Key Elements For A Competitiveness Agenda in The Americas

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KEY ELEMENTS FOR A 2020 COMPETITIVENESS AGENDA IN THE AMERICAS

KEY ELEMENTS FOR A
2020 COMPETITIVENESS AGENDA
IN THE AMERICAS
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Discussion paper prepared for the III Meeting of Americas

Competitiveness Authorities and Councils organized by the Organization
of American States and the Inter-American Competitiveness Network
November 14, 2010
Atlanta, Georgia
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This paper presents key elements of a competitiveness strategy in the Americas. It is
organized as follows. Section 1 provides an analysis of the global context against which
countries are formulating and implementing policies and reforms aimed at boosting
productivity and laying the foundations for sustainable growth. What are some of the
forces and trends which are determining the broad parameters of the global economic
environment and the emerging factors which will best enable countries to thrive in
an increasingly complex international marketplace? Section 2 argues that the global
economic crisis has created special challenges and opportunities for Latin American
and the Caribbean and that the region is well poised to set in motion initiatives aimed
at significantly strengthening those factors which could contribute to boost overall
levels of competitiveness. Sections 3 provides a conceptual framework to look at the
various factors and policies which are essential to strengthen competitiveness, with
particular reference to the role of institutions, the regulatory framework, education,
the adoption and use of information and communication technologies, as well as
the increasingly important questions of gender equity and sustainable management
of the environment. Section 4 builds on this framework to ask the question: how
competitive are Latin America and the Caribbean, examining closely the region’s
performance in a number of critically important areas. Finally, section 5 concludes
by providing a number of specific recommendations as to the various ways in which
the Inter-American Competitiveness Network (RIAC)1 could catalyze the promotion of
a competitiveness agenda in the region.
1 - The Inter-American Competitiveness Network was launched on September 29, 2009, on the occasion of the III Americas Competitiveness Forum
(ACF) held in Santiago, Chile. The Network seeks to foster dialogue, cooperation, the exchange of experiences and best practices, and the adoption
of initiatives to strengthen and promote competitiveness in the Americas. The key actors are government authorities responsible for promoting
competitiveness and the competitiveness councils in the Americas. Institutions supporting the network are: Organization of American States (OAS),
the Inter-American Development Bank (IDB), Andean Development Corporation (CAF), the Economic Commission for Latin America and the Caribbean
(ECLAC), the World Bank (WB), the United Nations Development Programme (UNDP) and the Central American Bank for Economic Integration (CABEI).
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I.
The global context
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The global economy has been opportunities for businesses against the
transformed in a number of fundamental background of an increasingly complex
ways in the past three decades. global economy. Reductions in the cost
Spurred by progress in transport of communication are facilitating the
and communication technologies, shift of backroom operations to the
the process of globalization has developing world. The multinational
led to a remarkable expansion of corporation, already operating with a
international trade and has permitted global outlook as regards the location of
the achievement of important progress its markets and the sources of supply, is
in the battle against poverty. The rapid also now operating globally in terms of
reduction in barriers to the flow of goods sources of finance and physical location.
and services, capital and labor has not With reduced transport costs, location
always been orderly and has proceeded is becoming less important and political
at different speeds in different parts of and economic stability, a well-trained
the world but there is little doubt that, labor force, and strong institutional
to a greater or lesser extent, it has now underpinnings are emerging as the
become a permanent feature of the key drivers of competitiveness and
international economic landscape. Not prosperity. These developments are
only has it emerged as an important also leading an increasing number of
driver of global economic growth, but governments around the globe to be
greater openness and stronger links more assertive in pursuing productivity-
with the world economy have imposed enhancing policies.
New technological ideas combined with social order and the

trained of human beings who generate and apply them, are
the basis of modern economic prosperity
on domestic producers everywhere Harvard professor Richard Cooper

the valuable discipline of international makes a compelling case that at the
competition and attracted much needed outset of the 21st century technical
capital and expertise, thus enhancing change and innovation have become
the prospects for growth. “the dominant characteristic” of our
Alongside the quickening pace of global time. “New technological ideas,” he adds,
economic integration, there has been “combined with social order and the
a marked acceleration in the pace of trained human beings who generate and
technological and scientific progress. apply them, are the basis for modern
Advances in information technology, economic prosperity.” The traditional
in particular, have created new sources of power and influence—
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territory, resources, raw manpower, and world. More important, a key lesson to
military might—for centuries the chief emerge from the financial crisis is that
determinants of nations’ prosperity, we have global financial markets but no
are far less important today than they global rule of law. In the past 30 years
used to be and have given way to a new the global economy has become both
world in which successful development more complex and more interconnected,
is increasingly linked to sound policies, but the mechanisms and institutions
to good governance, to effective
management of scarce financial
resources, and, most important, to the In the past 30 years
extent to which societies are able to the global economy
harness the latent capacities of their has become both more
populations. Successful countries today complex and more
are not necessarily large geographically interconnected, but
or richly endowed with natural resources, the mechanisms and
nor able to project military power beyond institutions that we
their borders. Increasingly, they are have to deal with crises
countries that have managed to expand have not kept pace with
opportunities for their populations the tempo of change
through the full exploitation of the
opportunities afforded by the world
economy through international trade, that we have to deal with crises have not
foreign investment, the adoption of new kept pace with the tempo of change and
technologies, macroeconomic stability, what has emerged is a “governance gap”,
and high rates of saving. an inability to cope with complex global
The above considerations problems either because the institutions
notwithstanding, the global financial we have are woefully unprepared or,
crisis, “by any measure the deepest global in some cases, because we do not I. The global context
recession since the Great Depression,”2 even have an institution with relevant
has highlighted the presence of risks jurisdiction and adequate resources
to a scenario that, earlier in the decade, to address the problem in question
envisaged sustained economic growth (e.g., climate change). It is becoming
and prosperity. The crisis, which got increasingly clear that systemic crises
underway in the developed markets, has cannot be solved outside a framework
shown that the advanced economies of global collective actions involving
are not free of the vulnerabilities and supranational cooperation on a much
rigidities that had come to be recognized greater scale than has been the case in
as structural features of the developing the past.
2 - This is the characterization made by the IMF in its October 2008 World Economic Outlook.
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II.
Latin America and the economic crisis
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The latest forecasts put out by the to be islands of relative stability
International Monetary Fund (issued and locomotives of global economic
in April of 2010) for global economic growth. While Latin America and
growth are cautiously encouraging. the Caribbean (LAC) have not been
Following a 0.6 percent contraction in unaffected by the crisis, the impact
2009 (more brutal in the United States, has been more muted. The region’s
Europe and Japan, softened by rapid
growth in Asia, particularly China and
India), world output is expected to In 2011 Latin America
expand in 2010 by 4.2 percent and to and the Caribbean
continue at that pace in 2011. These have a unique
forecasts assume that interest rates in
opportunity to set
the advanced economies will remain
at near zero levels for the foreseeable in motion initiatives
future and that public debt levels will aimed at significantly
rise from 75 percent of GDP in 2008 to strengthening policies
some 110 percent of GDP by 2014.

and institutions which
As Table 1 below makes clear, the
could contribute to
crisis has been particularly harsh in
its consequences for the advanced boos overall level of
economies, countries that over the competitiveness
last couple of decades have tended
Table 1. Macroeconomic Outlook (% GDP Growth)

2009 2010 2011
Source: World Economic Outlook, IMF, October 2010
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banks were less exposed to the kinds levels of public indebtedness are now
of toxic assets which have wreaked lower, on average, than those of many
havoc on the financial systems of developed nations (Figure 1) . These
the industrial world and, with more facts would suggest that beginning
solid banking sectors, the region was in 2011 countries in Latin America
able to cushion better the impact of and the Caribbean have a unique
the credit crunch. Furthermore, in opportunity to set in motion initiatives
a most interesting development— aimed at significantly strengthening
particularly against the historical those factors, policies and institutions
background of repeated fiscal crises in which could contribute to boost overall
many countries in Latin America—its levels of competitiveness.
Figure 1. Public debt (in % of GDP)

