Transcript Playing monopoly with the devil

COMPETITIVENESS, SCIENCE, TECHNOLOGY AND INNOVATION:
THE EXPERIENCE IN EL SALVADOR
Manuel Hinds
February 2007
1
Agenda
1.
The original conception 1995
a)
The objectives
b)
The economic framework
c)
The institutional reforms
1.
The modernization of the state
2.
Private sector competitiveness
2.
The implementation
3.
The outcomes
2
The original conception 1995
3
To compete…
•
Not based on low wages
•
But on true competitiveness, based on:
–
Reducing all costs except wages
–
Modernizing the state
–
Modernizing the private sector
•
Privatizing it
•
Turning El Salvador into an international services center
•
The knowledge economy
•
Pump priming the process
4
Reducing costs
•
Fiscal prudence: investment grade by 1997
•
Macroeconomic stabilization: inflation at dollar levels by 1997
•
Reduction of protection, including tariffs, from average 46% (80+ in the late
1980s) to 6% average
•
Introducing full competition in strategic sectors where the government had
monopoly
–
Telecommunications: from 400,000 phones in 1998 to 4.5 million in 2006 (pop. 6 mill.)
–
Electricity
•
Privatizing telecom and electricity
•
Reducing interest rates and increasing maturities to dollar levels
5
Modernizing the state
•
Reducing the size of the state, in addition to privatizations
–
First reduction of staff in the late 1990s, 16% of the staff
–
Second stage in the early 2000s:
•
•
Ministry of Public Works from 16,000 to 400
Streamlining of strategic services
–
Customs
–
Investment procedures
6
Modernizing the private sector (1)
•
Privatizing the private sector
– Fundamental and by far the most difficult
•
Turning El Salvador into an international logistics center
– The only way to attain the volumes and quality of services needed to get
lower prices in many services
• Financial
• Transportation
• Distribution
7
Modernizing the private sector (2)
•
The Knowledge economy
– Connectivity
• Aimed at improving the productivity of the economy
• Three components
– Creation of a competitive telecom market before privatizing
– Telecenters (means)
– E-government (initial content)
– Technical schools (2004)
8
The implementation
9
Mixed implementation
Economic framework
Modernization of the
state
Largely successful
Streamlining of key
institutions
Successful, sliding
back
E-government
Substantially planned
till 2004, forgotten
Modernizing the private Privatizing it
sector
Logistics center
Knowledge society
Substantially, still 2
kinds of entrepreneurs
Mixed implementation
Connectivity
abandoned, technical
centers
10
The outcomes
11
The Index of Economic Freedom
Closing gap with Chile, then sliding back
Wall Street Journal-Heritage Foundation Scores
85
Chile
75
El Salvador
U ruguay
Mexic o
70
65
Average LA
Brazil
Argentina
60
55
50
45
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
40
1995
% of market freedom
80
But still good at number 2 in Latin America
12
In the Global Competitiveness Index, it was third in 2003, now it is fifth
Global Competitiveness Index 2006
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
Chile
Costa Rica
Panama
Mexico
El Salvador
Colombia
Brazil
Argentina
Uruguay
Peru
Guatemala
Republica Dominicana
Venezuela
Ecuador
Honduras
Nicaragua
Bolivia
Paraguay
13
The Salvadoran GCI, by activity
Score
First Stage
Second Stage
Overall competitiveness
Infrastructure
Institutions
Markets efficiency
Macro
Technical readiness
Entrepreneurs sophistication
Health and primary education
Innovation
Superior education and capacitation
Place in Latin America
3.51
3.75
3.8
4.32
4.44
3.27
4.13
6.41
2.89
3.51
5
3
4
4
7
7
9
10
10
11
14
Network readiness
Rank 2005
20
30
40
50
60
70
80
90
100
110
120
Chile
Brazil
Mexico
El Salv ador
Colombia
Uruguay
Panama
Costa Rica
Argentina
Venezuela
Peru
Dominican Republic
Guatemala
Honduras
Ecuador
Boliv ia
Nicaragua
Paraguay
SOURCE: World Economic Forum
15
The current problems
16
The political problem
•
Who speaks passionately for STI among the political leaders of the developing countries?
•
People talk about this in the leading developing regions
–
East Asia, South Asia and Eastern Europe
•
In the lagging countries, politics is moving against globalization, liberalization…
•
And toward more state intervention
•
These are the issues in:
–
Latin America, with the resurgence of the radical left
–
Middle East
–
It has been the reality of Sub-Saharan Africa for most of the last forty or fifty years
17
But the politicians…
•
Are not the problem…
•
They are the symptom
18
The shape of society
•
The new world that is emerging from Connectivity and STI is horizontal
•
Developing societies are largely vertical
– For long their economies based on vertical structures:
• protection,
• cozy arrangements between the state and private persons,
• enormous powers vested on the bureaucracy
19
A perplex and spoiled private sector
•
Very common complaints in developing countries after liberalization:
–
The government is not telling us what to do, what to plant, what to produce, at what
prices
–
The government is not giving us the incentives to invest
•
•
Meaning that it is not offering subsidies and privileges, guaranteeing that they would never lose
The skills of the old investors’ class are not adequate for the new world
–
Their expertise was how to lobby the government to get privileges
•
They are bound to disappear
•
But in the meantime they are still politically powerful
20
The natural allies of the old private investors in the lagging countries
•
The politicians
–
•
The bureaucrats
–
•
Who see a crucial source of patronage disappearing with liberalization
Who see their power diminishing radically as the government renounces to its ability to
control the economy
The general public
–
In these countries, they have captured the support of the general public
21
What should be done?
