Elites and Structural Inertia in Latin America: An Introductory Note on the Political Economy of Development

Article excerpt

In the post-reform era, Latin America has reinforced its pattern of specialization in natural resources and standardized commodities and its growth rate has diverged from that of one of the most dynamic economies in recent years. Additionally, many experts and international organizations consider that the persistent income inequality that permeates the entire region is a matter to be addressed, mainly through social policy.

While it is acknowledged that innovation is ubiquitous in all processes of economic development, the importance of the interaction between innovation, production structure and income distribution process is not always recognized. Innovation represents a break from past familiar practices, a considerable uncertainty about how to make the new practice work effectively, a need for sophisticated learning by doing and using, and, consequently, and a process of creative accumulation and structural change.

This paper deals with the idea that the production structure and the diversification of knowledge activities define the feasible set of conditions for income distribution and elite concentration. Our starting point is the body of ideas pioneered by Prebisch and Fajnzylber on the negative effects of natural resource specialization and concentration of property rights in terms of income distribution and the balance of political power between different social groups. They assert that highly concentrated ownership of natural resources combined with a proportionally small sector of other manufacturing activities is a source of income inequality and further concentration of political power (Prebisch 1976; Fajnzylber 1990).

In fact, the relationship between structural change and economic development may be traced back to the analyses conducted by the development theory pioneers (Nurske 1953; Hirschman 1958; Gerschenkron 1962). Structural change would allow increasing returns and technological learning; and a growing share of industrial sectors in total value added would generate spillover effects, backward and forward linkages and technological externalities, and this in turn, would accelerate capital accumulation and growth. The recent literature on innovation highlights the role of technological change in shaping structural change and growth (Dosi 1988; Dosi, Pavitt and Soete 1990; Cimoli and Della Giusta 1998; Ocampo 2005). Furthermore, a more complex production system requires policies capable of managing complementarities and public activities in such a way as to generate and spread knowledge (Metcalfe 1995; Cimoli et al. 2006b). Economies that are able to foster innovation and transform their production structure by increasing the proportion of R&D (research and development)-intensive sectors or production stages will converge on developed countries in terms of growth rates and per capita income.

By examining the sources of structural change, the paper will shed light on the role played by the elites in the structural inertia of Latin America. The evidence supports the notion that a diversified knowledge structure generates and distributes rents in a more equitable way. Rents are distributed according to the different competencies (skills and capabilities) and complementarities needed to produce complex products that incorporate knowledge. A knowledge-intensive, diversified structure regulates market power asymmetries in favor of those activities that further stimulate knowledge generation and diversification. Conversely, a production structure based on natural resources and specializing in activities that use cheap labor generates rent-seeking behavior that reinforces that pattern and resists structural change. When a small social group monopolizes this type of power distribution, there is even more reason for resistance to the implementation of policies to change the production structure. Thus, policies that promote diversification of production activities and transform production structure have to be accompanied by endogenous incentives on the part of the social groups that generate and diffuse knowledge. …