140
120
Public Debt (% of GDP)
100
II. Latin America and the economic crisis

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60
40
20
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III.
A competitiveness profile for LAC
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Two questions that suggest themselves growth. There are no known cases of
immediately are what are those factors countries—at least during the post-war
which are fundamental to boosting period, when the existence of a system
competitiveness in the region and that of national accounts and the emergence
both theoretical considerations and of national statistics has permitted the
empirical experience have shown to be development of tracking mechanisms—
primary determinants of productivity in which high economic growth rates on
and, hence, economic growth? The a sustained basis has taken place against
second question is, given these factors, the background of runaway inflation or
how do countries in LAC perform, both disorderly management of the public
in relation to each other and against top finances. In fact, there is overwhelming
performers in the world? In this paper evidence that in the absence of a solid
we discuss briefly the importance of a foundation of macroeconomic stability,
range of such factors and then present growth will be anemic or, at best, volatile.
a competitiveness profile for the region, What are, in fact, the key building blocks
looking specifically at the regulatory and of competitiveness?
legal framework, the region’s human and Institutions

environmental capital, the adoption and
use of information and communication There is increasing recognition that
technologies, and the institutional a solid foundation of macroeconomic
environment. Rather than merely stability alone is not sufficient to ensure
showing the relative rankings of an rapid economic growth. Institutions
established competitiveness index, we matter a great deal. By institutions we
instead opt for framing our discussion of mean the system of rules that shapes
competitiveness in the region in terms of incentives and defines the way economic
4 key and distinct areas (as noted above), agents interact in an economy. The
tapping into the latest data available institutional framework has a crucial
from credible internationally comparable bearing on growth and development. It
sources. The competitiveness profile plays a central role in the ways societies
is followed by a discussion of ways in distribute the benefits and bear the costs
which RIAC could better leverage the of development strategies and policies,
promotion of a competitiveness agenda and it has a bearing on investment
for the Americas. decisions and on the organization of
production. Of course, laying a sound
What matters for competitiveness? institutional foundation is not an easy
A number of observations can be made task, nor something whose results can
when examining the factors, policies and be observed quickly, as is often the case
institutions that contribute to improve a with purely macroeconomic measures,
country’s economic performance. The an interest rate hike here, a tax cut there.
first and perhaps most self-evident is that Attempts at institutional reform often
the factors are many and span several run against strenuous opposition, as
different areas. For example, there already such reforms often challenge powerful,
exists considerable empirical literature deeply entrenched vested interests.
documenting the central importance of Property rights, for instance, are of
macroeconomic stability for economic central importance. A weak property
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The institutional framework has a crucial bearing on growth
and development. It plays a central role in the ways societies
distribute the benefits and bear the costs of development
strategies and policies
rights environment discourages institutional environment characterized

investment and creates uncertainties by openness and transparency in the
which complicate long-range planning. management of public resources.
In developing countries in particular, Corruption poisons the development
they hamper the ability of budding process. It leads to resource misallocation
entrepreneurs to access the financial as funds are no longer directed toward
system using physical assets as collateral. their most productive ends, but are
It is of fundamental importance whether instead captured for private gain. It
governments are accountable to their undermines the credibility of those who
respective populations. Investors care are perceived as being its beneficiaries
enormously whether judges and courts (e.g., public officials, government
are reasonably independent, or whether ministers, and business leaders) and
they are subject to undue interference thus sharply limits their ability to gain
or, God forbid, are for sale to the highest public support for economic and other
III. A competitiveness profile for LAC

bidder. Do businesses have to pay bribes reforms.
to settle their tax obligations? Do they Other elements of the institutional
have to hire private security details environment are also key. For instance,
because police services are ineffective as with property rights, there is a
and unreliable? Do governments show burgeoning literature and a large body
favoritism in their decisions, or are they of country-specific experience on the
fairly even-handed in their relations importance of an efficient judicial system.
with the business community, playing It matters significantly for productivity
more the role of impartial formulators and competitiveness whether firms are
of transparent rules? Are public able to resolve legal disputes through a
resources being allocated to education court system that operates transparently,
and essential infrastructure, or spent on with reasonable speed, and in which
wasteful and unproductive projects or decisions are broadly consistent with
schemes?
Great importance of the establishment of an institution

environment characterized by openness and transparency in
the management of public resources
Extensive research at the World Bank the letter of the law, as opposed to a
and elsewhere has shown the central system where legal disputes can last a
importance of the establishment of an decade, drain huge financial resources,
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and deliver outcomes reflecting vested protection, or has the most restrictive
interests. In the latter case firms will labor legislation making it very difficult,
face a higher cost structure and lose for instance, to adjust the size of the
competitiveness vis-à-vis more fortunate payroll. The sobering irony of this study
competitors operating in friendlier legal is that those countries with the greatest
environments. need for entrepreneurship and private
sector development are those that
The regulatory framework
generally put the greatest obstacles
Related to the legal environment is to the creation of new enterprises, or
the overall regulatory framework and that otherwise intervene in ways that
the burdens it can impose on existing retard the emergence of entrepreneurial
businesses and the discouraging effect capacities which are so central to the
it can have on the creation of new ones. development of an enabling environment
Freedom to enter markets can make a for competitiveness and innovation.
significant contribution to development—
indeed, not an inconsiderable share of the Education
progress made in India and China in the Beyond these institutional factors,
past twenty years reflects a reorientation many others are also known to play a
of policies which significantly relaxed role in enhancing productivity growth.
the barriers to entry to goods, labor, and Education is of course absolutely critical
financial markets. for development and for nurturing a
This is perhaps one area where we in Latin capacity for innovation and commendable
America—with the possible exception of progress has been made in the past 50
Chile—are at our most vulnerable. The years. By 1990 about half of the world’s
picture that emerges from the 2009 countries had primary enrolment rates
Doing Business Report published by the of 100 per cent as opposed to only 28
World Bank is not a pretty one. The scope percent in 1960. Yet much remains to be
of this Report, which now covers 181 done, as illiteracy is still a fact of life in
countries, has expanded significantly and many developing nations. For example,
now, in addition to the usual indicators according to UNESCO, almost 40 percent
Those countries with the greatest need for entrepreneurship

and private sector development are those that generally put
the greatest obstacles to the creation of new enterprises
on opening a new business (number of India’s population still cannot read or

of procedures, time taken, cost) one write. Lack of such basic skills severely
can also look at such things as: which limits the possibilities of citizens to
countries make it easy to pay taxes, participate in the development process,
or to get licenses, where it is easier or to be gainfully employed, to be well-
more difficult to enforce contracts, who informed judges of government policies
regulates property registration the most, and politicians, and not to fall captives to
who provides investors the greatest the manipulations of demagogues. From
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a business perspective, without access members must have access to new
to workers with a basic education, knowledge, be constantly trained in
companies are limited to resource- or new processes and in the operation of
basic labor-intensive industries, and the latest technologies. Porter provides
constrained in their ability to grow and useful insights in his discussion of the
to move up the value chain. role of education in contributing to an
However, enrolment rates in themselves upgrading of an economy’s productive
do not tell the whole story, as they apparatus. Worth highlighting are the
disguise important differences in the emphasis he places on high educational
quality of education. An artificial focus on standards—which typically require
quantitative targets, such as enrolment some form of state involvement in the
rates, has often obscured the importance setting of norms—as well as the need
of the quality of learning, and the role of for students to receive education and
incentives and motivation of teachers, training that has a strong practical
students and parents. Education and orientation. He also notes that when
training are thus emerging as key teaching is perceived to be a prestigious
job—hence, adequately compensated—it
can have a measurable impact on the
quality of the teaching staff and, more
As the global economy
generally, the excellence of the education
has become more system. Porter highlights the importance
complex, it has

of close collaboration between the
become evident that to educational institutions and potential
compete and maintain employers, with universities and other
a presence in global institutions of higher education called
markets it is essential upon to adapt to the changing needs
to boost the human of industry. Not to be neglected as well
is the need for firms to “invest heavily
capital endowments
in ongoing in-house training through
of the labor force, industry associations or individually.”
whose members He also praises the role of technical and
must have access to vocational education, and highlights the
new knowledge, be benefits of inward migration policies
constantly trained in that allow the movement of workers
new processes and in with specialized skills. As coverage
of primary education has expanded
the operation of the
rapidly in the developing world, higher
latest technologies education has gained importance. Thus,
countries which have invested heavily in
drivers of competitiveness. As the global creating a well-developed infrastructure
economy has become more complex, it for tertiary education have reaped
has become evident that to compete and enormous benefits in terms of growth.
maintain a presence in global markets it Education has been a particularly
is essential to boost the human capital important driver in the development of
endowments of the labor force, whose the capacity for technological innovation,
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as the experience of Finland, Korea, incentive for employees to acquire new
Taiwan, and Israel clearly shows. skills. At the same time, other companies
become increasingly aware of the
Adoption and use of the latest technologies
advantages of upgrading technology,
An increasingly important factor with positive repercussions for the
in explaining successful economic productivity of the sector as a whole.
development concerns the agility with
Innovation becomes more important
which an economy adopts existing
as countries move up the technology
technologies to enhance the productivity
chain. While less advanced countries,
of its industries. This is critical because
such as those operating still mainly
technological differences have been
as producers of primary commodities,
shown to explain much of the variation in
can still improve their productivity by
productivity between countries. In fact,
adopting existing technologies or making
the relative importance of technology
incremental improvements in other
An increasingly important factor in explaining successful

