1. Carlota Perez Universities of Cambridge and Sussex, UK and Tallinn University of Technology, Estonia FLACSO EULAKS Summer School Mexico, August 2009 An opportunity space for a development strategy within the current paradigm TECHNOLOGY AND NATURAL RESOURCES

2. Be aware of discontinuities Opportunities are a moving target Do not try to imitate past success stories Tomorrows successes depend on anticipating the future today TECHNOLOGY AND INNOVATION ARE THE DRIVING FORCES OF GROWTH AND DEVELOPMENT But to take advantage of them we must know and understand their changing nature LEAPS IN DEVELOPMENT ARE BASED ON AIMING AT A TECHNOLOGICAL OPPORTUNITY SPACE AND HAVING THE CONDITIONS TO TAKE ADVANTAGE OF IT

3. A technological revolution every 40 to 60 years TECHNOLOGICAL OPPORTUNITY SPACES COME AND GO They can be identified through analysing the historical regularities of technological revolutions A similar sequence of deployment (with distinctly different business climates) Each revolution changes the techno-economic paradigm guiding innovation and determining competitiveness The opportunities for development change as each revolution evolves This lecture uses those regularities to examine the current period in terms of development opportunities for the case of Latin American

4. THE CONTEXT FAVOURING INNOVATION IN NATURAL-RESOURCE-BASED NETWORKS WINDOWS OF OPPORTUNITY AND CONDITIONS FOR TAKING ADVANTAGE OF THEM TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY

5. The context favouring innovation in natural-resource-based networks WINDOWS OF OPPORTUNITY AND CONDITIONS FOR TAKING ADVANTAGE OF THEM Technological dynamism and social inclusion a dual strategy for a dual reality

6. Each results in a different great surge of development and takes 40-60 years to spread across the world and reach maturity FIVE TECHNOLOGICAL REVOLUTIONS IN 240 YEARS The Industrial Revolution (machines, factories and canals) 1771 Age of Steam, Coal, Iron and Railways 1829 Age of Steel and Heavy Engineering (electrical, chemical, civil, naval) 1875 Age of the Automobile, Oil, Petrochemicals and Mass Production 1908 Age of Information Technology and Telecommunications 1971 Age of Biotech, Bioelectronics, Nanotech and new materials? 20?? The available innovation potential changes radically every half century

7. MATURITY- DECLINE Exhaustion of technologies, market saturation. Search for new opportunities. Return of free market Previous revolution MATURITY-DECLINE DEPLOYMENT Technological revolutions and their paradigms emerge, diffuse and decline in four overlapping periods of 20-30 years GESTATION New radical technologies coming together shaped by the previous paradigm (until conditions are ready for the big bang) DEPLOYMENT Golden Age. Innovation across the board using the new paradigm and the new technologies. Flourishing of full potential. Active role of the State INSTALLATION Understanding these dynamic regularities and the nature of the paradigm CAN HELP IDENTIFY AND ANTICIPATE THE FUTURE OPPORTUNITIES Irruption and articulation of the revolution. Creative destruction; concentration of innovation. Learning of the new paradigm and modernisation of the old. Free market. Financial booms and bubble collapses. GESTATION Next revolution INSTALLATION The context for innovation changes significantly along each great surge

8. Examine the past and future context The technological context Look forward: Prospective conditions The context of the region Look back: The historical legacy Previous development: Production profile and accumulated capabilities Resource endowment and dynamic advantages Distribution of incomes and skills Socio-political conditions VIABLE AND SUCCESSFUL STRATEGIES ACHIEVE A MATCH BETWEEN BOTH CONTEXTS AND ESTABLISH POSITIVE-SUM GAMES IDENTIFYING WINDOWS OF OPPORTUNITY The dynamic trends: Stage of diffusion of the revolution [ICT] Direction of innovation (technology and society) Behaviour and interests of major corporations Discernible new tendencies and backlashes OPPORTUNITIES FOR DEVELOPMENT ARE A MOVING TARGET

