As we enter the second quarter of 2017, the global economy is experiencing its sixth year of stagnation, and the growth outlook does not indicate any improvement. Consumers and businesses share a sense of anxiety, uncertainty and reticence regarding both the economic and political environment across the globe.
A Philanthropic Awakening in Latin America
For a long time standing now, “Latin American philanthropy” has been considered an oxymoron. Traditionally, wealthy Latins and corporations have had deep pockets but short hands, believing it the role of the public sector to fund charitable and philanthropic endeavors while keeping their own wealth in the family, shipping it offshore or giving it to the Church.
The times they-are-a- changing, however; for without much fanfare we are witnessing a growing awareness among the wealthy and corporations–principally through corporate foundations in the region–that philanthropic giving and social engagement are critically important and highly beneficial for their nations, to society, their companies and themselves. (It should be noted that most countries in Latin America use the term “private social investment” rather than philanthropy.)
By Jerry Haar and Krystal Rodriguez
The dictionary definition of crucible is “an extremely difficult experience or situation; a severe test or trial”. This is precisely where most of Latin America finds itself with its excessive dependence on commodities as the linchpin of its economy. In good times governments spend commodity windfalls on projects or programs to garner support for the political party in power. In bad times, politicians engage in handwringing and scapegoating, and the governing party borrows excessively to make up the shortfall in revenue from commodity sales.
The last few years have not been kind to Latin America, economically speaking. And that is an understatement. The region has experienced two consecutive years of negative growth (-0.1% and -0.5%). 2017 will bring a slight improvement only.
Recognizably, the main culprits in the projected contraction are Argentina, Brazil, Ecuador and Venezuela–accounting for 50% of the region’s GDP. As for foreign direct investment (FDI), inflows reached $171.84 billion in 2015, down almost 12 percent from the $195 billion in 2014. This contrasts with a 36% increase in FDI around the world. Add to the mix a continuing depression in commodity prices (slowdown in China), corruption scandals, high interest rates, and urban crime and violence, and the forecast is gloomy overall.
However, among the storm clouds that will continue to hover over the economies of the region, there are indeed a number of pockets of sunshine—the brightest being the rapid proliferation of start-ups, both tech- and non-tech based, and the pace of innovation throughout the Hemisphere. Last year, start-ups in Latin American ballooned to 1,333 and accelerators to 62, with investment approaching $32 million. Chile leads the way, with 3 times the investment of Brazil. In terms of numbers of start-ups, Chile had 442, Mexico, and Brazil 297.
While start-ups pop up serendipitously, it takes the formation of an “ecosystem” to fuel the growth, interaction, and dynamism necessary to foster and expand innovation. Ecosystems of innovation, as referred to here, are communities of interacting parties–business, government, academe and non-profit organizations. They can be national and subnational (Chile, Uruguay, Costa Rica) or can be found in clusters (aerospace in Querétero, Mexico; IT in Campinas, Brazil; sugar cane, Valle de Cauca, Colombia). As Ricardo Ernst and I point out in our new book Innovation in Emerging Markets, an ecosystem’s drivers are innovation are national policies, facilitating institutions (such as Colombia’s Colciencias), and firm-level innovation. We find also that facilitating institutions, themselves, can have far greater impact than government or individual firms. Examples include Techstars, 500 Startups, Endeavor, Wayra, and NXTP Labs.
Just what are the key ingredients that comprise a successful ecosystem of innovation? Any research-based assessment and extensive conversations with entrepreneurs, other business professionals, and government officials would most likely agree that the list encompasses:
- Large pool of skilled talent
- Installed and diffuse technological base (e.g., broadband networks)
- Dedicated infrastructure of research universities, labs and entrepreneurship instruction
- Ample funding (angel investment, venture capital, convertible debt, microfinance, crowdfunding)
- Networks and collaboration among financiers, entrepreneurs, scientists, technologists, and designers
- An environment that nurtures, supports and sustains creativity
- Mechanisms for the fast transfer of knowledge
- Strong intellectual property laws and surety of enforcement
- Pro-market economic, tax and regulatory policies
- Well-functioning administrative, legal and judicial systems
- Federal, state and local industrial policies—especially those targeted at “clusters”
Although Latin American ranks low on the 2015 Global Innovation Index–Chile is #1 in Latin American but #42 overall–it is the second most entrepreneurial region in the world, according to the World Bank. Its Internet and mobile density is higher than the world average.