economic development concerns the agility with which

an economy adopts existing technologies to enhance the
productivity of its industries
for competitiveness has been increasing areas, more advanced countries will
in recent years, as progress in the need to do more to increase productivity.
dissemination of knowledge and the Firms in these countries must design
increasing use of information and and develop cutting-edge products and
communications technologies have processes to maintain a competitive
become increasingly widespread. For advantage. This requires an environment
example, the strong productivity growth that is conducive to innovative activity,
recorded in the United States over the supported by both the public and
past decade has been linked to the high the private sectors. In particular, this
adoption of information technologies, means sufficient business investment
with productivity increases registered in research and development, high-
particularly in sectors using ICT quality scientific research institutions,
extensively, such as financial services, investments in advanced human capital,
retail and wholesale. collaboration in research between
We also note that technology-intensive universities and industry, and protection
FDI not only provides strong productivity of intellectual property.
gains and improvements in business Gender equity
processes, but also has a number of
A number of studies have shown that
important spillover effects, including
there is a close connection between
improvements in management practice
national economic performance and
and positive effects on human capital
the degree to which societies have
where new technologies provide the
succeeded in integrating women into
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the economy and have allowed her Sustainable management of the
to increasingly participate in decision environment
making, particularly in the case of Notwithstanding buoyant world
representation in parliaments, cabinets economic growth in the post-war period
and other executive bodies, and have and important gains in the past twenty
made it possible for her to avail herself years in the fight against poverty,
of opportunities for education and the scientists have begun to ask themselves:
building up of her human capital3. are the processes underlying our
International competitiveness and current development path sustainable?
productivity have much to do with Even if one accepts that remarkable
the efficient allocation of resources, progress has been made during the
including, of course, human resources. past half century in improving the lot
The efficient operation of our increasingly of vast segments of humanity, are the
knowledge-based economy is not only a processes and the policies which have
function of adequate levels of available produced these trends sustainable?
finance, a reasonably open trade regime How we manage the world’s resources
for goods and services, but, more and and whether economic growth and its
more, is also dependant on our ability to supporting policies are framed in a
tap into a society’s reservoir of talents context of sustainable development is
and skills. When, because of tradition, now emerging as a key consideration
a misunderstanding of the purpose of in the debate over what matters for

religion, social taboos or plain prejudices, competitiveness.
half of the world’s population is prevented To a growing number of scientists our
from making its contribution to the life present development path is urgently
of a nation, the economy will suffer. The in need of correction. Frequent areas
skills set to which the private sector can of focus, where important corrective
tap will be necessarily narrower and measures are needed, have been climate
shallower and productivity, the engine change, biodiversity loss and pollution.
of sustainable growth, will be impaired. That the earth has self-correcting
It is indeed not a surprise that the most mechanisms, that the physical
competitive countries in the world, those processes underpinning changes in the
that have better been able to operate on environment have huge inertia, has not
the boundaries of the technology frontier, obscured the growing consensus in the
are also those where women have been scientific community that, at the margin,
given the greatest opportunities to be the latest trends are not sustainable. To
equal partners with men. Thus, gender take just a few examples: global carbon
equality does not purely have an ethical dioxide emissions from fossil fuels
or moral dimension, but, in fact, is an have sharply accelerated since 2000,
issue of economic efficiency and, thus, reflecting a quickening in the pace of
may be at the very basis of creating a growth of the global economy4, a sharp
more prosperous world. rise in energy consumption in China
3 - See, for instance, López-Claros and Zahidi (2005) “Women’s Empowerment: Measuring the Global Gender Gap”, a Special Report, Harvard
Business Review.
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Our present development path needs corrections in areas
such as climate change, biodiversity loss and pollution
and the weakening of natural carbon But even beyond purely environmental
sinks, such as forests and seas5. Not concerns, there are other forces at
surprisingly, large volumes of the Arctic work which are already having a major
ice have melted and accelerated flow in impact on our economic system’s
Greenland glaciers is contributing to a institutional underpinnings, and which
rise in sea levels. Satellite observations have been at the center of the progress
of the Arctic ice cap show a significant achieved during the past half century.
reduction in the ice cover. The decline Key among these is population growth
between 2004 and 2005 was 14 percent, and the corresponding pressures on
18 times the rate seen over the previous resources. According to the latest
years. In 1996 the volume of ice melted World Energy Outlook published by the
in Greenland was 22 cubic miles. By International Energy Agency, energy
2005 this figure had risen to 53 cubic demand will grow by 40 percent by 2030,
miles and has picked up speed more reflecting the addition of some 2.2 billion
recently6. people to the world’s population and
Even with the slowdown in global growth the corresponding needs for housing,
in 2009, the above trends are unlikely to transportation, heating, illumination, food
be reversed since the present scale of production, waste disposal, and the push
human activity appears to have been only for sustained increases in the standards
marginally and temporarily affected. In of living. This is a remarkable forecast,
the absence of other measures aimed given that it was released in November of
directly at reducing emissions, only a 2009, in the middle of an emerging global
sustained, deep depression such as recession and relies on assumptions
that witnessed during the 1929–1933 about a sharp economic slowdown that
period might have an impact on the year7. Because the mothers that will
pace of accumulation of carbon dioxide bear these 2.2 billion children are already
emissions. Furthermore, expecting an alive today, this expected increase in
economic depression to help temporarily the world’s population—barring some
mitigate the challenges of global unexpected calamity—will materialize
warming is hardly a commendable and will be largely concentrated in urban
solution, involving incalculable social environments in developing countries.
costs. Beyond the inevitable pressures on
4 - According to the IMF’s World Economic Outlook, average annual global economic growth between 2000 and 2003 was 3.3 percent before
accelerating quickly to 5.0 percent during the period 2004–2007. This pickup in the pace of economic growth was associated with a remarkable
increase in the price of oil and other commodities. Although there was a slowdown in 2009, annual growth, as noted earlier, is expected to be a robust
+ 4 percent in 2010 and 2011.
5 - In the 20-year period to 2000, CO2 emissions rose at an average rate of 1.6 percent per year. By 2004, however, they were rising by 5.4 percent,
with Asia and North America leading the way.
6 - For some impressive photos of declining ie cover see http://www.nasa.gov/centers/goddard/news/topstory/2005/arcticice_decline
7 - See www.iea.org and the press release posted there on November 10, 2009, the day of the launch of the latest World Energy Outlook.
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resources, rapid population growth in Latin America, and other parts of the
the next couple of decades will lead developing world to aspire to lifestyles
to a broad range of challenges for and patterns of consumption similar
governments, businesses, and civil to those prevailing in the industrial
society. For instance, in the Middle East world. Furthermore, these populations
and North Africa (a region of the world are often unwilling to postpone such
which includes Iran), high fertility rates aspirations and increasingly expect their
and the highest rates of population governments to deliver rising levels of
growth in the world will put enormous prosperity, implicitly pushing for a more
strains on labor markets. These countries equitable distribution of the world’s
already suffer from the highest rates of resources. At present, 20 percent of the
unemployment in the world. Simply to world’ population living in the 30 richest
prevent these rates from rising further it countries consume over 80 percent of
will be necessary to create well over 90 the world’s goods and services.
million new jobs within the next decade As if these demand pressures were
and a half, an extremely tall order. not enough, there are emerging supply
Failure to do so could well lead to major constraints as well. World cereal
political and social instability. In sharp production per person has been on a
contrast, the populations of countries downward trend since the late 1980s.
such as Italy, Japan, and others in the It is estimated that by 2025 the number
of people living in regions with absolute

