashes

OPPORTUNITIES FOR DEVELOPMENT ARE A MOVING TARGET

A POSITIVE SUM STRATEGYWITH SIGNIFICANT (THOUGH LIMITED) RESULTS

How did Latin America take advantage of the window of opportunity

in the last stages of the mass production (Fordist) revolution?

How did Latin America take advantage of the window of opportunity

in the last stages of the mass production (Fordist) revolution?

BY SETTING UP A FRAMEWORK

FOR INDUSTRIALISATIONTHROUGH PROTECTEDIMPORT SUBSTITUTION

(ISI)

METHOD Import parts instead of finished products.Accept low productivity and high prices to increase employment

DECLARED FOCUS Final stage of fabricating (assembly) industries for domestic market. The mature products of ‘Fordism’. But… little learning; little innovation.

THE REAL LEARNING OCCURRED IN THE COMPLEMENTARY ACTIVITIES:Construction: roads, ports, structures, etc.Commerce and distributionBankingManagement of large and small firmsInfrastructure: water, electricity, telephone, transport, etc. Process industries: food, beer, cement, paper, bottles, metallurgy, etc.

AND PREVIOUS LEARNING CONTINUED (in some cases intensified) Raw materials production: mining, oil, agriculture, livestock, etc.

WHILE IT WAS ADEQUATE TO THE CONTEXT, IT WORKED!

ISI policies brought together two sets of interests

ISI ACTED AS THE “STARTER ENGINE” OF ECONOMY WIDE LEARNING

Mature industriesin the advanced world

looking for market growth

Third World governments looking for paths to development

CHANGING CONTEXT; CHANGING POLICIES… AND THEIR RESULTS

Average real annual growth of groups of Latin American countriesby relative size 1961-2005

Source: World Bank WDI 2006 (original data in constant 1995$)). Period indications by the author

Ave

. ann

ual r

eal %

gro

wth

0

1

2

3

4

5

6

7

8

1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00 2001-05LARGE: Argentina, Brazil, Mexico

Bolivia, Costa Rica, El Salvador, Haiti, Honduras, Guatemala, Nicaragua, Panama, ParaguaySMALL:

MEDIUM: Chile, Colombia, Ecuador, Dominican Republic, Peru, Puerto Rico, Uruguay, Venezuela

Protected ISI (and subsidised export) policies “Lost decade” Debt crisis

Structural adjustmentliberalisation, privatisation

Globalisation(Opportunities taken by Asia)

Deployment, maturity and decline of mass production revolution

Installation of ICT revolution and its flexible production and networks paradigmNASDAQCollapse

THE ASIAN LEAP TO DEVELOPMENT: THE ASIAN LEAP TO DEVELOPMENT:

WHAT? Specialisation in mass fabrication (assembly) for the worldWHAT? Specialisation in mass fabrication (assembly) for the world

Alliances for the ASSEMBLY of electronics, electricalelectro-mechanical goods and textile-clothing

WHEN? WHEN? Deployment and maturity of the Fordist paradigm and installation of ICTDeployment and maturity of the Fordist paradigm and installation of ICT

CONDITIONS IN ASIA:

IDENTIFYING AN OPPORTUNITY SPACE FOR LATIN AMERICACOMPLEMENTARY WITH GROWTH IN ASIA

Abundance of extremely low-cost labour

High specialisation in assembled products

Growth by incorporation of new consumers and new territories

Insufficient natural resources(materials and food);

high and growing import demand

• Abundance and variety of natural resources

• Much lower population density

• Traditional capabilities in natural resources and their processing

• Near to high consumption markets

• Prospective increase in demand and rising prices of energy and materials (raw and processed)

• Companies producing and usingraw materials are currently engaging in strategic reorientation

SPECIFICITY AND ADVANTAGES OF LATIN AMERICA

COULD NATURAL RESOURCES BE A PLATFORM FOR DEVELOPMENT?

A ROUTE FOR A LATIN AMERICAN LEAP TO DEVELOPMENT: A ROUTE FOR A LATIN AMERICAN LEAP TO DEVELOPMENT:

Alliances and specialisation in PROCESSING industries: energy and materials (basic and special, natural and synthetic, macro and nano)

and biological products (traditional and advanced, ecological and biotechnological)according to each country’s specific endowment

WHAT? Specialisation in production and processing of natural resources with innovationWHAT? Specialisation in production and processing of natural resources with innovationWHEN? Deployment of the ICT paradigm and installation of the next (biotech, nanotech?)WHEN? Deployment of the ICT paradigm and installation of the next (biotech, nanotech?)