22
First and foremost…
•
•
This is about convincing people
–
Keep on doing it
–
Show the evidence
–
Remember that the single most important factor determining the success or failure of projects is the
country’s ownership of the project
Focus on the social side of it, building human capital
–
•
Which is an equalizing activity
Eventually, going back to the closed, paternalistic economies of the past will prove
unsustainable
–
The ideas to move into the future must be there,waiting
23
Scale down operational objectives, though not long-term ambitions
•
Emphasize the role of knowledge and innovation in creating value added…
–
•
Not with rocket science but with simple cases that can be demonstrated in the reality of the country
Rather than trying to transplant institutional settings from the developed to the developing
countries
–
Focus on the substance, not the form
–
A project financing the use of universities to provide innovation to companies will soon fail if the
university is incapable of producing any useful innovation
–
Do not design projects that require a degree of institutional development that you don’t have
24
Operationally, focus on pilot projects
•
To generate an emulation effect
•
Rather than on large projects, which can sink in bureaucratic
incompetence
25
El Salvador: data
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Exports performance: total exports growth
Exports of goods and services, 1992 = 1
6
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Ric a
Dominic an Republic
Ec uador
El Salvador
Guatemala
Honduras
Latin Americ a & Caribbean
Mexic o
Nic aragua
Panama
Paraguay
Peru
Uruguay
Venezuela, RB
5
1992 = 1
4
3
2
1
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
SOURCE: World Development Indicators, World Bank
27
Exports performance: Manufactures exports % of merchandise exports
Manufactures exports (% of merchandise exports)
90%
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Ric a
Ec uador
El Salvador
Guatemala
Honduras
Latin Americ a & Caribbean
Mexic o
Nic aragua
Panama
Paraguay
Peru
Uruguay
Venezuela, RB
80%
60%
50%
40%
30%
20%
10%
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0%
1992
% of merchandise exports
70%
SOURCE: World Development Indicators, World Bank
28
Exports performance: manufactured exports growth, 1992-2004
Manufactured exports
14
ARGENTINA
BOLIVIA
BRAZIL
CHILE
COLOMBIA
COST A RICA
ECUADOR
EL SALVADOR
GUATEMALA
HONDURAS
MEXICO
NICARAGUA
PANAMA
PARAGUAY
PERU
URUGUAY
VENEZUELA, REP. BOL.
12
1992 = 1
10
8
6
4
2
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
SOURCE: World Development Indicators, World Bank
29
Growth performance: manufacturing value added, 1992-2004
Manufacturing, value added (current US$), 1992 = 1
3
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Ric a
Dominic an Republic
Ec uador
El Salvador
Guatemala
Honduras
Latin Americ a & Caribbean
Mexic o
Nic aragua
Panama
Paraguay
Peru
Uruguay
Venezuela, RB
2.5
1.5
1
0.5
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
1992
1992 = 1
2
SOURCE: World Development Indicators, World Bank
30
Growth performance: GDP in real terms, 1992 = 1
1.6
1.5
1.4
Brazil
El Salvador
Latin Americ a & Caribbean
Mexic o
Colombia
Argentina
1.3
1.2
1.1
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1
1992
GDP at 2000 Dollars (changes equal to those of constant
domestic prices)
Growth in real terms, 1992 = 1
SOURCE: World Development Indicators, World Bank
31
Growth performance: GDP in current PPP dollars, 1992 = 1
GDP Current PPP Dollars, 1992 = 1
2.3
2.1
1992 = 1
1.9
Argentina
Brazil
Colombia
El Salvador
Latin America & Caribbean
Mexico
1.7
1.5
1.3
1.1
SOURCE: World Development Indicators, World Bank
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.9
32
Growth performance: GDP in current dollars, 1992 = 1
GDP Current Dollars, 1992 = 1
3
2.5
1992 = 1
2
Argentina
Brazil
Colombia
El Salvador
Latin America & Caribbean
Mexico
1.5
1
0.5
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
SOURCE: World Development Indicators, World Bank
33
The end of the interest rate discrimination
El Salvador: Interest rates in dollar equivalent
30%
El Salvador becomes investment grade
25%
Dollarization
20%
DEPOSIT
DEPOSIT
LENDING
LENDING
15%
RATE COLONES
RATE DOLLARS
RATE COLONES
RATE DOLLARS
10%
5%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0%
Source of basic data: International Financial Statistics of the IMF
34
The reduction of the spread between lending and deposit rates
ES & US: Spread lending / deposit rates
12%
Dollarization El Salvador
10%
8.4%
8%
US SPREAD LENDING / DEPOSIT
ES SPREAD LENDING / DEPOSITS
6%
SPREAD ES / US
AVERAGE LATIN AMERICA WITHOUT
BRAZIL
4%
3.0%
2.7%
2%
1.6%
0.7%
0.3%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0%
Source of basic data: International Financial Statistics of the IMF
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