Rapid population water scarcity will have risen to some
1.8 billion. Climate change, soil erosion,
growth in the next and overfishing are expected to dampen
couple of decades food production and are known to have
been a driving force in the major surge
will lead to a broad
in food prices in 2007-2008.
range of challenges
Thus, the fundamental development
for governments, question which we face is how to
businesses, and civil reconcile the legitimate aspirations of
citizens in the developing world for the
society high economic growth rates that in the
post-war period led to such remarkable
improvements in the global standards
industrial world will continue to shrink,
of living, with the challenges of an
a demographic trend which, in turn, will
economic system under severe stress as
put huge pressures on public finances,
a result of the pressures put on it by that
as states attempt to cope with growing
very economic growth? Without doubt,
numbers of pensioners putting major
issues of environmental sustainability
pressures on budgetary resources.
will now become central to any
Powerful demonstration effects are discussion on the sort of public policies
also at work: the spread of instant that are to be formulated to improved
communication and the Internet have national competitiveness. Within this
led billions of people in China, India, debate, we expect that there will scope
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are the levels of spending in education,
both in absolute terms (percent of GDP)
20 percent of the world’ and in relative terms (as percent of total
population living in the government expenditure)? What is the
proportion of university students enrolled
30 richest countries
in science and engineering? Is regulation
consume over 80 of the labor market appropriate, or
percent of the world’s does it provide perverse incentives for
both employers and workers? What
goods and services are the penetration rates of the latest
technologies? How effective is the
government in providing information and
for deliberations on the opportunities
public services for the people, and is this
that green innovation, biotechnology,
done through an electronic platform?
and renewable energy could offer to
Are public procurement policies and
countries in LAC, as climate change
systems open and transparent and do
begins to create increasing incentives
they encourage the adoption of new

for the development of new technologies
technologies and reward innovation?
to address pressing environmental
What is the degree of collaboration
challenges.
between industry and the universities?
A competitiveness framework Do they work independently from each
The above discussion is not meant to other, or do they consult and give each
be exhaustive. The list of other factors other feedback?
which contribute to create an enabling One way to synthesize the above
environment for competitiveness is long discussion is to lay out these various
and our intent has been to highlight a factors in four component elements
few of the key ones, without attempting of competitiveness, each capturing a
to make a comprehensive analysis, distinctive dimension. While there is
which is beyond the scope of this no unique way to do this, we believe
paper. Questions that are also relevant that the four components identified in
include: What is the legal basis for Appendix I below provide a reasonably
secure intellectual property and contract comprehensive framework that provides
rights? What is the structure and level of sufficient analytical content, with the
sophistication of the financial sector, and added advantage that it can be estimated
of the policies and regulations that affect from existing data sources. In the section
it? Is the financial sector deep enough to that follows we choose key elements of
allow reasonably free access to finance this framework—again, with no attempt
and the emergence of venture capital? to be comprehensive but mainly to
Is the trade regime unduly restrictive, provide an overview—and ask ourselves
or it is reasonably open, encouraging how competitive are the economies of
competition and gains in efficiency? What Latin America and the Caribbean?
24
25
26
IV.
How competitive are we?
27
Figure 2 below shows GDP per of time. This graph encapsulates in
capita over the period 1980-2008 for a nutshell one of the key lessons that
Argentina, Brazil, Korea and Ireland. If comes out of a thorough examination
the primary purpose of implementing of a broad range of competitiveness
productivity-enhancing policies and indicators in LAC over the past couple
reforms to boost competitiveness is of decades: we have generally made
to generate processes of sustainable improvements with respect to our past,
growth in income per capita, what this but not nearly as much as the Koreas
figure shows is that Argentina and of this world and, therefore, we have
Brazil have succeeded to some extent, fallen behind on a relative basis. Let
but Korea and Ireland have succeeded us take a look at where we stand with
Latin America and the Caribbean have generally made

improvements with respect to our past, but not nearly as
much as the Koreas of this world and, therefore, we have

fallen behind on a relative basis
to a much, much greater extent. Indeed respect to some of the key pillars of
what is a little perturbing about this competitiveness.
figure is that in 1980 Korea’s GDP per Education
capita was actually lower than that of
Argentina and Brazil; today it is 2 times Table 2 shows the results of the OECD’s
larger than that of Argentina and 3 times Program for International Student
larger than that of Brazil—an impressive Assessment (PISA) scores for a handful
divergence over a relatively short span of countries in the OECD and for all
Figure 2. GDP per capita 1980-2008 (PPP in US$)

50,000
40,000
42,110
30,000
27,692
20,000
14,408
10,000
10,466
0
1980 1985 1990 1995 2000 2005 2010
Argentina Brazil Korea Ireland
28
Table 2 - PISA (Program for International Student Assessment)*
Innovation Capacity Index
* PISA 2006: Science Competencies for Tomorrow’s World, Executive Summary; OECD 2007.
** Rankings for all participating countries. On the basis of the samples of students assessed by PISA, it is not always possible to say with confidence
which of two countries with similar performance has a higher mean score for the whole population. However, it is possible to give a range of rankings
within which each country falls.
the countries in Latin America which, Finland (about 122 points on average),
following Chile’s path-breaking example, the OECD’s top performer. Finally,
have asked the OECD to carry out these there appears to be an extremely close
evaluation tests in their countries as well. correspondence between performance
IV. How competitive are we?

As is well known PISA is an assessment in the PISA and the Innovation Capacity
of student skills in three critical areas: Index, highlighting the critical role that
reading comprehension, mathematics skills and training have for an extremely
and science—it is a predictor of the important dimension of competitiveness.
kinds of skills which will be found
These results are sobering for our
in the country’s labor force. Several
region and they are generally consistent
observations are immediately apparent.
First, Chile and Uruguay—in that order— with other data which paints a broadly
are the best performers in Latin America, similar picture (see Table 3). For instance,
followed by Mexico, Argentina, Brazil and tertiary enrollment rates are quite low.
Colombia. Second, there is a significant Among 131 countries ranked, Brazil is
gap (about 41 points on average) placed 68th, Mexico 67th, compared to
between Chile and Portugal and Spain, Korea (3rd), and Portugal (32nd). Annual
two of the more mediocre performers expenditure on education in LAC is, on
in the OECD and near the bottom in the average, 3.6 percent of GDP, compared
EU. So, even Chile does not measure up. to 6.5 percent of GDP in Finland and 7.4
Third, the gap is huge with respect to percent of GDP in Sweden. So, without
29
Table 3 - Human and Environmental Capital - Key variables
* Rank of 131
** Rank of 163
question, education has to be one of the deficiencies in the educational system.

key priority areas for action in LAC and Incidentally, there is not a single Latin
RIAC could play an important catalytic American university among the best 220
role in raising awareness among the in the world8. According to this particular
authorities that the region is falling set of rankings, the Universidad Nacional
Annual expenditure on education in LAC is, on average, 3.6

percent of GDP, compared to 6.5 percent of GDP in Finland
and 7.4 percent of GDP in Sweden
behind. For a start, it would be vital to Autónoma de México (UNAM) is the

expand the number of countries in LAC best in the region, with a rank of 222,
that participate in the PISA. This is an and there are no others among the top
extremely important benchmarking 250. There are relatively low levels of
exercise and an excellent way to focus research and development spending in
the attention of the authorities on the region, which, as might be expected,
8 - According to: http://www.topuniversities.com/world-university-rankings
30
Table 4 - Doing Business Report: A regulatory nightmare in Latin America
* Rank of 131 countries

Source: Doing Business Report 2009
has a counterpart in the inadequate the World Bank which capture obstacles
funding provided by the government to the creation of new businesses and
and the business community to the the costs of over-regulation. It takes
universities. There is no well-established 18 procedures in Brazil to start a new
tradition in Latin America of active business. Together with Bolivia and
collaboration between the universities Venezuela, Brazil is among the bottom
and the business sector, a fertile source 10 in the 181 countries ranked. It
of innovations in those countries that takes 152 days to comply with these

have succeeded in nurturing this critical 18 procedures, also a bottom 10 rank
relationship. for Brazil. Do you want to pay taxes?
Bolivia and Venezuela have a rank of
Regulatory framework
172 and 174 respectively, in terms of
The private sector in Latin America making this difficult. But, just in case
labors under the onerous weight of the reader is thinking that these are
The region scores extremely poorly on the Doing Business

Indicators compiled by the World Bank which capture
obstacles to the creation of new businesses and the cost of
over-regulation
mindless levels of bureaucracy and red special cases, here are the ranks for
tape (Table 4). With few examples, the some of the others: Argentina 147,
region scores extremely poorly on the Brazil 137, Colombia 167, Costa Rica
Doing Business indicators compiled by 140, Mexico 135, Uruguay 131. Chile is
31
34, more than 100 places ahead of the governments to remove them, as Chile
rest. Chile aside, most other countries has successfully done over the past
seem to be saying: “want to pay your quarter century.
taxes: please don’t bother, we are too Economists seem to be agreed that an
busy!” Registering property? It takes important source of corruption stems
14 procedures in Brazil and 45 days. from the distributional attributes of the
Enforcing contracts? 616 days in Brazil, state. For better or for worse, the role of
compared to 590 days in Argentina, the state in the economy has expanded
versus 20 days in Ireland. In Argentina in a major way over the past century and
it takes 28 procedures to get a license, this has led to the proliferation of benefits
demanding 338 days and costing the under its control and also in the various
applicant, on average, 234 percent of ways in which the state imposes costs on
income per capita, indicators which civil society and the business community.
earn Argentina a rank of 165 in this While a large state need not necessarily
indicator. be associated with higher levels of