Changing views on the role of natural resources

in development

End 19th Century and early 20th = ADVANTAGE Major asset to favour and finance development (US, Canada, Australia, New Zealand, Argentina, Scandinavian countries)

Post WWII = DISADVANTAGE 1940s-50s: Increasing advantage goes to manufacturing industry. Price Scissors (Prebisch 1945, 1951; Singer 1949)1970’s: Dutch disease (The Economist 1977, Corden 1982)1980s and 1990s: “Resource curse” (Sachs and Wagner 1995, Auty 1995)

2000s = ADVANTAGE?

THE CONTEXT FAVOURING INNOVATIONIN NATURAL-RESOURCE-BASED NETWORKS

Windows of opportunityand conditions for taking advantage of them

Technological dynamism and social inclusion a dual strategy for a dual reality

• Multiple engineering services Design, construction, adaptation and maintenance

THE PROCESSING INDUSTRIES WITH THEIR INNOVATION AND OPERATION NETWORKS

Success depends on continuous improvement of technologies, companies, products, human capital and networks

• Software and systems services• Capital goods: Equipment and instruments

Design, construction, adaptation, installation, compatibility, etc.• Laboratory services

Quality control, evaluation, measurement, certificates, etc.• Conservation and packaging

R&D, engineering, design, production, services• Transport, marketing and distribution

Standard, adapted and specialised• Technical service to users• Market intelligence• R&D

Improvements and new products• Patent lawyers; contract negotiation • Training and education of specialised personnel• Etc, etc.

• Mining• Metallurgy• Chemicals, petrochemicals• Custom materials • Livestock• Agriculture, hydroponics• Agro-industries• Biotechnology• Fisheries, aquaculture• Forestry, paper• Ceramics, glass• Packaging• Energy• Refining • Electricity• Nanotechnology• Etc.

EACH INCLUDING COMMODITIES AND SPECIALITIES

Dynamism for growth and development results from THE INTERACTIONS

AMONG THE MEMBERS OF THE NETWORKIN A SYSTEM OF INNOVATION

NR-Production

Equipment Inputs

ServicesRD&E

Investment (incl. exploration)

Processing A1

Processing A2Processing B2

Packaging, branding, etc.

Transport, marketing, distribution

Processing B1

The unit of analysis and the object of the strategy isTHE NATURAL-RESOURCE-BASED NETWORK

EQUIPMENTINPUTSSERVICESRD&E

INVESTMENT (Incl. exploration when relevant)

PRODUCTION PROCESSING (1,2,3…N)

PACKAGING

DISTRIBUTION

FORCES DRIVING INNOVATION IN NATURAL RESOURCE-BASED PRODUCTION NETWORKS

MARKET CONTEXT

S&T ADVANCESGeneralised ICT and its paradigm and other new technologies

NATURAL RESOURCE-BASED NETWORK

MARKET

VOLUME

MARKET

REQUIREMENTS

QUALITY OF DEPOSITS, LANDS, WATERS, etc.

• Natural variety Develop premium niches

• Diminishing quality or access ‘Remedial’ innovation

• Limited and immobile supply Develop new exploration techniques; enhance productivity; improve access; innovate in alternatives

Fast growing demand for materials and foodintensifies the traditional challenges for natural resource producers

GROWINGMARKET VOLUMEAS INNOVATIONDRIVER

PROCESSING

• Low value/weight of unprocessed materials Increasing cost of transport likely to induce processing in situ

• Economies of scale in processing Innovate in flexible and mobile equipment and processes

• Etc. etc. etc.

• Segmentation and differentiation Identify market segments for new products with new qualities; specialised niches; new business models; ‘gourmet’ products, etc.

• Importance of qualities and demand for innovation User-producer links to identify specific requirements and cooperate in RD&E; increase flexibility and adaptability to fulfil user needs

• Public opinion + environment ‘Organic’ produce; Fair Trade networks; pollution abatement techniques, ‘clean’ fuels; yes or no to GM crops, etc.

• Importance of relative costs Savings in energy and transport may counterbalance lower labour costs and promote innovation to change economics of location

• Etc. etc. etc.

MARKET REQUIREMENTSas innovation drivers

Increasingly numerous specialty niches

COMMODITYStandard

CUSTOMAdaptable

PRICE COMPETITIONAdvantages in costand in process technologies

COMPETITIONIN ADAPTABILITY

Advantages in access to clients,

quality, flexibilityand rapid response

Profitability attained through VOLUME

Markets protected throughLOW-COST AND RELIABLE

BASIC QUALITIES AND DELIVERY

High profitability due to SPECIAL QUALITIES Markets protected by

DIFFERENTIATION, INNOVATION,TECHNOLOGY

BRANDS AND PATENTS

MARKET HYPER-SEGMENTATION and the differing conditions for competition and profitability

