Latin America's Uphill Climb to Productivity and Innovation

Latin America's productivity paradox: Stuck in a time warp, this region generates jobs but struggles with low productivity and GDP growth. Can it break the cycle and embrace innovation?

Latin America's Uphill Climb to Productivity and Innovation
Latin America seeks to embrace change and climb the ladder of technological advancement. Image by Igor Ovsyannykov from Pixabay

When it comes to productivity, Latin America often feels like that perennial underdog in the world's grand race for economic growth. Picture this: while the average American worker has been sprinting ahead, our Latin American counterparts seem to be stuck in a perpetual time warp, their productivity levels mirroring those from four decades past.

That's not a typo – it's the mind-boggling reality portrayed by José Gabriel Palma, a distinguished voice from the University of Cambridge. At a recent seminar on “Financing, Productivity, and Debt” hosted by the Faculties of Economics, he brought our attention to this conundrum that has been haunting Latin America.

We're the global champions in job creation, yet we sport the most lethargic profitability growth and a GDP expansion that's slower than molasses on a winter morning. It's like having a thriving kitchen but a stubbornly cold stove; there's immense potential but little heat.

Palma spun a vivid analogy to illustrate the discrepancy. Imagine the average American worker churning out a cool $100,000 in annual output. Now, if Latin America's worker productivity is merely at 50 percent of that figure, it means our economy is grinding along at $50,000 per head. Picture this as a “glass ceiling” hovering stubbornly at the halfway point – a barrier that Asian countries, with their relentless ambition, shatter with ease.

Latin America seems to have this peculiar quirk where we hit this ceiling, and if, by some miracle, we breach it momentarily, we swiftly tumble back down. Our productivity sits somewhere between 30 and 40 percent of the U.S. benchmark, a grim reminder of our inability to keep pace. Take the example of Singapore, which was once neck and neck with Chile; two decades later, it had sprinted ahead, leaving us in the dust.

It wasn't always this way, though. From 1950 to 1980, Latin America held its head high, occupying the fourth spot in the global productivity race. Then came the era of neoliberal reforms, trade liberalization, and privatization, which marked a transformational shift. From fourth place among 14 regions and countries, we slid all the way to the bottom, as Palma pointed out.

Our employment rate continued to rise, but it primarily happened in the services and construction sectors, areas notorious for low wages and slower productivity growth. In Chile, for instance, these sectors now account for a staggering 85 percent of total employment, up from less than half.

But it's not that we lack the ability to create jobs and generate results; it's just that our efforts tend to be ephemeral. It's as if we're sprinters in a world dominated by marathon runners – a marathon that involves keeping pace with the rapidly evolving technological landscape.

To make matters more intriguing, Latin America stands out with its sky-high inequality levels, second only to one other corner of the world. The wealthiest 10 percent of the population lays claim to a whopping 60 percent of the income, and a mere fraction of that is funneled into productive investments. Instead, it seems the region's elite prefer to squirrel away their assets in unconventional pursuits.

We have the potential to elevate our game, to delve into the realm of industrialization and technological innovation. However, we often choose the path of least resistance, sticking to what we know rather than venturing into the unknown. We're masters at processing raw materials, yet we're strangely content with the existing state of affairs.

The path to progress is frequently marked by its resistance to change. Latin America faces this challenge head-on – a lack of productive flexibility that hinders our ascent on the economic ladder. But fret not, dear readers, for also comes an opportunity for transformation. Latin America's journey might be peculiar, but as long as we embrace change, update ourselves, and boldly climb the technological ladder, the finish line is still within our reach.