These results are simply appalling. corruption—the Nordic countries have
What is particularly troublesome (not to the highest levels of public spending in
say tragic) is that bureaucracy and red the world but are also the least corrupt—
tape are self-imposed evils. Countries in it is the case that, at least in principle,
the region may be price-takers for the the larger the number of interactions
international commodities they export, between officials and private citizens,
they may have little control over the the larger the number of opportunities in
broader parameters that determine the which the latter may wish to illegally pay
pace and the direction of the globalization for benefits to which they are not entitled,
process, they may have been innocent or avoid responsibilities or costs for
bystanders of the 2008-2009 financial which they bear an obligation. In those
crisis which got underway with flaws countries where the state is involved in
in the financial sectors of the advanced the distribution of social benefits, but
economies, but they most definitely in ways that are not transparent, and
have a large degree of control over the which may involve corruption, these
bureaucratic obstacles they put in the will not be equitably distributed and the
way of entrepreneurship and innovation. poor—less able to pay/bribe—will be at a
This is yet another area in which we see disadvantage. In such cases, the intent of
ample scope for RIAC to play an important social policy will be distorted and, if the
role in the region, both in terms of raising problem is serious enough, perverted.
awareness but, more importantly, in Governing often translates into the
collaborating with the private sector to issuing of licenses and permits. From
identify needless barriers to economic the cradle to the grave, the average
growth and prosperity and working with citizen has to enter into transactions
32
Figure 3. 2009 Corruption Perceptions Index vs Ease of Doing Business Ranks
200
160
120
CPI
80
40
0
0 40 80 120 160 200
DBR
Source: Transparency International and World Bank 2009 Doing Business Report
with some government office or

Table 5 - Corruption Perceptions Index
General Ranks 2009: Latin America bureaucrat to obtain a birth certificate,
to get a passport, to pay taxes, to open
up a new business, to drive a car, to
register property, to engage in foreign
trade, to sell a good or service to the
government, to hire an employee,
to use the publicly provided health

services, to be allowed to build a house,
among countless others. There is thus
an additional interesting dimension
to bureaucracy and red tape in the
developing world including, of course
the LAC region. Studies have shown that
the prevalence of corruption is highly
correlated with the incidence of red
tape and excessive regulation. Figure 3
below shows the country rankings for
Transparency International’s Corruption
Perceptions Index and the rankings
for the World Bank’s Doing Business
Report for a total of 170 countries—
and it speaks for itself: the greater the
extent of bureaucracy and red tape, the
Source: Transparency International
33
greater the incidence of corruption—the with several indicators of education
correlation coefficient is close to 0.80. (e.g. enrollment rates at all levels of the
Table 5 shows the actual corruption educational ladder), the data over the
rankings for several countries in LAC— past decade shows two things: the region
only three countries (Chile, Uruguay and has definitely made improvements with
Costa Rica) are among the top 50. respect to its history, but there is a large
Adoption and use of ICTs gap with respect to the top performers,
many of which have moved farther,
There is generally a perception in
the region that countries have kept faster and deeper. Mobile penetration
pace with the adoption of the latest rates have perhaps moved up the fastest,
technologies. Table 6 shows data on the with Argentina having coverage already
penetration rates for mobile telephones, in excess of 100 percent, followed by
broadband subscribership, internet Jamaica and Uruguay with rates at or
use and personal computers use. The in excess of 90 percent. Other countries
table also shows the United Nations’ have also come a long way, including
e-Government Readiness Index. As Chile and Venezuela. While the average
Table 6 - Adoption and Use of ICTs--Key variables
* Rank of 131
Source: International Telecommunications Union
34
In many countries in LAC mobile phones have turned out to
be an excellent way to bypass the limitations associated with
fixed telephone lines, which tended to be extremely scarce
and costly, sharply curtailing business productivity
for the region is still well below that 6 also shows the rankings—among
seen in the advanced economies, it is not 131 countries—for the United Nations
unreasonable to argue that the gap is e-Government Readiness Index.
likely to narrow further in coming years. E-government is defined as the use of
In many countries in LAC mobile phones ICT and its application by the government
have turned out to be an excellent way for the provision of information and
to bypass the limitations associated with public services to the people. The aim
fixed telephone lines, which tended to of e-government therefore is to provide
be extremely scarce and costly, sharply efficient government management of
curtailing business productivity. Internet information to the citizen, better service
use is highest in Jamaica (55 user per delivery to citizens, and empowerment of
100 inhabitants) and Costa Rica and the people through access to information
Chile (33.5 users per 100 inhabitants) and participation in public policy decision
but, unlike mobile telephony, the gap making. Mexico, Argentina, and Chile are
with respect to countries like Korea (72.2 LAC’s top performers, roughly on a par
users per 100 inhabitants) is very large with Bulgaria, Greece, Latvia, Croatia,
and is larger with respect to countries and the Slovak Republic and well below

like Netherlands and Norway (not shown Korea.
in Table 6) and New Zealand which are In Chile, the use of online platforms to
all above 80 users per 100 inhabitants. facilitate the government’s interactions
The gap with respect to the advanced with civil society and the business
economies is even larger when community has been particularly
considering broadband penetration successful in the areas of tax collection,
rates where the region’s top performer— public procurement, and red tape. The
Chile—has 7.2 users per 100 inhabitants, Internal Revenue Service (IRS)9 was
compared to over 30 in Korea, Finland, the first government agency to adopt
Netherlands, Norway and Switzerland. the Internet as a tool to enhance the
Costa Rica leads the region in personal quality of client services, to improve
computer use but at rates that are still tax administration, and add a degree of
less than half those of Korea and less transparency to interactions between
than a third of Canada, Netherlands the agency and taxpayers. Through its
and Switzerland, among others. Table Website, the Chilean IRS processes
9 - See www.sii.cl
35
the delivery of annual and monthly a level playing field for suppliers, fairly
income tax statements, electronic clear bidding procedures, and so on. Of
invoicing and fee billing, and electronic course, there is a wide variety of country
start-up application forms. It also has practice. Often, the poorer the country,
a service which provides assistance the more archaic—and hence the more
to small businesses with accounting vulnerable to corruption—the rules
and electronic invoicing. The Chilean governing public procurement.
IRS is one of the most modern tax As with tax collection, Chile has used
administrations in the world. Indeed, its the latest technologies to create one
success has spurred other public and of the world’s most transparent public
private agencies in Chile and abroad to procurement systems in the world. www.
use similar electronic platforms to deal MercadoPúblico.cl, better known as
with clients. High levels of compliance ChileCompra.it was launched in 2000, and
In Chile, the use of online platforms to facilitate the

government’s interactions with civil society and the business
community has been particularly successful in the areas of
tax collection, public procurement, and red tape
have shown not only that technology can is a public electronic system for purchasing
help eliminate corruption in the payment and hiring, based on an Internet platform.
of taxes, but contribute to improve overall It has earned a worldwide reputation for
efficiency. The statistics are impressive: excellence, transparency and efficiency. It
over 98 percent of Chilean tax-payers serves companies, public organizations
state and pay their income taxes through (including universities, hospitals, schools,
the Internet, amounting to over 2 million the military, government ministries,
statements filed during 2009. and Congress, among others) as well
With the increasing presence of the state as individual citizens, and is by far the
in the economy, purchases of goods and largest business-to-business site in Chile.
services by the state can be sizable, in Involving 850 purchasing organizations, in
most countries somewhere between 2009 registered users completed 450,000
5-10 percent of GDP, or equivalent to purchases issuing invoices totaling US$6
somewhere between US$ 3-6 trillion billion. It has also been a catalyst for
on an annual basis worldwide, a huge the use of the Internet throughout the
sum. Because the awarding of contracts country. The third area in which Chile
can involve a measure of bureaucratic has spearheaded the use of technology
discretion, more and more countries to improve the efficiency of the state
have opted for procedures that guarantee is in the area of red tape. ChileClic is a
adequate levels of openness, competition, government site coordinating the work
36
of over 150 government agencies and sectors and to rectify limitations in the
private institutions, and managing close legal system and provide appropriate
to 450 administrative processes online, institutional framework to stimulate/
including birth certificates, identity encourage e-trade, e-government, and
documents, pension fund payments, use of ICTs, to assure public trust in
trademarks/patents, housing subsidies, electronic operations and platforms.
university credits, and so on. The site Finally, priority is also being given to
receives an average of more than 3 facilitate the takeoff of the ICT industry by
million visits per year. improving virtuous cycles of cooperation
The authorities in Chile have shown between institutions of higher education
remarkable leadership as well in and the business community. This is
identifying the key challenges ahead to seen as essential to narrow the skills
strengthen the role of ICTs in improving gap that exists today between Chile and
productivity and in boosting the the average in the OECD, made evident
innovation capacities of the public and by the results of the PISA tests.
private sectors and civil society. In this In all these areas, there is ample
respect they feel that it is necessary to scope for technical assistance from
expand and intensify the integration of the international financial institutions,
digital technologies in the educational particularly the World Bank. Chile was
curriculum and to improve the education able to implement the above reforms
and training of highly qualified workers. It because it had the financial means,
is also necessary in their view to enhance the human capital resources, and
connectivity, especially among the lowest the strong backing of its politicians