And this applies from raw materials to all manufacturing and servicesand to each activity along the value network

Standardised markets Standardised markets

Specialised niche markets Specialised niche markets

Some examples of positioningSome examples of positioningOrganic food

“Boutique” steelIntelligent materials

Starbucks Coffee“Gourmet” fruits

Parmesano ReggianoScratch-free paint

Electric automobilesiPhones

Diagnostic kits Adventure tourism

SPECIALSPECIAL

Design of landmark buildings (Ex. Beijing Stadium)Major information systemsAirport design and constructionR&D in special areasInstruments for nanotechTourism in Chichen Itza or in the Amazon

UNIQUEUNIQUE

Higher profitability and less vulnerability result from repositioning

BASICBASICRaw materials

Wheat; meatAuto parts

Computer disk drivesStandard software

Standard mobile phonesCall centres

Beach tourism

CUSTOMISEDCUSTOMISED

Dell computersBlue jeans to sizeZara clothingKenya ready saladsE-government softwarePersonal servicesTechnical supportProgrammable hearing-aidsHealth tourism (ex. Hipoperations in India)

through innovation that strengthens existing expertise and advantages in whatever sector

• New possibilities and challenges Various intelligent control systems (irrigation, processing, etc.); quality sorting; distance monitoring (livestock, oil wells, fishing areas); ‘precision agriculture’; distributed control for flexible processing, etc.

• Ease of distance coordination of production, logistics, admin, etc. Capacity to cooperate in local and global networks for technical, organisational and business model innovations

• Ease in handling variety at all levels Innovate in product mix from design to distribution Transport services for multiple destinies and small quantities

• Drastic reduction in time and cost of innovation and adaptation Ease of innovation in-house and linked with global networks; compu-synthesis of chemicals and materials; computer-aided experiments, etc.

Generalised ICT and its techno-economic paradigm

ADVANCESIN SCIENCE

AND TECHNOLOGY

Other new technologies

• Advances in biotech, nanotech and new materials Gear radical technologies to their applications in all phases of natural resource production, processing and distribution

Etc. etc. etc.

NETWORKS FOR THE TECHNOLOGICAL UPGRADING OF THE NATURAL-RESOURCE EXPORT-PROFILE

NATURAL RESOURCE PRODUCTION AND

PROCESSINGINDUSTRIES

foreign or local

Current Export Markets

LOCAL CLUSTERS OF FIRMS AND INSTITUTIONS

doing researchhigh-tech production

and knowledge-intensive services

FOREIGN FIRMS AND INSTITUTIONS

in research, high-tech production

and knowledge-intensive services

New (additional )specialised markets

GLOBALISATION OF PRODUCTION

• The global corporation (GC) Positioning within globalised networks (outsourcing, off-shoring, etc.); Upgrading and repositioning through innovation; Forming local networks of high tech suppliers; Turning successful local companies into GCs, etc.

• Geopolitics Taking intelligent advantage of competition for access to natural resources to engage in bold and innovative negotiations with potential investors

ENVIRONMENTAL CHALLENGES

• Prospective change in relative costs (energy, materials, transport, labour) Location advantages for energy and materials producers; processing in situ

• Expected environmental policy and regulation across the world Innovation in renewable materials and energy; low-energy processing; water-based chemistry; biodegradable materials; etc.

MARKET CONTEXT

CHANGE IN THE ECONOMICS OF THE PRODUCTION,TRANSPORT AND DISTRIBUTION OF TANGIBLE GOODS

Massive relocation and geographic re-specialisation of physical production into optimal local, regional and global networks

Greater tendency to locate processing next to the raw materials

Rising prices of oiland raw materials

Rising packaging and freight costs

Visible effects of increasing global

warming

Rising climatic risk

CHANGEIN BUSINESSSTRATEGIES

CHANGEIN GOVERNMENT

POLICIES

THE UNAVOIDABLE PATH OF THE CURRENT GLOBALISATION PATTERN

The context favouring innovationin natural-resource-based networks

Windows of opportunityand conditions for taking advantage of them

TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY

A strategy based on thempromises rising incomes and better quality of life

for the participants

THE PROCESSINGTHE PROCESSING INDUSTRIES INDUSTRIES require increasinglyrequire increasinglyqualified personnel qualified personnel

BUT THEY ARE NOT LABOUR INTENSIVE

HOW CAN WE ACHIEVE GROWTH WITH SOCIAL EQUITY?

