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Building Learning Economies in Latin America and the Caribbean

Latin America and the Caribbean has not just lost decades, but a century of growth due to delays in ¡°learning how to learn¡± and in figuring out how to best take advantage of new technological opportunities. Development is fundamentally a process of making informed bets on new processes, products, or industries. LAC has been less effective in this process of experimentation¡ªidentifying, adapting, implementing, and often failing -whether you talk about technologies ranging from steamships to digital innovations. As a result, the region has experienced long-term divergence from countries that had similar or even lower income levels a century ago, leaving LAC trapped in a persistent pattern of low productivity growth and limited diversification.

One of the central challenges is the region¡¯s low investment in innovation. Research and development spending in the region is only a fraction of the global average, and this insufficient commitment to technological progress explains much of the productivity gap with countries like Japan, Spain, or Sweden. While the potential returns to innovation can be exceptionally high, especially for countries far from the global technological frontier¡ªthe region faces barriers such as limited access to credit, skilled labor shortages, and a weak enabling environment, all of which reduce the expected returns on innovation and limit incentives to invest.

Chapters 

Chapter 1: ¡°LAC¡¯s Lost Century: A Failure of National Learning¡±  

This chapter presents a view of Latin America and the Caribbean (LAC)¡¯s development that stresses the inability of the region to learn about the new technologies of the Second Industrial Revolution and apply them¡ªwhich, in turn, prevented convergence in incomes with successful economies. In the late 1800s and early 1900s, the region had several high-performing countries but then experienced retrocession in industries in which it had long dominated, due to an inability to employ the emerging technologies, and was unable to enter the new industries of the day. As an illustration, the chapter explores differences in how, in this pivotal moment, LAC defined the next century compared to Japan. While Japan invested heavily in capabilities and institutions across the spectrum to become equal partners with foreigners at the technological frontier, LAC ceded to them its most profitable industries. 

Chapter 2, ¡°Firms and the Diffusion and Productive Use of Knowledge¡±

This chapter explores the extent to which knowledge and technologies are being adopted in LAC today. Using data from the recently fielded World Bank Firm-level Adoption of Technology survey, it measures the diffusion gap and decomposes it into three components: access to new technology; adoption of these technologies; and then effective use. The chapter shows that while some digital technologies are diffusing faster to the region, there are significant gaps in the adoption of key technologies, and more importantly significant gaps in their use that could translate into unrealized productivity gains. The chapter then reviews the key barriers to identify, adopt, and use such technologies, emphasizing existing constraints in capabilities, manifested in skills, managerial quality, and organizational capital. Then the chapter documents the ways in which the region¡¯s current level of technical education, entrepreneurial skills, and supporting institutions continue to lag. Hence, in addition to the need to continue to improve the business environment, the chapter identifies areas of learning capacity in which progress needs to be made. 

Chapter 3, ¡°The Role of Universities and Research Institutes in Learning ·¡³¦´Ç²Ô´Ç³¾¾±±ð²õ¡±&²Ô²ú²õ±è;

This chapter focuses on the educational and research institutes in the National Innovation Systems of LAC countries that serve to generate human capital and research, diffuse, and adapt technologies to the local context; and serve as seed beds for new industries. There needs to be a clear and codified understanding that part of the mission of universities, and the unique mission of research institutes, is the resolution of the market failures surrounding knowledge and of supporting the private sector in its development¡ªtheir ¡°third mission¡± after teaching and research. This, in turn, requires the need for incentives to ensure the quality of underlying research and its relevance to the private sector, and the cultivation of linkages that guarantee a two-way flow of knowledge. In LAC, academic and research institutes fall short both in quality and in the development of their third mission, leading to unsatisfactory outcomes and weak linkages between their research effort and private sector needs and applications. LAC¡¯s failures are not due to not having implemented policies to promote education, research, and knowledge exchange; rather, they are due to having implemented them poorly¡ªwithout a strategic vision, clear priorities, at sufficient scale, and consistency over time and across space. 

Chapter 4, ¡°New Firms, New Sectors: Creating Experimental Economies and High-Quality Entrepreneurship¡± 

This chapter explores why, despite the vast potential for arbitraging the technological gap, there are relatively few high-quality entrepreneurs doing so in LAC. The chapter offers a simple framework for thinking about what the entrepreneurial ecosystem requires to foster experimentation¡ªlearning about possible new firms or industries. 

This approach implies focusing both on the operating environment¡ª barriers to investment, absence of start-up financing and risk diffusion mechanisms, the presence of less risky alternatives¡ªas well as those related to the characteristics and skills of entrepreneurs, ranging from attitudes to basic technical and administrative skills, to the harder-to-develop skills of distinguishing good new projects and managing the risk and financing. It stresses how the rise of the Latin American unicorns (firms with revenues exceeding US$1 billion) reflect the emergence of high-quality entrepreneurs, but also the importance of international experience in their formation, and global sources of venture capital, which are hard to replicate locally. 

Chapter 5, ¡°Policy Guidelines for Creating Learning Economies¡± concludes with policy proposals to build learning economies that can identify opportunities for growth, have the skills to seize the momentum, and actively pursue them.