four-fifths of the income distribution, by to use technologies to improve the
overcoming unequal income distribution, efficiency of public services. Many
restrictions facing micro- and small developing countries may have the
companies, and connectivity problems will to implement similar reforms, but
in rural and remote regions. They would often lack the funding or the technical
also like to encourage the development means to put such systems in place.
by the private sector of computer Over the past several decades, we have
packages for low-income households tended to underestimate the relative
and micro-companies to access Internet importance of technical assistance
more cheaply and effectively as well as in foreign aid programs. Often the
to continue government subsidies for knowledge gap—the inability to tap into
rural and remote areas and low-income best practices because countries do not
communities and microcompanies. have adequate human resources to run
Priority is also being given to increase programs like ChileCompra—is far more
R&D in the use of ICTs to stimulate insurmountable than the financial gap,
competitiveness of the main export which donors can fund.
37
Environment the regulatory framework, the adoption
One of the leading efforts to measure the of new technologies) the LAC region does
effectiveness of national environmental have two top-ten performers among the
protection policies in a large number 163 countries ranked in 2010 by the
of countries is the Environmental EPI: Costa Rica is 3rd and Colombia is
Performance Index (EPI) compiled 10th , with Chile in 16th place. We are
jointly by the Yale University’s Center of the view that high-carbon economies
for Environmental Law and Policy in the future will become increasingly
and Columbia University’s Center for uncompetitive and that those countries
International Earth Science Information which move early on to deal with some
Network. The EPI measures two core of the critical environmental challenges
objectives of environmental policy: we have identified above and gear up
environmental health, which measures to move to low-carbon technologies
environmental stresses to human and to a more effective management of
health; and ecosystem vitality, which national ecosystems will be winners. It

measures ecosystem health and natural is encouraging to know that this is one
resource management. The EPI used area in which the region could fruitfully
25 indicators that capture various contribute to the international debate on
dimensions of environmental policy, how to do this in a cost-effective way.
such as the environmental burden of Other areas
disease, water resources for human It is beyond the scope of this paper
health, air quality for human health, air to provide a more comprehensive
quality for ecosystems, water resources assessment of the key competitiveness
for ecosystems, biodiversity and habitat, challenges facing the LAC region—the
forestry, fisheries, agriculture, and above analysis provides, in our view, an
climate change. According to the authors appropriate overview. Two areas that
of the EPI Report: “the 25 indicators perhaps deserve here brief mention are
reflect state-of-the-art data and the best income disparities and the efficiency of
current thinking in environmental health public spending. Gini coefficients (see
and ecological science. Some represent Table 3) for countries in Latin America
direct measures of issue areas, others are among the highest in the world.
are proxy measures that offer a rougher Gini coefficients for most countries
gauge of policy progress by tracking are somewhere between 25 and 60.
a correlated variable. Each indicator The Nordic countries, among the most
corresponds to a long-term public health egalitarian, have Gini values in the mid-
or ecosystem sustainability target.”10 It is twenties as does Japan. The United
noteworthy that, unlike many of the other States has a Gini coefficient of 40.8 and
areas analyzed thus far (e.g., education, China an even higher one of 41.5. Some
10 - 2010 Environmental Performance Index, available at http://epi.yale.edu/file_columns/0000/0151/epi2010_report.pdf
38
of the highest coefficients can be found the appendicitis of the global energy
in Latin America and Africa, with Gini system which needs to be removed
values in the 50s and some, like Brazil, for a healthy, sustainable development
Colombia, Bolivia and South Africa, future.” According to the study “energy
are actually closer to 55-60. Economic consumption could be reduced by 850
growth will reduce poverty, there is million tonnes equivalent of oil—or
a close correspondence between the the combined current consumption of
growth of per capita GDP and the gains Japan, South Korea, Australia and New
made by the poor—this is one of the main Zealand—if the subsidies are phased
lessons to emerge from the post World out between now and 2020.” A similar
War II period. But it will not necessarily study by the IMF notes that “the benefits
reduce income inequality; indeed, in of gasoline subsidies are the most
some cases, depending on the country’s regressively distributed, with over 80
stage of development, it may well widen percent of total benefits accruing to
it. Of course, one also worries about the richest 40 percent of households.
widening inequalities because of some For diesel and liquefied petroleum gas
of the consequences they bring about, (LPG), respectively, over 65 percent
such as an increase in the likelihood and 70 percent of benefits go to these
of a breakdown of democracy, or a income groups.” The authors argue
postponement in the onset of democracy further that reducing fuel subsidies by
in authoritarian regimes, as has been half “would result in greenhouse gas
established in a number of empirical emissions reductions of 14-17 percent
studies. by 2050 (p. 12).”12 It goes without

The second area has to do with saying that a large part of this problem
enormous inefficiencies in the structure is concentrated in LAC, where energy
and priorities of government spending in subsidies are ubiquitous and where
much of the region. Large public sector governments in general have not paused
deficits are no longer the problem—but to think about the opportunity costs in
rather of concern are the opportunity costs terms of education, public health and
associated with misguided spending infrastructure, areas where the region
priorities. According to a study by the lags behind and where investments
International Energy Agency released are productivity-enhancing. Of course,
ahead of the latest G20 meeting in Korea a gradual phasing out of regressive
“37 large developing countries spent subsidies would go some way toward
about $557 billion in energy subsidies”11 empowering governments to implement
in 2008. According to the IEA’s chief policies that would be more proactive in
economist “fossil fuel subsidies are terms of reducing income inequalities.
11 - “World Spends more than $550bn a year on energy aid, says IEA”, Financial Times, June 7, 2010.
12 - Coady, David, Robert Gillingham, Rolando Ossowski, John Piotrowski, Shamsuddin Tareq, and Justin Tyson. 2010. “Petroleum Product Subsidies:
Costly, Inequitable, and Rising”, IMF Staff Position Note, International Monetary Fund, Washington, DC.
39
40
V.
RIAC and the promotion of a
competitiveness agenda in LAC
41
The previous section has provided of sustainable economic growth with
a survey of the key competitiveness more and better jobs and greater social
challenges facing Latin America and the cohesion.”13 As part of the Strategy
Caribbean in the near term. The picture governments laid out a medium-term
that emerges is one of countries that, reform program intended to tackle
having made some progress in recent perceived weaknesses in critical areas14.
years with respect to past performance, While the goals set out in 2000 have
have not done so in a way that has kept partly fallen victims to the constraints
pace with the rhythm of reforms in many imposed on governments by the global
other parts of the world, particularly Asia, financial crisis, there is little doubt that
but also, for instance, the countries of Lisbon markedly contributed to a better
Central and Eastern Europe all of which identification of policy priorities and
(save for Chile) are more competitive to focus debate on the key structural
than every other country in LAC. reform challenges facing Europe. We
In thinking about creative ways in which are unaware of any similar regional
RIAC could engage in the promotion of initiative in Asia. However, it is the
a competitiveness agenda in LAC we case that countries in Asia (Korea,
An important benchmark in terms of regional programs to

