Is Argentina in the right economic path?
Sustainable economic growth needs to improve the competitiveness through technological development
The Argentinian new government has been working in economic and political measures to remove outdated ideologies and structural failures which generated economic growth restrictions. However, this kind of measures are necessary but not sufficient to produce a sustainable economic growth. This new technological era has a different logical approach that requires a change in the productive matrix to produce innovative and more sophisticated products and services, with the final purpose to be competitive and achieved external markets that increase its exportations as well as compete with imported products and services. Until now the government does not propose or announced a national strategic long-term plan to encourage this productive matrix change.
Measures have been taken by the new government
Strengthening public institutions is the main political measure which has been taken to generate confidence in productive investments in the long run. The legislative and judicial branches were removed from the influence of the executive power, with the result to be more active and independent with their decisions. It has been seen an unprecedented wave of corruption charges and arrest of members of the former government officials. The central bank independence has been established. The modernization of the executive branch is being made to have a modern government and enhancing the prestige of the civil service. Reestablished the statistics agency to know the figures of the real situation. Among others.
Macroeconomic failures have been removed as its debt restructured with the holdouts and returns to the global capital markets, a series of measures aimed at stemming the effects to soaring inflation, implements fiscal austerity, removed trade regulations, currency regulations to eliminate the gap between street and official exchange rates, partial removal of energy and services subsidies, approval a bill referred to money laundering (Law of Fiscal Sincerity) to repatriate capital of Argentines abroad, and so on.
These important political and economic government actions is establishing the base for a sustainable economic, nevertheless is not an entire driver for economic growth and industrial development.
Removing the political and economic failures is that all?
Attracting private capitals for productive investments is necessary but not enough to produce long-terms sustainable economic growth. The efficient allocation of these capitals in strategic activities and sectors that forced them to jump into more sophisticated products and services, are the main objective by policy makers.
The government should analyze, define, concentrate and take promotion measures with their resources to intensify the private investment in the areas which were established beforehand. As Dani Rodrik wrote[i]: “Successful countries have always pushed the limits of their static comparative advantage and diversified into new activities that are the domain of countries considerably richer than they are”
An export-oriented policy is a key driver to produce this revolution. Success in the external markets with innovative and competitive services and products, is the best path to transform the productive matrix, which has been applied successfully by countries like Korea, Singapore, Finland, China and others.
In order to compete in the external market, long-term macroeconomic policies are essential to strengthen this challenge, apart from this, they must be complemented by innovation strategy, taking advantage of the national resources, educational and technical training, support with infrastructures, among others.
Destroy enterprises require seconds, emerge years
In the meantime, radically and rapidly change regulations applied in isolation from a long-term productive plan, such as opening import policies, with the sole objective of forcing a self-improvement of the competitiveness of the companies, deprived of the time needed to transform their structures and acquire the necessary tacit knowledge, needless to say, these will condemn to bankruptcy.
The current productive sector has gone through 12 years of certain kinds of policies leading them to a close international trade market without the necessary and logical competition in this globalization era.
Radical and express changes in these trade policies have the result of two possible consequences to the companies: the first one, is the transformation from producers of national goods and services to importers of them, dismantling their production units. Secondly, leading to insolvency with the result of increasing the poverty that reached 32.2% in September 2016.
A gradual adjustment of the productive matrix requires a clear, precise, consensus, required time and well-publicized long-term productive plan, therefore allowing to transform and acquire the essential knowledge and tools to adapt their products and business.
What could the government do?
Firstly, many national and international organisms are studying the sectors that will have more development and those who will lose force in the future. It would be an excellent starting point that the government study, develop and promote a long-term plan with the sectors that Argentina has a present and potential comparative advantages.
“Economic development requires diversification, not specialization …. richer countries are engaged in a broad range of economic activities” as Rodrik wrote. This has been made involving cooperation among government, academy, scientific researcher and the private sector. As an example, some of these potential diversification sectors are the non-traditional agriculture, biotechnology and genomics, new renewable energies, cloud technology, robotics, genetic engineering in agricultural products, innovative building materials, business processing outsourcing services, software and so on.
Secondly, it is understood by this writer, the role of the state as a facilitator, promoter and enhancer of the private investment with suitable public policies. Achieve more sophisticated industries and skilled jobs should be needed with the necessary investment in public R&D in conjunction with the proper encouragement to increase the private investment in the area. As Professor Heui Jae Pahk[ii] said: “it is a key factor to enhance the technological competitiveness of developing countries and thus serves to help them escape from being trapped in a vicious cycle occupying the lowest value-added parts of global value chains – commonly referred to as the middle-income trap”[iii].
Thirdly, the lack of private-public coordination obstructs the development of investments which are needed to arise and the growth of certain potential areas. Generate the indispensable dialogue and consensus with the private sector to understand their necessities, market failures and supports, it is essential to stimulate the private investment.
What is more, it is recognized that certain investments, which generate externalities and spillovers must be carried out with state funds, since such investments are not appropriate for a single sector of the economy. Such as logistical infrastructure as routes, trains, ports, etc. with the aim of lowering logistical costs.
Lastly, it is vital to promote and subsidize certain pioneering exporter entrepreneurs due to the innovative nature of the products or services that they undertake, will allow easily to be copy by other followers. On the other hand, the international market that will be opened by them, brings a cross benefit for the entire national market which justifies the purpose of that support.
Is the Government organization coping with this challenge?
The three major struggles that every country faces to meet a long-term sustainable plan are:
- The coordination between the different government areas. All the ministries have their respective objectives and interests that could not match with a national strategic productive plan.
- The officials must focus to solve their frequent daily problems, therefore certain inability for long-term planning emerges.
- The need to obtain significant economic results to meet with the constant elections which take place every two years, threatens to set a long-term plan.
Successful countries center their structure and efforts to resolve these main problems in order to coordinate a long-term productive public policy.
In the world are different approaches to overcome these obstacles -as an example but without being the only successful path- it is Finland which has the “Research and Innovation Council”[iv] who is chaired by the Prime Minister and advise the Government and its Ministries in important matters concerning education, research, technology, innovation and their utilization and evaluation.
The Council, established by non-partisan professional experts, is responsible for the strategic development and coordination of Finnish science and technology policy and make recommendations will enhance the quality and impact of Finnish education, research and innovation with the aim of improving competitiveness, citizens’ wellbeing and the status of the environment.
The parliament delegate in this council the authority to outline public policies that the ministries are responsible for planning and implementing. In addition, every 5 years, a revision and recommendations must be published with the aim to: “The Council’s policies and recommendations point the way to reforms that will allow Finland to continue world class research and innovation activities.”[v]
Argentina must reform their institution and established an export oriented productive long-term plan to place the country on a path of sustainable economic growth and take off from the recurrent economic crises, that have been suffering since early last century.
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