1. P.Krugman (1992) in ‘The counter counter revolution in the theory of economic develoment’ says: ¨In the 1950’s there was a rich field of research called Development Economics. Its main purpose was that of understanding why some countries are so much rich than others and to propose policies to increase their rate of economic growth. Such field of study no longer exists. ¨.

2. Globelics as an inter-disciplinary community studying social, institutional and economic change. Globelics research agenda has now come full circle into what Krugman called the High Development Theory Agenda of the 1950´s. It has returned to the likes of Hirschman or Myrdal or Weber, bringing back to central stage institutions, public goods,the environment and social inclusión, which neoclassical growth theory had left out in an attempt to describe growth as an equilibrium process. Evolutionary economics – and Globelics –have managed to change the focus, but growing on the basis of natural resources, securing environmental sustainability and caring for social inclusion bring up many new questions which new generations of the Globalics community will have to address in the future.

3. GLOBELICS 2014, Addis Ababa, Ethiopia. A new visit to Development Economics in the present age of natural resource based economic growth Macro and micro lessons from the Latin American experience. JORGE KATZ jorgekatz39@gmail.comjorgekatz39@gmail.com or jorgekatz@terra.cljorgekatz@terra.cl FEN,University of Chile October 2014.

4. Issues to be discussed 1.´Stylized facts´ concerning the Latin American scenario. 2.Independently of the macropolicy regime LA countries have not been ‘catching up’ with the developed world in terms of GDP per capita. 3 Conclusion: equilibrium macro ´fundamentals´ are necessary, but not sufficient for ‘catching up’. They reduce macro uncertainty but do not induce sustainable growth with equity. 4.Growth has shifted from manufacturing to natural resource based sectors, but Dutch Disease and Tragedy of the Commons problems have emerged. 5.Sustainable and equitable growth demands policy interventions building up local capabilities, environmental sustainability and social inclusiveness, but this has to come within the constraint of balanced macro ‘fundamentals’. How can it?. 6.A tax reform is necessary to provide resources for public goods. The current Chilean policy experiment has to be seen as from this perspective: a tax reform collecting 3% of GDP and a long term program to improve quality of education.

5. A short visit to received growth theory. Received theory reflects two quite different research agendas dealing with the determinants of economic growth. The two agendas do not speak to each other. On the one hand, the neoclassical equilibrium growth agenda, initiated by R.Solow (Nobel Prize 1988) in the 1950’s and thereafter advanced by New Growth Theory scholars. It is inspired in Newtonian physics. On the other hand, the neo-Schumpeterian agenda initiated by C.Freeman, R.Nelson, B.A.Lundval and else, inspired in Darwinian natural selection Both agendas have difficulties to deal with natural resource based growth, were ´commons´, environmental sustainability, collective action and government regulation play a key role determining the efficiency, environmental sustainability and social inclusiveness of development processes. Evolutionary Economics – mostly build upon stylized facts coming from the sphere of manufacturing - yet has to bring on board the economic, technological and institutional features of natural resource based growth and the dialogue between economics and ecology.

6. Lets begin by reviewing Latin American ‘stylized facts’ 1.Per capita GDP has not ´converged´ to OCDE levels.(12 and 35 thousand U$S respectively, and much higher structural heterogeneity. 2. Ratio of GDP per capita between upper to lower quintile is 20-25 times in LA as against 6-8 times in OECD countries. 3.The rate of capital formation is lower than in the 1970’s. 4.Macroeconomic volatility is high, higher than in the 1970´s. 5.The economy has restructured into natural resource based sectors & services 6.Terms of trade have improved due to the ‘China effect’, but impact upon low and medium tech domestic manufacturing is negative, and increasing. 7. Increasing imports of K goods, low domestic R&D & productivy growth 8. New macro and micro problems - ‘Dutch Disease’ and ‘Tragedy of the Commons’ – have emerged associated to natural resource based growth. 9. The new growth regime involves the outward expansion of the natural resource exploitation frontier but lacks institutions for environmental protection and for social inclusiveness.

7. GDP Per Capita Relative to the United States (PPP at current prices) Taiwan Korea Chile Argentina Brasil Source: Penn Tables. A.Heston et.al. Univ. of Penn.

8. Income per capita ´lags behind´ OECD countries Source: Astorga & Katz, in Dutrenit and Sutz.

9. 9 Fuente: Basado en datos de CEPAL. Gross capital formation in LA 1970-2011 Source:R.french davis

10. TPF in Latin American. (Aravena et.al. Cepal, 2006)

11. Differences in TPF across LA countries. ( Aravena et.al. ECLAC, 2006)

12. The typical regional scenario Ilustasted by the Chilean case Productivity growth is very low

13. Latin American macro volatility. (Macro volatility induces a ´defensive´micro of low I and R&D expenditure) Source: R.Ffrench Davis

14. CHANGES IN INDUSTRIAL STRUCTURE RESULTING FROM TRADE LIBERALIZACION AND MARKET DE-REGULATION POLICIES. Metalworking activities. (Machinery and equipment) Vehicles Natural resource processing industries F oodstuffs, forestry, mining, acuaculture, horti and fruticulture, gas and oil, etc. Low skilled labour intensive industries. (Shoes, clothing, etc.) Source: ECLAC, UN

15. Commodity prices 2000-2011 (Is China a ´bubble´ or a new model of the world economy?) Source: R.Jenkings

16. Unit labor costs 100=2000 Source: R.Frenkel and M.Rapetti.

17. The Real exchange rate vis a vis US. has worsened Source: (R.Frenkel and M.Rapetti, 2011)

18. Low R&D expenditure as a % of GDP, and scarce incidence upon domestic productivity growth.

19. Alternative macroeconomic policy regimes have not been capable of inducing ´catching up´. Brazil and Chile opted for an ´inflation targeting´ regime in the 2000´s. Argentina instead opted for a high and competitive real exchange rate (RER) regime. Brazil y Chile suffered the appreciation of the exchange rate and increasing commoditization of their production and exports. Argentina expanded growth and employment all across but could not keep inflation at bay. X’s came from ‘old’ plants, without much new investment. None of the three countries managed closing up the relative productivity gap with the international frontier. Macro policies seem to be a necessary, but not a sufficient condition for that.

