“Latin America has missed the boat on industrial policy and innovation”, Alicia Bárcena

The head of the United Nations economic commission for the region believes that “the culture of privilege has naturalised inequality” and sees the subcontinent’s development model as “exhausted” – Ignacio Fariza 6 February 2020 – El País – An interview that went unnoticed with an economist who has left the single discourse and analysed the situation in Latin America from another perspective.

Inequality, discrimination, culture of privilege, tax evasion and industrial policy. After half a lifetime away from public debate, this quintet of concepts has come to the forefront in Latin American power circles. Even more so since the start of the protests in Chile and, to a lesser extent, Colombia. “People are tired; and the economic model is exhausted”, repeats ECLAC’s Executive Secretary, Alicia Bárcena (Mexico City, 1952). Between answers, and with the public address system at Barajas airport playing in the background, the head of the UN’s economic development arm for the region hurriedly gulps down a soft drink before boarding a plane for Rome to take part in a summit of economists hosted by the Pope at the Vatican. All at a breakneck pace.

Question. The sequence has been repeating itself for years: both you and the other international organisations publish your growth forecasts for Latin America and the reality ends up contradicting them shortly afterwards. Too much optimism?

Answer. This year is already seven years of very low growth, and that should be a warning sign. The external context does not help, but the region has a major productivity problem: it is very low and has not progressed. There are exceptions, of course, such as Peru and Colombia, economies that are growing.

Question. The region has let the rest of the emerging bloc slip in its wake.

Answer. Unlike many Asian countries, Latin America has missed two trains: industrial policy and innovation, leaving decision-making to market forces. It is clear that this development model, without a productive strategy, has run out of steam. Both in economic terms, as demonstrated by low growth, and in terms of distribution: the fact that we are still the most unequal region in the world means that we have not been able to distribute this apparent expansion.

Question. For years it was said that order in fiscal and monetary policy would bring growth, but…

Answer. With exceptions, macro has been orderly and stable. And that is important, but not enough. The problem is that the productive matrix has not been diversified with knowledge, national content and linkages with small and medium-sized enterprises. The great Latin American factory of inequality continues to be the gap between large and small companies. The case of Mexico is clear: it exports more than 1 billion dollars a day, but this is not felt in society.

Question. We are experiencing a process of reprimarisation in several of the region’s economies, which rely almost exclusively on raw materials for their exports.

Answer. Yes. This is a very serious issue, especially in South America: these are countries that depend on few products – oil, copper, silver… – and few markets. Our hopes are for Brazil, which is a very diverse country, and Argentina, where the new government has the strength to propose an industrial policy.

Question: Why has industrial policy been, for many years, anathema in Latin America?

Answer: Because of pure neo-liberalism. Because of pure and simple neoliberalism; because of the Milton Friedman school. The Washington Consensus had a great impact on countries like Chile, and the result is an unequal and non-diverse economy. In general, the economic model that has been applied in Latin America is exhausted: it is extractivist, concentrates wealth in few hands and has hardly any technological innovation. No one is against the market, but it must be at the service of society and not the other way around. We have to find new ways to grow and that requires state policies. It is not the market that will lead us, for example, to more technological innovation.

Question. For years you have been pointing to inequality and the need to change the region’s development model. Without much success: the governments have hardly paid any attention to you. Do you feel you have been preaching in the desert?

Answer. What has happened is that we have not managed to penetrate the structure itself: we have not achieved a social pact between the state, employers and workers, as in the Nordic countries, to close the huge gap between labour and capital. Here I do feel that we have preached in the wilderness: we all talk about more and better jobs, formalisation… What is needed is a structural change in the model. In Latin America there has been a movement of people from the lower [social] strata to the middle strata, but more than half of them have not even completed 12 years of schooling. The challenge now is how to bet on education and new technologies.

Question. The case of green energy is especially paradigmatic: Latin America is one of the regions of the world with the most sun and wind, but in many countries, it has not yet taken off…

Answer. This is another train that Latin America cannot miss, and for this to happen, active policies are needed. Costa Rica is a success story, which will soon cease to depend on carbon-based energy sources. And Chile, for that matter. Mexico must also commit to becoming carbon neutral: it is clear to me that it must continue to produce oil, but it must join the ranks of renewable energies.

Question. López Obrador’s government is not heading in precisely that direction.

Answer. Mexico is going through a process of reflection that I like. The president has set up an investment council, with Alfonso Romo in charge, and I think we can find the right balance between investment and respect for the environment.

Question. But your administration’s commitment to crude oil is unequivocal.

Answer. I don’t know about unequivocal. What I think Mexico is looking for, and I think it is very reasonable, is to stop depending on oil imports. As a country that has reserves, it should take advantage of them with the best technology available, but it also has to compensate that production with other more sustainable developments. I have confidence in Romo: he has a broader vision and knows that the world is moving in that direction, as the Davos Forum has just shown.

Question. Some point to the apparent paradox that the protests, especially in Chile, come at a time of the greatest material prosperity in history. Is it a question of expectations?

Response. The backdrop is disenchantment and anger; a breaking point of the model that concentrates wealth and privilege with institutions that only benefit a few. Society perceives this, as it also perceives tax evasion, corruption and impunity. We must get away from this rentier propensity, from the concentration of property and profits and, above all, from a culture of privilege that has naturalised inequality and discrimination. People are tired of it.

Question: Has inequality been underestimated?

Answer. Definitely yes. It has always been calculated from household surveys and when you compare them with tax records, you realise how much we have underestimated inequality for years. We have to refine the way we measure it. In Chile, for example, that survey says that the richest decile earns, on average, 7.5 times more than the poorest, but in the tax records that difference is 25 times. And in some Central American countries, it is as high as 70 times. Inequality has always been seen from the perspective of poverty, but it must be seen from the perspective of wealth.