TECHNOLOGICAL ADOPTION, HUMAN CAPITAL AND JOB CREATION. William F. Maloney The World Bank Lima, July 2015

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1 TECHNOLOGICAL ADOPTION, HUMAN CAPITAL AND JOB CREATION William F. Maloney The World Bank Lima, July 2015

2 TECHNOLOGICAL ABSORPTIVE CAPACITY A critical missing factor in LAC productivity growth

3 MYSTERY I. HOW CAN THE SAME GOOD HAVE RADICALLY DIFFERENT IMPLICATIONS FOR DEVELOPMENT? Maloney and Valencia, 2015

4 Introduction of New Technologies-Rio Tinto Spain US: basis of knowledge network for industrialization Japan: Sumitomo, Furukawa- Major conglomerates today Introduction of New Technologies in Chile Maloney and Valencia, 2015

5 THE KEY: DIFFERENCES IN ABILITY TO ADOPT AND ADAPT NEW TECHNOLOGIES. Engineering Density 1900 Maloney and Valencia, 2015

6 MULTIPLE CONVERGENCE CLUBS Need minimum frontier adjusted human capital to adopt/invent new technologies. Aghion et. Al. (2005), Howitt (2000), Howitt and Mayer(2005): 1. Stagnation Eq: Chile 1900 Low skills, low wages, even lose industry. 2. Adoption Eq. Grow at world rate of technological progress. 3. Invention Eq: Europe/US 1900 & now- define rate of progress and reap quasi rents from inventions. LA experienced retrogression in mining industry: from Eq. 2 to Eq. 1. Electronics Today? Protectionism inverted: ISI a result of weak innovation capacity. (Haber 2005)

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9 WHO DEMANDS THESE ENGINEERS/KNOWLEDGE?: Entrepreneurial Human Capital and Learning

10 MYSTERY 2: SAME BUSINESS AND INSTITUTIONAL CLIMATE, DIFFERENT ENTREPRENEURIAL OUTCOMES Percentage of Firms Owned/Managed by Immigrants Country Year Immigrants as % Owners Immigrants as % Population Argentina Brazil (Sao Paulo) Chile Colombia (Antioquia) Colombia (Barranquilla) Colombia (Santander) Mexico Ex Samurai Japan (Shizoku) Source: Maloney (2015) Ratio

11 WHAT MADE IMMIGRANTS MORE ENTREPRENEURIAL THAN LOCALS? Structure of Payoffs affects choice between productive and unproductive entrepreneurship. (Baumol, North, Murphy & Shleifer) Rent seeking structures? Baumol: Social values: Romans- disdain for manual labor Communicated to LAC via 7 partitas, culture. Human capital? Knowledge of tech frontier Values: Move with immigrants Managerial Capacity Technological Literacy Baumol Inverted?: Human capital determines perceived and effective pay offs: If can t do technology, do rent seeking.

12 CHILE: RETROGRESSION IN ENTREPRENEURIAL CAPACITY E. Mac-Iver (1900) ''Chilenos didn't lack either an entrepreneurial spirit, nor the energy to work, characteristics which are incarnate in the first railroads and telegraphs, in ports and piers, the irrigation canals in the central valley. But these qualities have been lost.'' In fact Dominated Nitrate Industry in Peru response to copper price rise: 4X rise in output Rapid response to wheat prices shock in land cultivated during gold rush : 10 fold Not intrinsic Peninsular laziness.

13 BECAME ENTREPRENEURIALLY INADEQUATE Lack of Long Time Horizon and risk management: "qualities little appropriate for industrial activities in the degree to which the Chilean had an 'obsession for fortune at one blow (Encina1911) Basic Business Skills: Surprising ignorance of established merchants techniques, accepted and in common usage in Europe for centuries, like letters of exchange, double entry bookkeeping, or banking operations.'' as well as a ``lack of basic theoretical knowledge of credit, simple and compound interest, amortization, capitalization, banks, etc.. ' Silva (1977). But learned from Immigrants: It is worth noting that the entrepreneurial spirit united with the motivation to apply new techniques was almost always the result of initiatives on the part of foreigners who came to Chile and saw opportunities to develop or solutions to problems based on practical experience. They brought a greater tradition of information, spirit of action, attention to detail, and urgency to capitalize on the results or resources generated; these were not common traits of the average inhabitant of the country, whose nature of work was little developed beyond the artesanal level (Villalobos 1990). And catch up to adoption eq: Traditional Elites dominate banking, other key sectors by Zeitlin (1988); CODELCO

14 MYSTERY 2: SAME BUSINESS AND INSTITUTIONAL CLIMATE, DIFFERENT OUTCOMES Percentage of Firms Owned/Managed by Immigrants Country Year Immigrants as % Owners Immigrants as % Population Argentina Brazil (Sao Paulo) Chile Colombia (Antioquia) Colombia (Barranquilla) Colombia (Santander) Mexico Ex Samurai Japan (Shizoku) Source: Maloney (2015) Ratio

15 ENTREPRENEURIALLY ADEQUATE COULD EXPERIENCE RETROGRESSION IN TECHNOLOGICAL ADVANCE Antioquia mining exports led to new ways of being modern. Then lost it. Interaction of capacity and competition? Modernization without Modernity?

16 HOW ARE WE TODAY? Same Process of Entrepreneurial learning?

17 LAC IS VERY WEEK IN MANAGEMENT SKILLS, LONG RUN PLANNING, HUMAN RESOURCE POLICY- NO PARTNER FOR INNOVATION POLICIES Source: World Management Survey(2015)

18 IT S NOT JUST THE LEFT TAIL-LAC LAGS IN ITS BEST FIRMS, TOO. 50th 10th 90th El 25% más alto de Colombia presenta resultados similares que el 25% más bajo en Estados Unidos Fuente: WMS, DNP, BM

19 AS HISTORICALLY, FIRMS DON T KNOW WHAT THEY DON T KNOW- PROBLEM OF LEARNING, AGAIN Brecha Autopercepción- Realidad Fuente: WMS, DNP, BM

20 TECHNOLOGICAL PROGRESS AND THE LABOR MARKET? Good jobs or no jobs?

21 POLARIZATION ACROSS SKILL TYPES Autor 2010

22 IT S A GLOBAL PHENOMENON-TECHNOLOGY RELATED?

23 THE SECOND MACHINE AGE? Brynjolfson and McAfee (2014)- Inflection point in tech: Second Machine age growth in productivity decoupled from jobs and income. Uberization: Services on demand, but without labor? LAC- already there? Tyler Cowen: 10-15% will do super well. The rest? Robert Gordon- Hyper pessimistic- Huge skew in distribution

24 TECHNO-OPTIMISTS Autor: journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities that increase productivity, raise earnings, and augment demand for skilled labor. Of course requires education: LAC- abundant in type of labor that will be displaced?

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27 LAC?

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31 GRACIAS

32 REFERENCES Engineers, Innovative Capacity, and Development (2015) with Felipe Valencia Caicedo Entrepreneurship, Human Capital and Development in the Americas Notes on Polarization in Latin America?