9. A POSITIVE SUM STRATEGY WITH SIGNIFICANT (THOUGH LIMITED) RESULTS How did Latin America take advantage of the window of opportunity in the last stages of the mass production (Fordist) revolution? BY SETTING UP A FRAMEWORK FOR INDUSTRIALISATION THROUGH PROTECTED IMPORT SUBSTITUTION (ISI)

10. METHOD Import parts instead of finished products. Accept low productivity and high prices to increase employment DECLARED FOCUS Final stage of fabricating (assembly) industries for domestic market. The mature products of Fordism. But… little learning; little innovation. THE REAL LEARNING OCCURRED IN THE COMPLEMENTARY ACTIVITIES: Construction: roads, ports, structures, etc. Commerce and distribution Banking Management of large and small firms Infrastructure: water, electricity, telephone, transport, etc. Process industries: food, beer, cement, paper, bottles, metallurgy, etc. AND PREVIOUS LEARNING CONTINUED (in some cases intensified) Raw materials production: mining, oil, agriculture, livestock, etc. WHILE IT WAS ADEQUATE TO THE CONTEXT, IT WORKED! ISI policies brought together two sets of interests ISI ACTED AS THE STARTER ENGINE OF ECONOMY WIDE LEARNING Mature industries in the advanced world looking for market growth Third World governments looking for paths to development

11. CHANGING CONTEXT; CHANGING POLICIES… AND THEIR RESULTS Average real annual growth of groups of Latin American countries by relative size 1961-2005 Source: World Bank WDI 2006 (original data in constant 1995$)). Period indications by the author Ave. annual real % growth 0 1 2 3 4 5 6 7 8 1961-651966-701971-751976-801981-851986-901991-951996-002001-05 LARGE: Argentina, Brazil, Mexico Bolivia, Costa Rica, El Salvador, Haiti, Honduras, Guatemala, Nicaragua, Panama, Paraguay SMALL: MEDIUM: Chile, Colombia, Ecuador, Dominican Republic, Peru, Puerto Rico, Uruguay, Venezuela Protected ISI (and subsidised export) policies Lost decade Debt crisis Structural adjustment liberalisation, privatisation Globalisation (Opportunities taken by Asia) Deployment, maturity and decline of mass production revolution Installation of ICT revolution and its flexible production and networks paradigm NASDAQ Collapse

12. THE ASIAN LEAP TO DEVELOPMENT: WHAT? Specialisation in mass fabrication (assembly) for the world Alliances for the ASSEMBLY of electronics, electrical electro-mechanical goods and textile-clothing WHEN? Deployment and maturity of the Fordist paradigm and installation of ICT

13. CONDITIONS IN ASIA: IDENTIFYING AN OPPORTUNITY SPACE FOR LATIN AMERICA COMPLEMENTARY WITH GROWTH IN ASIA Abundance of extremely low-cost labour High specialisation in assembled products Growth by incorporation of new consumers and new territories Insufficient natural resources (materials and food); high and growing import demand Abundance and variety of natural resources Much lower population density Traditional capabilities in natural resources and their processing Near to high consumption markets Prospective increase in demand and rising prices of energy and materials (raw and processed) Companies producing and using raw materials are currently engaging in strategic reorientation SPECIFICITY AND ADVANTAGES OF LATIN AMERICA COULD NATURAL RESOURCES BE A PLATFORM FOR DEVELOPMENT?

14. A ROUTE FOR A LATIN AMERICAN LEAP TO DEVELOPMENT: Alliances and specialisation in PROCESSING industries: energy and materials (basic and special, natural and synthetic, macro and nano) and biological products (traditional and advanced, ecological and biotechnological) according to each countrys specific endowment WHAT? Specialisation in production and processing of natural resources with innovation WHEN? Deployment of the ICT paradigm and installation of the next (biotech, nanotech?)

