Productive development in open economies

Includes bibliography

Presentation The countries of the Latin American and Caribbean region have shown a keen and lasting interest in mechanisms of economic development and public policies for its promotion. This is a process in which ECLAC has been involved ever since it was founded over half a century ago. Today, the debate on these issues continues against the backdrop of a globalization process in which the remarkable dynamism of some dimensions -especially its economic, financial and cultural aspects- contrasts with the slow formation of an institutional network capable of coping with the increased interdependence of nations on various levels and of gradually rectifying the striking asymmetries of the global order. Over the past two decades, the Latin American and Caribbean region has wagered heavily on its integration into the global economy. In fact, of all the developing regions of the world, it has been the most resolute in its pursuit of economic liberalization. A review of this period brings to light a number of extremely important achievements, but it also reveals areas in which the region is lagging behind and others in which unfinished business remains. ECLAC contends that the region must build upon the progress it has already made, but it also has to close existing gaps and address unresolved issues. The inroads made in these areas may play a vital role in consolidating the region's fuller integration into the world economy and in ensuring that the social, economic and political costs of the economic reform process have not been incurred in vain. In order to accomplish this, the "more market and less State" approach that guided the economic reform process must give way to an emphasis on properly functioning markets and quality in governance. This new approach, which entails the use of active public policies capable of overcoming both market and government failures, can prove to be more market-friendly than the line of reasoning that was the driving force behind the initial reforms. These active public policies must be backed by the political legitimacy afforded by democratic institutions and must be founded upon public transparency as well as efficient, effective government programmes subject to strict oversight and evaluation. This is the general framework for the proposal put forward in this analysis of strategies for furthering productive development in open economies. As is customary in the documents prepared by the ECLAC secretariat, an integrated structural approach has been used. The study is composed of five sections comprising a total of 12 chapters. Part one (chapters 1 and 2); sets the analysis of national productive development strategies for open economies in its current international context. Specifically, chapter 1 looks at the basic traits of today's international economy. It then goes on to consider the current status of the international debate on issues that influence how much manoeuvring room is available to the countries for the design and implementation of their development policies. Chapter 2 describes the general features of the region's development process after nearly two decades of economic and institutional reforms. It also traces the ways in which the other topics examined in this document tie in with the conceptual framework of the development process. It concludes with a discussion of a number of strategic courses of action for the promotion of productive development in open economies. These lines of action revolve around three pivotal and mutually complementary elements: inclusion, modernization and the densification of the production apparatus. Part two (chapters 3 and 4); deals with the aspects of the macroeconomic environment and the financial system that have the greatest bearing on productive development and examines the links among economic growth, investment in infrastructure and the sustainable development of natural resources. Chapter 3 underscores the importance of stability, in the broad sense of the term, as a pillar for saving and investment, together with the crucial role played by countercyclical policies in buffering the effects of real and financial shocks on economic growth. This chapter also reviews the development of new risk-management instruments and mechanisms that make it possible to finance innovation and provide access to, in particular, long-term credit for small and medium-sized enterprises. Chapter 4 analyses investment in infrastructure and the sustainable development of natural resources. With respect to the former, the discussion deals with the balance between infrastructure supply and demand in the coming years, changes in public/private supply models and critical problems in the area of public regulation. In regard to the latter, an assessment is made of the relationship existing among the production structure, natural resources and the environment, as well as the challenges facing the countries and the opportunities open to them in terms of the sustainable utilization of natural resources, the introduction of innovations in the fields of biotechnology and clean production techniques, and the production of environmental and ecological goods and services of value to the entire planet. Part three (chapters 5 through 8); is devoted to a consideration of policies for stimulating productive development in open economies. Chapter 5 examines the major expansion recently seen in the region's foreign trade activity and the diversification of its exports in terms of both destination markets and the types and technological content of export products. It also looks at the various kinds of instruments that can be used to help the region improve its position within the international economy, including the growing number of trade agreements that have been signed in the past few years in order to broaden and consolidate market access. Chapter 6 presents an analytical description of the transition made from, first, supply-side and, later, demand-side technology policies to a model based on the use of the linkage between supply and demand to define the most suitable technological development path for each productive context. It then goes on to propose a typology of strategies for promoting innovation that takes into account the wide array of situations existing in the region. The concluding portion of this chapter offers guidelines for increasing the coordination and complementarity of the various types of policies for promoting innovation and discusses their characteristics and specific content. Chapter 7 explores the development and articulation of entrepreneurial capacities in the sphere of production. The concept of the entrepreneurial process which is implicit in measures and policies for the creation and modernization of business enterprises is described as it relates to three categories of firms: large businesses that tend to be more fully integrated into the global economy; small and medium-sized formally constituted firms, and informal microenterprises. The discussion then turns to the various policy measures that can be used to foster the formation of business linkages of various sorts. Chapter 8 considers the objective of strengthening the production structure by increasing the density of the production, technological and business apparatus. An overview of the policies employed to pursue this objective in the past is followed by a description of practices used as part of current strategies in the region. In addition to analysing some of the aspects of the follow-up and evaluation of their implementation and impact, policy guidelines are proposed for strengthening the production structure under the conditions now prevailing in the region. Part four of the document (chapters 9 and 10); looks at the conflict that the countries of the region have had to deal with in order to reconcile the flexibility required by an open economy in order to adapt to an ever-changing environment with the social protection required by the population in order to cope with the risks associated with a reorganization of the production structure. Chapter 9 examines trends and prospects in the region's labour markets, with emphasis on changes in the quality of employment. The development and current status of the labour market's institutional structure is outlined, and the possible contribution of job-creation and job-training policies to an improvement in working conditions and workers' economic security is assessed. Suggestions are then made concerning steps that could be taken to contribute to a form of flexible employment combined with social protection mechanisms based on a fiscally responsible social cohesion covenant. Chapter 10 expands upon the definition of this covenant to give it a dynamic dimension intended to ensure that the educational system will adapt to the challenges of competitiveness on an on-going basis. To this end, it is argued that measures should be adopted to upgrade the delivery and financing of educational services as a means of broadening access to the sector and boosting its productivity, attaining higher secondary-school graduation rates, gearing the educational system more closely to the labour market's requirements and narrowing the digital divide at the international and social levels. Part five (chapters 11 and 12); delves into the relationship between economic development and institutional modernization and the fundamental role that regional efforts can play in giving the countries of the region more manoeuvring room. Chapter 11 starts out with an analysis of how institutions have influenced economic growth and equity, and then moves on to an examination of the institutions associated with a market economy and the process of institutional change. After reviewing the morphology of institutions in open and increasingly interdependent economies, the way in which a political system processes reforms within the framework of democratic institutions is explored. The twelfth and final chapter looks at the current status of integration processes in the region. It assesses the important role played in the 1990s by the region's four imperfect customs unions, both in terms of trade creation (in some cases with greater technological content); and in relation to the potential for cooperation on various fronts. It is noted that these processes tended to taper off in the late 1990s and that more and more countries have decided to concentrate on concluding free trade agreements with developed countries or regions in order to gain access to those markets. The discussion concludes with a consideration of the policy options available to the countries of the region in this connection. We are hopeful that the proposals set forth here will encourage further analysis of a subject of such vast political, economic and social importance in the world of today and that they will serve as a stimulus for debate at this thirtieth session of the Economic Commission for Latin America and the Caribbean. José Luis Machinea Executive Secretary