promote issues of competitiveness was that launched by
EU members a decade ago, under the banner of the Lisbon
Strategy
have examined the experience of other Singapore, and Taiwan, come quickly
regions. An important benchmark in to mind and, more recently, India and
terms of regional programs to promote China) take competitiveness issues
issues of competitiveness was that extremely seriously. Indeed, it is this
launched by EU members a decade ago, focus on reforms aimed at enhancing
under the banner of the Lisbon Strategy. productivity and tackling inefficiencies
The Lisbon Strategy was adopted by and bottlenecks in their respective
EU governments in 2000, identifying economies that is mainly responsible for
a number of areas where reforms the strong economic performance of Asia
were needed to make the EU “the most in the past two decades with respect to
competitive and dynamic knowledge- the more subdued performance of LAC
based economy in the world, capable and, indeed, other regions of the world.
13 - See “Presidency Conclusions”, Lisbon European Council, 23 and 24 March 2000, Press Release Library, European Commission.Outlook.
14 - Among the reform areas identified in the Lisbon Strategy are: liberalization of the regulatory framework to guarantee completion of the EU’s
single market; developing a European area for innovation, research and development; increasing social inclusion; and enhancing sustainable
development.
42
We are of the view that to have a The question that now emerges is: in what
meaningful periodic exchange of views on ways can RIAC contribute to promote
competitiveness issues and performance a competitiveness agenda in LAC that
among RIAC members it is necessary succeeds in engaging the attention and
to have a quantified competitiveness the commitment of governments and
framework as a platform to stimulate the private sector? We have a number of
V. RIAC and the promotion of a competitiveness agenda in LAC

debate and provide an intellectual recommendations:
context. There is, of course, no unique 1. The meeting in Atlanta is obviously
way to develop such a framework and important in terms of formulating
the 4 areas offered in Appendix I at the such a strategy. This paper
end of this paper are one such possibility has provided an overview of
which, in our view, bring in some of the competitiveness issues in the region
most critically important dimensions mainly as a way to suggest priorities
for action. We believe that an
We are of the view important element of the program in
that to have a Atlanta should focus on an analysis
meaningful periodic of where we stand in a number of
exchange of views on these key areas and how different
competitiveness issues countries in the region are coping
and performance with these challenges. Four such
among RIAC members areas that readily come to mind are
it is necessary to education, the regulatory framework,
have a quantified the use of the latest technologies to
competitiveness enhance the efficiency of the public
framework as a sector, and the various ways in which
platform to stimulate countries are beginning to formulate
debate and provide an better policies for the low-carbon
intellectual context economy of the future.
2. There seems to be broad consensus
of competitiveness. Unlike other among RIAC representatives that
competitiveness indices, however, it has a systematic exchange of views on
the virtue of overwhelmingly relying on relevant country experiences in the area
hard data and incorporating within its of competitiveness has to be a central
structure aspects which have in recent element of RIAC’s work program. There
years emerged as important building is, in our view, considerable scope for
blocks in the debate over what sorts of a useful sharing of such experiences,
factors and policies will contribute to focused on creative ways in which
enhance productivity and allow for high- countries have met some success in
quality sustainable growth. introducing productivity-enhancing
43
governments and the private sector
work together in the identification and
There seems to be
subsequent gradual elimination of
broad consensus among mindless bureaucracy and red tape?
RIAC representatives How successful have countries been
that a systematic in improving girls education and in
exchange of views removing various obstacles to a fuller
participation of women in decision
on relevant country
making bodies, both in government and
experiences in the area in business? Some countries have been
of competitiveness has more successful in weaning themselves
to be a central element away from regressive energy subsidies
of RIAC’s work program while others seem to be stuck in a
vicious circle where large subsidies
(sometimes exceeding spending on

reforms. The meeting in Atlanta could education) limit the government’s ability
be the starting point of a sustained to invest in areas that are far more
process of cross-fertilization of ideas likely to boost competitiveness over
and experiences, with countries sharing the medium-term. What explains these
and comparing notes on various differences in country experience? Can
dimensions of the competitiveness other countries in the region follow
agenda. What were the critical elements Chile’s example and earn entry into the
behind the introduction of Chile’s highly OECD, something that now will allow the
successful electronic platform for government regularly to benchmark
public procurement? What has Costa itself against the extremely useful set of
Rica done right to have attained a rank of market regulation indicators developed
3rd in the Environmental Performance by that organization to “assess the extent
Index? What has been the experience to which the regulatory environment
in Chile, Uruguay, Mexico, Argentina, promotes or inhibits competition in
Colombia and Brazil with the OECD’s markets where technology and market
PISA (Program for International Student conditions make competition viable”?
Assessment) and has it facilitated 3. While the beginnings of a useful
the formulation of better policies to debate on the above issues could
improve the educational system? Is the be very much part of the program in
region producing enough engineers and Atlanta, we need to also give some
scientists and, if not, why not? Why is the thought to the next stage, namely,
region lagging so far behind the rest of finding a forum (that is, a home) for
the world in creating a more intelligent an ongoing periodic consultation
regulatory framework and how can in a way that is structured and
44
evolutionary in character. A natural more technical level the Americas
starting point could be the Summit Competitiveness Forum (ACF) is, of
of the Americas, of which the OAS is course, already an ideal forum to
the Secretariat. This gathering has bring together the innovation and
the advantage that it brings together competitiveness authorities and
heads of state and government and councils to explore issues of common

would provide an ideal opportunity interest. In time, one could explore
to engage senior decisionmakers on the possibility of adding a second
the broad array of competitiveness yearly gathering of experts, perhaps
challenges facing the region. Another in preparation for the ACF.
possibility would be to explore the 4. It would seem that there is an
inclusion of a competitiveness chapter opportunity for RIAC to catalyze
in the Ibero-American Summit a process of collaboration on
organized by the Ibero-American competitiveness issues with the
General Secretariat (SEGIB), which key international development
also benefits from the participation organizations, particularly the World
of senior business community Bank (WB), the IMF, the Inter-American
representatives. Alternatively, one Development Bank (IDB) and the
could hold a Competitiveness Forum Andean Development Corporation
in parallel to the Summit, drawing (CAF) . The multilateral organizations
from the presence of senior officials are closely aligned with the promotion
and leading business executives. of improvements in the investment
It would seem that there is an opportunity for RIAC to catalyze

a process of collaboration on competitiveness issues with the
key international development organizations, particularly
the World Bank (WB), the International Monetary Fund (IMF),
the Inter-American Development Bank (IDB) and the Andean
Development Corporation (CAF)
To the extent that there is a need climate—indeed, the whole range of

for closer collaboration between factors which are identified in the 4
government and the private sector areas discussed above (regulatory
on competitiveness issues and the and legal framework, human and
associated reform agenda, this model environmental capital, adoption and
could provide beneficial synergies use of ICTs, and the institutional
and, of course, would not preclude environment). We see no reason why
other initiatives aimed at promoting the multilateral organizations could
the competitiveness agenda. At a not be approached by the OAS to
45
help fund an annual Competitiveness could become an effective instrument
Forum in LAC that would bring to promote reforms in the region.
together policy makers and business Securing support for it at the highest
community representatives, to political levels would, of course, be
review the reform agenda, to share essential. Identifying a set of well-
experiences, and, more generally, to defined goals in key areas would also
more firmly implant competitiveness be an unavoidable requirement—
within national plans and priorities. in this respect something like the
This collaboration could be a key structure proposed in Appendix I
element behind the positioning of RIAC (see also paragraph 6 below) could
as a unique forum for public-private be an extremely useful tracking tool.
partnerships (including academia) to One obvious advantage that readily
address the different competitiveness emerges is that a Competitiveness
challenges facing the region, including Strategy 2020 could provide critically
in the areas of innovation, productivity important content to many of the

and logistics, among others. high-level gatherings that with
5. One way to ensure sustained interest predictable regularity bring senior
in the implementation of an ambitious politicians and civil servants together
agenda of reforms aimed at boosting to discuss issues of common interest.
LAC’s competitiveness profile would To add a competitiveness dimension
be to secure commitment from heads to these gatherings would be highly
of state and governments to the advantageous, given the challenges
equivalent of the EU’s Lisbon Strategy the region faces, with the emergence
approved in 2000. The benefits of of Asia in particular. Of course, RIAC
framing a reform agenda over a 10- and the OAS could play a catalytic
year period with a well-identified role in moving governments and the
set of priorities over a range of key private sector in this direction. Indeed,
areas are obvious. As we have seen in the region there is a great need for
above, most of the weaknesses a multi-stakeholder platform that
currently afflicting the LAC region will gradually see competitiveness-
will not be addressed overnight. enhancing reforms as part of a joint
They are not in the nature of short- collaborative undertaking between
term macroeconomic stabilization the state, the business community
measures; rather they are more in the and civil society that goes beyond
spirit of structural and institutional the political cycles that often
reforms which necessarily have to be provide short-term motivations to
framed in a medium-term perspective. governments.
Something like a “Latin American 6. To provide a quantified framework
Competitiveness Strategy 2020“ for on-going discussions and
46
consultations on competitiveness advantage that it would not require
issues as proposed in the preceding a RIAC-sponsored business survey
paragraphs, we think that the annual but could be compiled and estimated,
estimation of four competitiveness as noted earlier, utilizing readily
sub-indices covering the regulatory available international data sources.
and legal framework, human 7. To the extent that RIAC succeeds in