20. Argentina: exchange rate management after the 2002 devaluation. Source: Katz & Bernat,2011

21. The expansion of Exports. ( Argentina, Brasil Chile) Source: Katz & Bernat, 2011

22. Annual inflation rate, Argentina, Brazil and Chile. After 2006 Argentina could not avoid moving into an inflationary regime and could not substain its previous exchange rate policy

23. Neither Argentina, nore Brazil or Chile, managed to close the relative productivity gap in manufacturing

24. On the other hand, the gap has been closing up in natural resource based sectors which now represent the ‘new modernity’ 1. Agricultural products : Soybean, wheat, maize.(Argentina, Brazil, Bolivia, Paraguay, Uruguay) 2. Mining activities. (Chile, Bolivia). 3. Oil and gas.(Ecuador, Colombia). 4. Aquaculture. (Chile) 5. Forestry products (Chile, Brazil, Uruguay). 6. Horto, fruticulture & wine.(Argentina, Chile, Uruguay), show : New ´state of the art´ facilities have been erected featuring new process and production organization technologies. Subcontracting activities and KIBS have expanded and sophisticated natural resource based ´clusters´ are rapidly growing.

25. Soybean production (Tons) and productivity (Tons/acre). Comparative perspective 1995-19962006-2007 Argentina Brazil China India EEUU Producction Tons Harvested Area. Acre Argentina Brazil China India EEUU Yield per acre. Argentina Brazil China India EEUU 12.480 24.150 13.500 4.476 59.174 5.980 10.950 8.127 4.817 24.900 2.087 2.205 1.661 0.929 2.376 46.500 59.000 16.200 7.690 86.770 15.900 20.700 9.300 8.100 30.190 2.925 2.850 1.742 0.947 2.874 Source: USDA

26. But: expanding the natural resource exploitation frontier is having major environmental consequences Salmon farming in Chile as an example.

27. Overexploitation of pristine waters has brought about a negative response from the ecology.

28. Summing up : what are the major questions ahead? Lets mention four of them: I. How to deal with China’s threat?.. China is today the major source of demand for natural resource based industrial commodities. It affects world prices and terms of trade.. China is today a major source of supply of low and medium tech industrial goods. The trade balance has become strongly negative.. China is now entering energy and capital markets, taking agricultural land on lease, exploring gas and oil reserves, and else. How to deal with this?. China is by far the more important trade partner in LA today, with a GDP elasticity in the order of 0.3 for most countries in the region.. China is presently changing its long term priorities favouring domestic consumption rather than investment and exports. What impact can we expect this to have upon natural resource based Latin American exporters?.

29. II. How to deal with a more volatile world environment, III With a local policy regime that only cares for short term financial equilibrium IV. How to deal with the problems imposed by a natural resource based growth model 1.Trade liberalization forced the return to natural comparative advantages leaving less space for macroeconomic policies aiming at ´catching up´. 2.The ´inflation targeting´ regime –adopted out of ´fear of inflation´ and traying to attract FDI – only cares for short term financial equilibrium. 3.The apreciation of the exchange rate has deteriorated the competitive position of emerging nations. 4.Capital goods imports have substituted for local machinery prodution and also for R&D efforts. 5.Environmental protection has deteriorated due to natural resource overexploitation. 6.Manufacturing activities have lost share in GDP and the expansion of the natural resource exploitation frontier with scarce provision of public goods is having negative consequences upon the environment and also upon social inclusivness.

30. Monetary, fiscal and exchange rate policies are needed to sustain the RER, but resources are also needed for ‘industrial’ and social policies. A competitive RER is needed for growth but it affects the rate of inflation. For such reason fiscal and monetary interventions are needed in terms of countercyclical interventions These interventions should aim at maintaining the global balance of the economy, but resources are needed to address the building up of local capabilities and foreign competitiveness, on the one hand, and improving social equity, on the other. This demands coordination between short and long term policies keeping inflation at bay and also caring for building up domestic capabilities and improving social inclusion.

31. An interesting option : the current Chilean experiment. Short term equilibrium and long term change 1.The present Chilean policy experiment appears as an interesting attempt to bring together both these aspects : a tax reform that collects around 3% of GDP to be used to improve Education. But: 2.The FT and The Economist have mottled it ‘the new mediocrity’. Is it casual? The question then emerges : 3.How can structural change and social inclusion be attained in a democratic setting and in the present ideological environment?

32. Globelics as an inter-disciplinary community studying social, institutional and economic change. Globelics research agenda has now come full circle into what Krugman called the High Development Theory Agenda of the 1950´s. It has returned to the likes of Hirschman or Myrdal or Weber, bringing back to central stage institutions, public goods,the environment and social inclusión, which neoclassical growth theory had left out in an attempt to describe growth as an equilibrium process. Evolutionary economics – and Globelics –have managed to change the focus, but growing on the basis of natural resources, securing environmental sustainability and caring for social inclusion bring up many new questions which new generations of the Globalics community will have to address in the future.