15. Changing views on the role of natural resources in development End 19 th Century and early 20 th = ADVANTAGE Major asset to favour and finance development (US, Canada, Australia, New Zealand, Argentina, Scandinavian countries) Post WWII = DISADVANTAGE 1940s-50s: Increasing advantage goes to manufacturing industry. Price Scissors (Prebisch 1945, 1951; Singer 1949) 1970s: Dutch disease ( The Economist 1977, Corden 1982) 1980s and 1990s: Resource curse (Sachs and Wagner 1995, Auty 1995) 2000s = ADVANTAGE?

16. THE CONTEXT FAVOURING INNOVATION IN NATURAL-RESOURCE-BASED NETWORKS Windows of opportunity and conditions for taking advantage of them Technological dynamism and social inclusion a dual strategy for a dual reality

17. Multiple engineering services Design, construction, adaptation and maintenance THE PROCESSING INDUSTRIES WITH THEIR INNOVATION AND OPERATION NETWORKS Success depends on continuous improvement of technologies, companies, products, human capital and networks Software and systems services Capital goods: Equipment and instruments Design, construction, adaptation, installation, compatibility, etc. Laboratory services Quality c ontrol, evaluation, measurement, certificates, etc. Conservation and packaging R&D, engineering, design, production, services Transport, marketing and distribution Standard, adapted and specialised Technical service to users Market intelligence R&D Improvements and new products Patent lawyers; contract negotiation Training and education of specialised personnel Etc, etc. Mining Metallurgy Chemicals, petrochemicals Custom materials Livestock Agriculture, hydroponics Agro-industries Biotechnology Fisheries, aquaculture Forestry, paper Ceramics, glass Packaging Energy Refining Electricity Nanotechnology Etc. EACH INCLUDING COMMODITIES AND SPECIALITIES

18. Dynamism for growth and development results from THE INTERACTIONS AMONG THE MEMBERS OF THE NETWORK IN A SYSTEM OF INNOVATION NR-Production EquipmentInputs ServicesRD&E Investment (incl. exploration) Processing A1 Processing A2 Processing B2 Packaging, branding, etc. Transport, marketing, distribution Processing B1 The unit of analysis and the object of the strategy is THE NATURAL-RESOURCE-BASED NETWORK

19. EQUIPMENT INPUTS SERVICES RD&E INVESTMENT (Incl. exploration when relevant) PRODUCTIONPROCESSING (1,2,3…N) PACKAGING DISTRIBUTION FORCES DRIVING INNOVATION IN NATURAL RESOURCE-BASED PRODUCTION NETWORKS MARKET CONTEXT S&T ADVANCES Generalised ICT and its paradigm and other new technologies NATURAL RESOURCE-BASED NETWORK MARKET VOLUME MARKET REQUIREMENTS

20. QUALITY OF DEPOSITS, LANDS, WATERS, etc. Natural variety Develop premium niches Diminishing quality or access Remedial innovation Limited and immobile supply Develop new exploration techniques; enhance productivity; improve access; innovate in alternatives Fast growing demand for materials and food intensifies the traditional challenges for natural resource producers GROWING MARKET VOLUME AS INNOVATION DRIVER PROCESSING Low value/weight of unprocessed materials Increasing cost of transport likely to induce processing in situ Economies of scale in processing Innovate in flexible and mobile equipment and processes Etc. etc. etc.

21. Segmentation and differentiation Identify market segments for new products with new qualities; specialised niches; new business models; gourmet products, etc. Importance of qualities and demand for innovation User-producer links to identify specific requirements and cooperate in RD&E; increase flexibility and adaptability to fulfil user needs Public opinion + environment Organic produce; Fair Trade networks; pollution abatement techniques, clean fuels; yes or no to GM crops, etc. Importance of relative costs Savings in energy and transport may counterbalance lower labour costs and promote innovation to change economics of location Etc. etc. etc. MARKET REQUIREMENTS as innovation drivers

