The Age of Productivity Transforming Economies from the

The Age of Productivity: Transforming Economies from the Bottom Up Chapter 1

• • • Introduction Doing more with the same Beyond technological progress Beyond manufacturing The many faces of low productivity Policies for productivity Working together Why so difficult? What to do

Introduction • “Latin America and Caribbean suffer from a cronic low-growth disease” • Income per capita growth or the region: 1960 – GDP per capita = 1/4 of US 2006 – GDP per capita = 1/6 of US • Low productivity is determinant for L. A. poor economic growth • Objectives of this study: - investigate the causes of poor productivity - identify and propose policy options

Doing more with the same • Raising productivity is to use more efficiently existing: • Labour • Physical capital • Human capital • Measure of productivity: GDP/(L+PK+HK) • GDP growth gap is associated with efficiency growth gaps rather than accumulation gaps

Beyond technological progress • Productivity is a residual measure “A measure of our ignorance” - Solow • Productivity is a measure of technology • Technological progress is determinant of productivity growth • Efficiency gains (raising productivity) goes beyond tech growth • Economic development in L. A. requires: • Eliminate bad policies • Correct key market failures

Beyond manufacturing • Search of solutions for productivity problems in L. A. have been concentrated on industrial sectors -> the so called “política industrial” • Industrial sector represents only 20% of total labour force • So productivity must be increased in the nontradable sector (particularly service sectors)

The many faces of low productivity • Size of firms and its productivity are related • In L. A. there is a large number of small firms with low productivity • And the problem goes beyond because of self-employees (underemployment) • Small firms are even less likely than larger firms to innovate • Small firms presence in L. A. is acute in service sectors • Employment of capital and workers more efficiently has the potential to increase productivity by 50%-60% • Commercial retail sector productivity could raise 260% (Brazil and Mexico)

Policies for productivity • Productivity problem arises from: • Market failures • Failed economic policies • • • Too little credit Taxes: simplify, simplify Redrafting social policy SME programs New ideas for innovation

Working together • Coordination failures • Coordination is from efforts combined of individuals, enterprises, institutions (public and private) • Development policies instead of industrial policies • Not only industrial sector or an economic activity as an end, but linked directly to productivity

Why so difficult? • Raising productivity is a complex task • Benefits for particular enterprises or workers • Productivity is a problem of “collective action”

What to do • A strategy for sustainable growth is raising productivity rather than exploiting cost/price advantages of natural resources • It is necessary to build a politically feasible social consensus in favor of productivity

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