Gray Matter vs. Raw Materials
Friday, January 11, 2008; 12:00 AM
WASHINGTON -- Latin America is entering the sixth year of its longest growth period in decades. Foreign investments and cash reserves are at historic highs, and governments are making inroads on reducing poverty and unemployment. The high price of commodities -- oil, natural gas, soybeans, copper and sugar -- has driven this boom.
In the early 1970s, Latin America was riding a similar wave. Coffee, copper, cocoa and tin all were fetching record prices, bringing several years of strong economic growth averaging more than 7 percent.
All was fine and dandy until prices fell for those commodities, which represented more than half of all exports in some of the region's key countries.
Latin America entered what became known as the "lost decade" of the 1980s. The aggregate gross national product per capita fell by 9 percent between 1981 and 1990, investment dropped dramatically, and poverty rates climbed regionwide to 35 percent by 1990 (they had dropped to 27.5 percent during the 1970s).
Experts again are warning that commodities are fickle, and that economies which rely heavily on them are destined for hard times. To soften the blow of economic downturns, Latin America must diversify and produce more value-added exports.
Many Latin American governments started to do just that after the fallout of the 1980s. Between 1996 and 2005, Latin America as a whole increased its investment in research and development by more than 40 percent.
Chile, Argentina, Brazil, Uruguay, Peru, Colombia, Costa Rica and Panama are "making very significant efforts" to invest in knowledge, according to Gonzalo Rivas, head of the Inter-American Development Bank's Science and Technology Division, which was recently started to reflect the region's growing interest in the area.
The 40 percent-plus increase is misleading, however. Except for Brazil, all other regional countries are investing much less than the recommended 1 percent of the country's gross domestic product in R&D.
"The countries are issuing the message that they learned the lesson but so far the numbers don't show it," said Ernesto Fernandez Polcuch, science and technology specialist with UNESCO's Institute for Statistics.
Even if Latin America drastically picked up the investment pace, such an effort probably would not be enough to soften the blow of a commodity bust, according to Mario Albornoz, director of the Ibero-American Network of Science and Technology Indicators in Buenos Aires. As Albornoz put it, R&D investment is "a necessary but not sufficient condition" for preparedness.
What's required, Albornoz told me in an interview, is a "cultural change" aimed at producing workers who can compete in the science and technology fields.
Latin American countries already are investing in education and the number of university graduates is growing rapidly, doubling between 1997 and 2005. Yet the large majority of these students study social sciences, law or business.
With the exception of Mexico, science or engineering majors in most Latin American countries represent less than a quarter of the total university graduates. "By contrast, nearly 40 percent of all Korean university graduates, and nearly 30 percent of all Irish and Finnish graduates, are trained in science or engineering," according to Jeffrey Puryear, education expert at the Washington-based Inter-American Dialogue.
The other requisite cultural change, Albornoz said, is for the private sector to boost its own investment. Presently, less than one-third of R&D investment in the region comes from private companies, exactly the opposite of industrialized nations. Albornoz believes such dynamic change will come only when entrepreneurs begin to think more long-term.
There are pockets of innovation that are encouraging. According to Rivas, Chile's salmon industry is adapting well to stricter international environmental and quality standards and investing in the development of advanced antibiotics and genetic management. In southern Peru, meanwhile, scientists have turned their attention to the cultivation of organic foods such as artichokes or asparagus, adding value to Peruvian exports.
These examples, however, are dwarfed in comparison with the innovations in Brazil. More than four decades ago, Brazil began a long-term strategy to develop science and technology. Today, after this true cultural revolution, Brazil is a global pioneer in biofuel research, leads the region in scientific publications, and has a world-class aviation industry.
With the price of commodities destined to fall at some point, Brazil will have a better buffer than the rest of Latin America. The hope, at least, is that it won't take decades for the rest of the region to begin depending more on its gray matter than its raw materials.