22. Increasingly numerous specialty niches COMMODITY Standard CUSTOM Adaptable PRICE COMPETITION Advantages in cost and in process technologies COMPETITION IN ADAPTABILITY Advantages in access to clients, quality, flexibility and rapid response Profitability attained through VOLUME Markets protected through LOW-COST AND RELIABLE BASIC QUALITIES AND DELIVERY High profitability due to SPECIAL QUALITIES Markets protected by DIFFERENTIATION, INNOVATION, TECHNOLOGY BRANDS AND PATENTS MARKET HYPER-SEGMENTATION and the differing conditions for competition and profitability And this applies from raw materials to all manufacturing and services and to each activity along the value network

23. Standardised markets Specialised niche markets Some examples of positioning Organic food Boutique steel Intelligent materials Starbucks Coffee Gourmet fruits Parmesano Reggiano Scratch-free paint Electric automobiles iPhones Diagnostic kits Adventure tourismSPECIAL Design of landmark buildings (Ex. Beijing Stadium) Major information systems Airport design and construction R&D in special areas Instruments for nanotech Tourism in Chichen Itza or in the AmazonUNIQUE Higher profitability and less vulnerability result from repositioning BASIC Raw materials Wheat; meat Auto parts Computer disk drives Standard software Standard mobile phones Call centres Beach tourism CUSTOMISED Dell computers Blue jeans to size Zara clothing Kenya ready salads E-government software Personal services Technical support Programmable hearing-aids Health tourism (ex. Hip operations in India) through innovation that strengthens existing expertise and advantages in whatever sector

24. New possibilities and challenges Various intelligent control systems (irrigation, processing, etc.); quality sorting; distance monitoring (livestock, oil wells, fishing areas); precision agriculture; distributed control for flexible processing, etc. Ease of distance coordination of production, logistics, admin, etc. Capacity to cooperate in local and global networks for technical, organisational and business model innovations Ease in handling variety at all levels Innovate in product mix from design to distribution Transport services for multiple destinies and small quantities Drastic reduction in time and cost of innovation and adaptation Ease of innovation in-house and linked with global networks; compu-synthesis of chemicals and materials; computer-aided experiments, etc. Generalised ICT and its techno-economic paradigm ADVANCES IN SCIENCE AND TECHNOLOGY Other new technologies Advances in biotech, nanotech and new materials Gear radical technologies to their applications in all phases of natural resource production, processing and distribution Etc. etc. etc.

25. NETWORKS FOR THE TECHNOLOGICAL UPGRADING OF THE NATURAL-RESOURCE EXPORT-PROFILE NATURAL RESOURCE PRODUCTION AND PROCESSING INDUSTRIES foreign or local Current Export Markets LOCAL CLUSTERS OF FIRMS AND INSTITUTIONS doing research high-tech production and knowledge-intensive services FOREIGN FIRMS AND INSTITUTIONS in research, high-tech production and knowledge- intensive services New (additional ) specialised markets

26. GLOBALISATION OF PRODUCTION The global corporation (GC) Positioning within globalised networks (outsourcing, off-shoring, etc.); Upgrading and repositioning through innovation; Forming local networks of high tech suppliers; Turning successful local companies into GCs, etc. Geopolitics Taking intelligent advantage of competition for access to natural resources to engage in bold and innovative negotiations with potential investors ENVIRONMENTAL CHALLENGES Prospective change in relative costs (energy, materials, transport, labour) Location advantages for energy and materials producers; processing in situ Expected environmental policy and regulation across the world Innovation in renewable materials and energy; low-energy processing; water-based chemistry; biodegradable materials; etc. MARKET CONTEXT

27. CHANGE IN THE ECONOMICS OF THE PRODUCTION, TRANSPORT AND DISTRIBUTION OF TANGIBLE GOODS Massive relocation and geographic re-specialisation of physical production into optimal local, regional and global networks Greater tendency to locate processing next to the raw materials Rising prices of oil and raw materials Rising packaging and freight costs Visible effects of increasing global warming Rising climatic risk CHANGE IN BUSINESS STRATEGIES CHANGE IN GOVERNMENT POLICIES THE UNAVOIDABLE PATH OF THE CURRENT GLOBALISATION PATTERN