and environmental capital, the inserting competitiveness issues into
adoption and use of information and the national policy agenda it will also
communication technologies, and the succeed in generating interest with
institutional environment, would be the general public and the media. We
an extremely useful exercise. These agree that it is important to capture
sub-indices would enrich the debate the attention of print journalism and
We think that the annual estimation of four competitiveness

sub-indices covering the regulatory and legal framework,
human and environmental capital, the adoption and use
of information and communication technologies, and the
institutional environment, would be an extremely useful
exercise
and make possible meaningful cross TV, as part of efforts to shape public
country comparisons (including opinion and engender support for
vis-à-vis relevant top performers reforms within civil society. But this
outside the LAC region) and, over presupposes that we have a solid
time, comparisons with respect to a “output” that can garner the interest
country’s own historical performance. of the public and begin to generate a
Furthermore, the structure proposed consensus in favor of change.
in Appendix I has the additional
47
48
Appendix I:
A Competitiveness Framework
49
As noted earlier, competitiveness has š 6HFRQGDU\JURVVHQUROPHQWUDWLR
many dimensions. Below we present
four aspects of competitiveness which š 7HUWLDU\JURVVHQUROPHQWUDWLR
capture key elements of the regulatory
š ([SHQGLWXUHLQHGXFDWLRQDVRI
and legal framework, a country’s human
GDP)
and environmental capital, the use and
adoption of the latest technologies and š 4XDOLW\RIWKHHGXFDWLRQDOV\VWHP
the institutional environment. š 4XDOLW\RIWKHLQVWLWXWLRQVRIKLJKHU
education
Regulatory and legal framework
B. Sustainability and equity
A. Doing business
š *HQGHU(TXLW\
1. Starting a business
š (QYLURQPHQWDOVXVWDLQDELOLW\
š1XPEHURISURFHGXUHV
š +HDOWKZRUNHUGHQVLW\
š7LPHGD\V
š ,QHTXDOLW\PHDVXUHUDWLRRIULFKHVW
š&RVWDVRILQFRPHSHUFDSLWD WRSRRUHVW
2. Ease of employing workers
š(DVHRIHPSOR\LQJZRUNHUV
Adoption and use of information and
3. Paying taxes communication technologies
š3D\LQJWD[HV A. Telephone communications
4. Protecting investors š 0DLQı[HGWHOHSKRQHOLQHVSHU
š6WUHQJWKRILQYHVWRUSURWHFWLRQ 100 inhabitants
5. Registering property š :DLWLQJOLVWIRUPDLQı[HGOLQHV
š1XPEHURISURFHGXUHV per 1000 inhabitants
š7LPHGD\V š %XVLQHVVFRQQHFWLRQFKDUJHDV

of GDP/capita)
š&RVWDVRISURSHUW\YDOXH
š %XVLQHVVPRQWKO\VXEVFULSWLRQDV
6. Other regulatory
RI*'3FDSLWD
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š 5HVLGHQWLDOFRQQHFWLRQFKDUJHDV
permits
RI*'3FDSLWD
š&ORVLQJDEXVLQHVV
š 5HVLGHQWLDOPRQWKO\VXEVFULSWLRQ
DVRI*'3FDSLWD
Human and environmental capital B. Mobile cellular communications
A. Education š 6XEVFULEHUVSHULQKDELWDQWV
š $GXOWOLWHUDF\UDWHDJHGDQG š 3UHSDLGVXEVFULEHUVSHU
older) inhabitants
50
š 3RSXODWLRQFRYHUDJH š 9RLFHDQGDFFRXQWDELOLW\
š &RQQHFWLRQFKDUJHDVRI*'3 š 3ROLWLFDOVWDELOLW\
capita) š *RYHUQPHQWHĳHFWLYHQHVV
C. Internet, computers and TV š 5XOHRIODZ
š 7RWDOı[HGLQWHUQHWVXEVFULEHUVSHU š 3URSHUW\ULJKWVIUDPHZRUN
100 inhabitants
š 7UDQVSDUHQF\DQGMXGLFLDO
š 7RWDOı[HGEURDGEDQGVXEVFULEHUV independence
per 100 inhabitants
š &RUUXSWLRQ3HUFHSWLRQV,QGH[7,
š ,QWHUQHWXVHUVSHULQKDELWDQWV
B. Country policy assessment
š 3HUVRQDOFRPSXWHUVSHU
1. Public sector management
inhabitants
š4XDOLW\RIEXGJHWDU\DQGıQDQFLDO
š 7HOHYLVLRQUHFHLYHUVSHU
management
inhabitants
š4XDOLW\RISXEOLFDGPLQLVWUDWLRQ
D. Government ICT usage
Appendix I: A Competitiveness Framework

2. Structural policies
š (JRYHUQPHQWUHDGLQHVVLQGH[
š)LQDQFLDOVHFWRUHĴFLHQF\
E. Quality of the infrastructure
š7UDGHRSHQQHVV
š (OHFWULıFDWLRQUDWH
š)RUHLJQGLUHFWLQYHVWPHQWJURVV
š (OHFWULFSRZHUWUDQVPLVVLRQDQG
LQĲRZVDVRI*'3
GLVWULEXWLRQORVVHVDVRIRXWSXW
3. Macroeconomy
š 5RDGVSDYHGDVRIWRWDOURDGV
š'HEWOHYHOV
š)LVFDOEDODQFH
Institutional environment
š0DFURVWDELOLW\
A. Good governance
š5HDOHĳHFWLYHH[FKDQJHUDWH
51

Key Elements For A Competitiveness Agenda in The Americas

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Key Elements For A Competitiveness Agenda in The Americas

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KEY ELEMENTS FOR A 2020 COMPETITIVENESS AGENDA IN THE AMERICAS

Discussion paper prepared for the III Meeting of Americas

The global context

New technological ideas combined with social order and the

on domestic producers everywhere Harvard professor Richard Cooper

Latin America and the economic crisis

some 110 percent of GDP by 2014.

Table 1. Macroeconomic Outlook (% GDP Growth)

Source: World Economic Outlook, IMF, October 2010

Figure 1. Public debt (in % of GDP)

II. Latin America and the economic crisis

A competitiveness profile for LAC

legal framework, the region’s human and Institutions

rights environment discourages institutional environment characterized

III. A competitiveness profile for LAC

Great importance of the establishment of an institution

Those countries with the greatest need for entrepreneurship

on opening a new business (number of India’s population still cannot read or

III. A competitiveness profile for LAC

An increasingly important factor in explaining successful

economic development concerns the agility with which

III. A competitiveness profile for LAC

III. A competitiveness profile for LAC

they encourage the adoption of new

How competitive are we?

Latin America and the Caribbean have generally made

much as the Koreas of this world and, therefore, we have

Figure 2. GDP per capita 1980-2008 (PPP in US$)

IV. How competitive are we?

question, education has to be one of the deficiencies in the educational system.

Annual expenditure on education in LAC is, on average, 3.6

behind. For a start, it would be vital to Autónoma de México (UNAM) is the

8 - According to: http://www.topuniversities.com/world-university-rankings

* Rank of 131 countries

IV. How competitive are we?

The region scores extremely poorly on the Doing Business

indicator. be associated with higher levels of

with some government office or

IV. How competitive are we?

Table 6 - Adoption and Use of ICTs--Key variables

IV. How competitive are we?

In Chile, the use of online platforms to facilitate the

IV. How competitive are we?

health; and ecosystem vitality, which national ecosystems will be winners. It

IV. How competitive are we?

An important benchmark in terms of regional programs to

V. RIAC and the promotion of a competitiveness agenda in LAC

(sometimes exceeding spending on

V. RIAC and the promotion of a competitiveness agenda in LAC

It would seem that there is an opportunity for RIAC to catalyze

To the extent that there is a need climate—indeed, the whole range of

in the areas of innovation, productivity important content to many of the

V. RIAC and the promotion of a competitiveness agenda in LAC

We think that the annual estimation of four competitiveness

š7LPH GD\V š %XVLQHVVFRQQHFWLRQFKDUJH DV

Appendix I: A Competitiveness Framework

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