This post is a summary of the reports published at BBC.co.uk/Portuguese, on July 13, 2012 and written by Marcelo Justo, with the title above, and translated by me. The other was published at FEDESAROLLO.org.co, on June 2012, with the title: "Growth determinants in Latin America and East Asia: Has globalization changed the engine of growth?"
In 1980, the industrial production in Brazil was greater than Thayland, South Korea, Malaysia, India and China together. Thirty years later, represent 10% of what is produced in those countries. The same happened in other L.A. countries, but why L.A. was left behind in the global economy?
To clarify these reasons, BBC talked to Profesor at the Cambridge University Gabriel Palma, specialist of comparative economics.
BBC - You have pointed in your researches that the economic growth in Asia has been kept for decades, while in L.A. oscillates between boom and bust, why?
Gabriel - Since the1980s South Korea, Cingapure, Malaysia and Thayland has grown on average 7%. China and India 9%. But this does not mean that L.A. have not the capacity to grow, on the contrary, Argentina, Chile, and Peru in the 1990s, Brazil and Mexico in the 1970s had growth rates similar to those of Asia. The difference is that the growth in L.A. was not sustained and in my opinion there are three reasons for this. 1ª) private investment rate is 30% of GDP in Asia, while in L.A. on average is 15% of GDP. 2ª) economy policies in Asia with competitive exchange rate and low interest rate. 3ª) the liberalism of commerce in Asia was slow and selective. This gave time to them adapt to the changes. In L.A. everything was done overnight, the result was a huge confusion.
BBC - While Asia adopted the pragmatism, the L.A. embarked in fundamentalism, it mean that this delay is due to more historical and cultural aspects than economic?
Gabriel - From 2002 to 2007. L.A. grew between 4% and 4.5%, but the value of the financial assets, included stock exchange and public and private securities grew more than 30%. The same illusion that contaminated the develop countries, the belief that the economy could grow independent from productivity, tech innovation, the real economy.
BBC - So, the skepticism common in the Asia society, explain its economic success?
Gabriel - In L.A. the elite have preferred the financial sector than the risks of the market. The profitability is three times higher than in other places. It has been critical to the deindustrialization of the region, the lack of economic diversification, the lack of tech apparatus. L.A. abandoned its industrial policy with the idea that could grow with commodities and finances.
The ingredients of East Asia success.
1ª) High degree of integration into the global economy as exporters.
2ª) Investment which encourages tech upgrading geared to strengthen competitiveness
3ª) Industrial policy that has thrived via the diversification of the structure of exports towards a more dynamic structure in high and medium tech products.
1ª) High degree of integration into the global economy as exporters.
2ª) Investment which encourages tech upgrading geared to strengthen competitiveness
3ª) Industrial policy that has thrived via the diversification of the structure of exports towards a more dynamic structure in high and medium tech products.
4ª) Higher degree of socio-economic inclusion through a focus on the tech capacities through education and innovation and diffusion of productive assets.
Pragmatism - a realistic and sensible approach to something.
Fundamentalism - strict following of the basic underlying of any system of thought.
Skepticism - doubt about the truth of something, disbelief in any claims of ultimate.