TAKING THE LIMITS INTO ACCOUNT

Latin America has a very serious income distribution problem

TWO DIFFERENT YET INTEGRATED TWO DIFFERENT YET INTEGRATED PARTS OF THE ECONOMYPARTS OF THE ECONOMY

TWO DIFFERENT AND COMPLEMENTARY GOALSTWO DIFFERENT AND COMPLEMENTARY GOALS

Economic growthEconomic growthand global and global positioningpositioning

Full employment Full employment and well beingand well being

for allfor all

interconnected specialised ‘local’ economies (clusters)

ENGINES ENGINES OF GROWTHOF GROWTH

Constantly upgraded production networks

around natural resources

INFRASTRUCTURE, FUNDS, ENABLING INSTITUTIONS AND ‘HUMAN CAPITAL’

An active State facilitating and promoting local initiative

Objective: Objective: To raise To raise the quality the quality of life of all of life of all inhabitantsinhabitants

Objective:Growth and generation of foreign exchange

COMPETITIVE TECHNOLOGIESFORGLOBALMARKETS

A DUAL INTEGRATED MODEL Combining low- and high-employment activities

A DUAL INTEGRATED MODEL Combining low- and high-employment activities

Differentiated development of each part of the territorybased on the local productive vocation, identified or promoted

NetworkNetworkorganisationsorganisations

(global and local)(global and local)

Hyper-Hyper-segmentationsegmentation

of marketsof markets

CapacityCapacityto handleto handle

heterogeneityheterogeneity

Three guiding features of this paradigm

THINKING GLOBALLY AND ACTING LOCALLYat both ends of the dual strategy

MULTIPLE FORMS OF LOCAL AND GLOBAL NETWORKSMULTIPLE FORMS OF LOCAL AND GLOBAL NETWORKS

Along Along the value chain the value chain

Agreements from initial inputs to final distribution

ClustersClustersof small firmsof small firms

Usually combiningUsually combiningcooperation and competitioncooperation and competition

Around a large company(local orglobal)

Including internal disaggregation, outsourcing and various formsof joint ventures, contractsalliances and agreements, local or at a distance

Strengthening the specialised support from universities and S&T infrastructure

Simple Complex

Niche Artisanceramics

Biotechnologicaldiagnostic kit

Work ata distance

‘Call centres’

Interpretationof geological data

“Glocalisation” Exquisite local cheese

Fault detectionservice

Environmentalprotection

Organicfruit

Bacteria to digestoil spills

Local outsourcing

Diet foodservice

Data securityservice

Taking advantage of them requires imagination, information, knowledgeand competent support institutions at both ends of the dual strategy

There is ample space for innumerable and profitable small companiesin high-tech and low-tech segments

Achieve growth now taking advantage of the current window of opportunity for natural resource producers

TAKING PARADIGM SHIFTS INTO ACCOUNTTAKING PARADIGM SHIFTS INTO ACCOUNTA STRATEGY IN TWO STAGESA STRATEGY IN TWO STAGES

Prepare to make a leapin development with the next technological revolution

by developing capabilities,companies and global networks in the sectors of the future(biotechnology, nanotechnology,bioelectronics, new materials?)

That is what Asia did –without planning it-- with the ICT revolution

Early action creates externalitiesEarly action creates externalitiesand prime mover advantagesand prime mover advantages

TAKING TIMING AND COMPETITION INTO ACCOUNTTAKING TIMING AND COMPETITION INTO ACCOUNT

• This window of opportunity was not available 30 years ago and is not likely to be available 20 years from now

• There are many countries and continents with ample natural resource endowments that could try to take advantage of it

• The battle for secure access to natural resourcesis already raging between advanced and emerging countriesand among the main companies involved

THERE IS NO TIME TO LOSE!

A STRATEGY OF DIFFERENTIATED INTEGRATIONA STRATEGY OF DIFFERENTIATED INTEGRATIONWITH HEALTHY INTER-COUNTRY TRADEWITH HEALTHY INTER-COUNTRY TRADE

Latin American countries have highly differentLatin American countries have highly differentresources, climates, sizes,resources, climates, sizes,

experienceexperienceand capabilitiesand capabilities

The more advancedThe more advanced countries in each sector countries in each sector

can serve as dynamic leaderscan serve as dynamic leaders

OFOF SPECIFICSPECIFIC REGIONAL NETWORKSREGIONAL NETWORKS

TAKING ACCOUNT OF VARIETY

Natural-resource-based networkscan serve in this period

for making a significant leap in development

The convergent creativity requiredcannot result

either from pure marketsor from government decisions

ENSURING SYNERGIESENSURING SYNERGIES

CONSENSUSCONSENSUSVISION VISION

Private SectorPrivate Sector

Public SectorPublic Sector

SocietySociety

Success may depend on reaching Success may depend on reaching an agreed direction an agreed direction for guiding marketsfor guiding marketsand insuring the futureand insuring the future

THE UNDERSTANDING OF THE OPPORTUNITY NEEDS TO BE SHARED BY ALL