28. The context favouring innovation in natural-resource-based networks Windows of opportunity and conditions for taking advantage of them TECHNOLOGICAL DYNAMISM AND SOCIAL INCLUSION A DUAL STRATEGY FOR A DUAL REALITY

29. A strategy based on them promises rising incomes and better quality of life for the participants THE PROCESSINGINDUSTRIES require increasingly qualified personnel THE PROCESSING INDUSTRIES require increasingly qualified personnel BUT THEY ARE NOT LABOUR INTENSIVE HOW CAN WE ACHIEVE GROWTH WITH SOCIAL EQUITY? TAKING THE LIMITS INTO ACCOUNT Latin America has a very serious income distribution problem

30. TWO DIFFERENT YET INTEGRATED PARTS OF THE ECONOMY TWO DIFFERENT AND COMPLEMENTARY GOALS Economic growth and global positioning Full employment and well being for all

31. interconnected specialised local economies (clusters) ENGINES OF GROWTH Constantly upgraded production networks around natural resources INFRASTRUCTURE, FUNDS, ENABLING INSTITUTIONS AND HUMAN CAPITAL An active State facilitating and promoting local initiative Objective: To raise the quality of life of all inhabitants Objective: Growth and generation of foreign exchange COMPETITIVE TECHNOLOGIES FOR GLOBAL MARKETS A DUAL INTEGRATED MODEL Combining low- and high-employment activities Differentiated development of each part of the territory based on the local productive vocation, identified or promoted

32. Network organisations (global and local) Hyper- segmentation of markets Capacity to handle heterogeneity Three guiding features of this paradigm THINKING GLOBALLY AND ACTING LOCALLY at both ends of the dual strategy

33. MULTIPLE FORMS OF LOCAL AND GLOBAL NETWORKS Along the value chain Agreements from initial inputs to final distribution Clusters of small firms Usually combining cooperation and competition Around a large company (local or global) Including internal disaggregation, outsourcing and various forms of joint ventures, contracts alliances and agreements, local or at a distance Strengthening the specialised support from universities and S&T infrastructure

34. SimpleComplex Niche Artisan ceramics Biotechnological diagnostic kit Work at a distance Call centres Interpretation of geological data Glocalisation Exquisite local cheese Fault detection service Environmental protection Organic fruit Bacteria to digest oil spills Local outsourcing Diet food service Data security service Taking advantage of them requires imagination, information, knowledge and competent support institutions at both ends of the dual strategy There is ample space for innumerable and profitable small companies in high-tech and low-tech segments

35. Achieve growth now taking advantage of the current window of opportunity for natural resource producers TAKING PARADIGM SHIFTS INTO ACCOUNT A STRATEGY IN TWO STAGES Prepare to make a leap in development with the next technological revolution by developing capabilities, companies and global networks in the sectors of the future (biotechnology, nanotechnology, bioelectronics, new materials?) That is what Asia did –without planning it-- with the ICT revolution

36. Early action creates externalities and prime mover advantages TAKING TIMING AND COMPETITION INTO ACCOUNT This window of opportunity was not available 30 years ago and is not likely to be available 20 years from now There are many countries and continents with ample natural resource endowments that could try to take advantage of it The battle for secure access to natural resources is already raging between advanced and emerging countries and among the main companies involved THERE IS NO TIME TO LOSE!

37. A STRATEGY OF DIFFERENTIATED INTEGRATION WITH HEALTHY INTER-COUNTRY TRADE Latin American countries have highly different resources, climates, sizes, experience and capabilities The more advanced countries in each sector can serve as dynamic leaders OF SPECIFIC REGIONAL NETWORKS OF SPECIFIC REGIONAL NETWORKS TAKING ACCOUNT OF VARIETY

38. Natural-resource-based networks can serve in this period for making a significant leap in development The convergent creativity required cannot result either from pure markets or from government decisions ENSURING SYNERGIES

39. CONSENSUS VISION Private Sector Public Sector Society Society Success may depend on reaching an agreed direction for guiding markets and insuring the future THE UNDERSTANDING OF THE OPPORTUNITY NEEDS TO BE SHARED BY ALL