Although covered only minimally in the North American and European media, every nation in Latin America–and the Caribbeaan–is home to start-up activities. To illustrate, Dev.F (Mexico) brings software development techniques to that nation; Platzi (Colombia) provides an online learning platform for IT and programming courses; HubUnitec (Honduras), Impact Hub (Guatemala), and Atom House (Colombia) provide co-working and meeting spaces for young techies; and initiatives like Laboratoria (Peru), Epic Queen, and WomenWhoCode assist female start-up entrepreneurs to achieve success.
As for financing start-ups, here, too a myriad of resources such as Venture Club (Panama), Kaszek Ventures, Guadalajara Angel Investors, and Ideame, a crowdsourcing financing platform.
Successful ecosystems of innovation result from the synergy created by universities, R&D centers, talented human capital, investors (venture capitalists and angel investors), professional associations, and the private sector and government working to achieve sustainable competitiveness.
While 2017 will usher in another lackluster year for the region in terms of economic performance, with only a few countries achieving notable success, the rapidly emerging ecosystem of innovation will continue unabated and provide limitless opportunities for both technology- and non-technology entrepreneurs across the region.
Jerry Haar is a business professor at Florida International University and a global fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C. He also holds non-resident appointments at Georgetown and Harvard. His latest book is Innovation in Emerging Markets.
The toxic display of rude behavior and character assassination that has become a hallmark of this presidential primary season is matched only by the disturbing manifest ignorance by some of the candidates about economic issues.
We have heard, ad nauseam, epithets such as: “We don’t make things anymore . . . We keep sending our jobs overseas . . . China and Mexico are killing us on trade deals . . . The Chinese manipulate their currencies.”
Each one of these assertions, aimed at riling up the voting public, is absolutely false.
Let’s see what the truth actually is:
▪ “We don’t make things anymore.” This one is the mother of all lies. U.S. manufacturing is strong, growing larger, and more productive and competitive than ever — especially in machinery, electronic equipment, aircraft and vehicles, America’s top four exports. However, it is less labor-intensive as technology (including robots) substitutes humans — a global trend, impacting rich and poor nations alike, including China. Nonetheless, the $2.5 trillion U.S. manufacturing economy faces a shortage of 2 million skilled jobs over the next decade. Both foreign direct investment (FDI) and exports are drivers of America’s manufacturing competitiveness. FDI in manufacturing exceeds $1 trillion, with motor vehicles most prominent (e.g., Honda in Indiana, Nissan in Tennessee, Mercedes in Alabama, BMW in South Carolina). U.S. auto exports (2 million vehicles) set a record high last year.
▪ “We keep sending all our jobs and moving our factories overseas.” Despite all the hysteria over the U.S. outsourcing more and more of our jobs, it affects less than .2 percent of employed Americans. Less than 20 percent of workers affected by outsourcing lose their jobs; the rest are repositioned within the firm. In recent years more and more companies have beenbacksourcing — bringing outsourced work back home. As for “runaway plants,” many of those overseas plants source inputs from the United States. The Mexican operations of Ford and GM, for examples, source 65 percent-75 percent of their components from U.S. plants.
▪ “China and Mexico are killing us on trade deals.” The United States has no free trade deals with China. As for Mexico, part of NAFTA along with Canada, trade has increased 632 percent since the accord was implemented 22 years ago. It now equals over $1 trillion and produces a trade surplus for the U.S., not a deficit. Here’s the math: Mexico sold $290 billion to the U.S. in 2014 — $166 billion was U.S. content, which added to the $240 billion we exported to Mexico renders a surplus for the U.S. of $162 billion. As for other trade deals, next up on the docket is the Trans-Pacific Partnership involving the U.S. and 11 signatory countries. Opposed by a number of the candidates, the agreement eliminates over 18,000 different tariffs on American exports and includes the strongest worker protections of any agreement in history.
“The Chinese are manipulating their currency.” The fact is that every central bank — including the Fed — has the legal monopoly power to fix its exchange rate to achieve price stability or full employment. The U.S. does this through the federal funds rate. It is comparative advantage that drives trade regardless of monetary policy. From 2004-2014 the dollar depreciated 25 percent against the yuan while our deficit with China more than doubled! Nevertheless, as the yuan continues to gain value, expect China to buy more goods and services from the United States; to invest more here ($36 billion currently); to purchase more government securities and to send us more tourists and students.
The xenophobic, protectionist rants of neo-populists of both the left and right prey upon the anger, fear, and limited economic knowledge of voters.
The American people deserve better from those who vie for the highest office in the land.
At the same time citizens have the responsibility to educate themselves to learn the facts and make the most sensible presidential choice for in November.
Jerry Haar is a business professor at Florida International University and a senior research fellow at Georgetown University’s McDonough School of Business.