Latin America: development, productivity, technology and education

Global, Sep 16, 2019

Article written by Rodrigo Parreira, CEO LATAM, Logicalis

See original article in Digitizeme

Latin America, despite all its geographical size and abundance of natural resources, is an economically small region when viewed on a global scale. Currently, its GDP corresponds to approximately 7% of the world total, a proportion that has remained relatively stable since the 1970s.

However, the most troubling element of this picture is its chronic lack of growth. In recent data published by the IMF, it can be seen that the region is growing significantly less than the world average (in the last 3 years, the world grew at an average of 3.5%, while Latin America grew at 1%), an index that is below the average of developed countries (approximately 2%) and much lower than that of countries with economies classified as emerging (around 4.5%).

How can we explain this complex and frustrating situation? There are almost obvious themes, related to political aspects (populism, lack of consistency of national projects, an unclear vision of the structuring of elements in local economies) and social aspects (inequality, lack of access to the consumer market by the lower classes, relatively small size of the middle class). However, I would like to focus on the issue of productivity.

Viewed conceptually, economic growth can largely be explained by two components: the size of the workforce (i.e. the number of active workers in an economy) and its productivity (i.e. how much added value each person contributes) with his work.

In a recent study by the McKinsey Global Institute (a “think tank” linked to the consulting firm McKinsey & Co.), an analysis was carried out on these bases to explain the growth of Latin American national economies between 2000 and 2016. The result is surprising, especially taking into account that throughout these years we have seen a strong expansion of regional economies, due to the appreciation of commodity prices in the period.

What is surprising is that for most countries in the region (with some exceptions, such as Colombia), around 70% of their growth is explained by the increase in the labour market, especially if we take into account that this was a period marked by greater inclusion of workers in the formal market, while only 30% is explained by greater productivity. In the same period of time, if we look at the Chinese economy, we notice that 94% of its growth is explained by increased productivity - and only 6% by the expansion of its labour market. And this is not Chinese low growth, since its GDP grew more than 10 times in this cycle, going from 1 to more than 11 trillion dollars!

In short, the productivity of Latin American workers is low. But what are the key variables associated with productivity growth? Mainly two: one short-term and one long-term, not completely independent. In the short term, the adoption of technologies is essential: new machinery, more robust and developed systems, automation, robotisation, better production processes. In the long term, the training and qualification of the worker is essential. And so we arrive at one of the main Latin American tragedies: the quality of its education. These are not independent variables, as less educated workers have extreme difficulty operating technologically intensive environments.

This is the scenario we face in the region, when the process that will lead us to the fourth industrial revolution has already begun and shows signs of intense acceleration. Companies are beginning to prepare for digital transformation, developing their infrastructures, investing in digital solutions and seeking to be more competitive in an increasingly globalised and disruptive world. On the other hand, could it be that our rulers, the great political decision makers, those who should think about the creation of long-term wealth, improving social conditions and reducing inequalities, understand the bottleneck for development that the human formation in the region? Are we making the right decisions and prioritising the really important issues? What do you think?

 

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