By Eduardo Bitran, CEO and Deputy Chairman of the Chilean Economic Development Agency (CORFO).
To learn more about countries’ strategies for economic transformation, learn about the 9th Plenary Meeting of the OECD Initiative for Global Value Chains, Production Transformation and Development hosted by the Economic and Social Commission for Asia and the Pacific (ESCAP) in Bangkok, Thailand on November 2017.
Chile is considered a success case, and Chileans today are much better off than a decade ago. However, inequality is persistent and the knowledge base of the country is still limited. What the country also faces is a productivity challenge. Chile’s total factor productivity growth has decreased from 2.3% per year in the 1990s, to a yearly rate of 0.3% from 2000 to 2009, and then to -0.2% after 2010. These trends lasted through several government terms. So, what needs to be done to sustain the country on its path towards development?
One may think a solution could be innovation in natural resources sectors. Under certain circumstances, innovating in mining, for instance, will help increase productivity, ensure sustainability, develop technology services that would diversify the country’s production structure and enable more inclusive growth. While mining, fishing, aquaculture and forestry were essential to Chile’s economic growth in the 1990s, productivity in these sectors fell due to both exogenous factors (reduction in copper yield, climate change) and endogenous factors (overexploitation of renewable resources). Chile has not yet been able to deeply transform its economy and it has been trapped in an economic structure with little innovation and insufficiently diversified exports.
Another solution could be joining the technology revolution. One may, for example, ask: How can Chile harness the potential of the digital revolution and increase productivity in production and services? How can we promote new economic activities that include higher value added and embed both manufacturing and services?
Disruptive technologies often put pressure on economic structures. Economic development policies could consider measures to correct externalities and uncertainties brought on by technological changes. Horizontal measures, such as fiscal incentives for research and development, are possible instruments. Still, policies need to support industry-specific coordination failures and provide public goods. For example, the Internet of Things (IoT) requires standards for digital interoperability. But these standards are industry-specific, so it is important to focus limited resources in key sectors, where the potential first-mover advantage or the impact of new technologies are higher.
In 2014, Chile started developing a digital transformation agenda with clear roadmaps and coherent actions on several economic activities, focusing on construction, health services, mining and fruit production, amongst others. Through public procurement, the Chilean government has an important role to play in spurring demand for construction and health-related economic activities that suffer from critical productivity gaps. Capitalising on this role, the State is establishing specific standards to ensure interoperability, creating shared technological platforms and advanced human capital. These measures already show results. In mining, benefits from greater interoperability standards can be seen, promoting technological services for smart mining through open innovation platforms. These platforms are public goods jointly financed by the government and the private sector. Consider Chile’s potential to transform the mining sector into a leading green mining and downstream manufacturing sector. Also, Chile could become a clean energy exporter by leveraging its natural endowment. The country has the world’s best solar radiation and it hosts the world’s largest lithium reserves. This reality can foster innovation and knowledge in components for electric vehicle batteries and hydrogen production.
Like other OECD countries that design strategies to overcome their productivity gaps by facilitating coordination between the state, business, academia and civil society, Chile is following the same path. We are working to elaborate roadmaps to capitalise on innovation and technology where the public sector and business join hands and finance strategic activities. Chile’s Smart Strategic Specialisation Programmes, driven by the Ministry of Economy and the Chilean Economic Development Agency (CORFO), contribute to those efforts by creating an environment of deeper trust, shared knowledge and co-operation.