Technological leaps depend on state support for innovation, says economist

Anglo-Venezuelan economist and honorary professor at University College London (UCL) and the University of Sussex, in the United Kingdom, Carlota Perez is considered one of the great specialists in the relationship between technological changes and the economy and their consequent political and social impacts.

Invited by FolhaLab+ iFood, she taught the inaugural class of the New Economy for Journalists course, with the online participation of about a hundred subscribers.

The course schedule, aimed at communication professionals and students, lasted two months and included specialists and guest professors, who discussed the main aspects and challenges of the so-called new economy.

Executives and CEOs of companies and startups also participated, who spoke about their trajectories and analyzed perspectives for the future.

Speaking from London, Carlota Perez divided her class into three parts interspersed with questions from students. In the first one, the professor addressed the recurrent patterns of technological revolutions, understood as passages to another technical and economic paradigm, in which the previous system becomes obsolete and another way of thinking and operating companies emerges.

According to her, we are currently experiencing the fifth technological revolution, which began in the 1970s with the emergence of microprocessors and personal computers.

For Perez, making something cheaper is always at the heart of a technological revolution. If the reduction in oil exploration costs was crucial for the fourth revolution, that of mass production, the one we are experiencing today had its impetus with the cheapening of microchips.

It is these microchips that, through the development of telecommunications and the internet, have allowed the transition to an era of cheap and flexible production, with economies of scale and a wide variety of products and services. The opportunities for a leap in productivity and development are enormous, but, according to the professor, it is necessary to know how and where to take advantage of them.

“We may have a bonanza ahead of us after the political turbulence we have been experiencing with the increase in inequality and populism. Today, as in the 1930s of the last century and in the 1890s, unemployment is structural, even if hidden by the fact that there are many people employed earning much less than before”, she says.

For the professor, the current situation is similar to the periods mentioned because of economic stagnation, recessions, xenophobia, financial speculation, social unrest, political division and the emergence of messianic political leaders. “It’s always good to remember that Mussolini and Hitler were elected,” she says.

In the scholar’s opinion, overcoming instability would only have been possible through a proactive role on the part of the State, although no country has done this without a dynamic private sector. The same formula would have applied in all cases.

“A State focused on promoting development, more enterprise, innovation, education and the market. Everything together. The standards of the technological revolution are spread from certain countries, but everyone has to take advantage of the opportunities that emerge”, he says.

In the second part of the class, Perez showed how development possibilities change over the decades and defended the need to take advantage of them in time so as not to be lost.

As an example, he mentioned Import Substitution Industrialization (ISI). “A policy that allowed the growth of Latin America and the creation of a middle class. Afterwards, it became an obstacle for us to take another leap, but it was an opportunity at that time.”

Between the 1950s and 1970s, almost the entire region would have taken advantage of a favorable circumstance to increase productivity. Although it took place with the expansion of inequality, Brazil, with its gigantic internal market, particularly benefited from this initiative and had a general leap in possibilities.

However, Latin America did not know how to take advantage, as the Asians did between the 1980s and 1990s, of ISI’s transition to competitive exports. “Latin American countries have not learned to innovate as a way to grow. Globalization and the free market have not resulted in a usable opportunity. The free market works for other things, but not for leaping forward in productivity and development.”

The result is that Latin America is at the bottom of the world when it comes to increasing productivity from 1980 onwards. “We didn’t know how to take advantage of the computer revolution, so we can’t miss the opportunities that are opening up now”, says Perez.

For the professor, Latin America, and especially Brazil, can benefit from a globalized economy that, on the one hand, needs natural and energy resources and, on the other, has segmented markets with requirements of social equity and environmental commitment —already reality in the world of finance.

The challenge of the current revolution would consist, above all, in combining more natural resources, technology and social inclusion for sustainable environmental and social development.

After all, although some may still see preservation as an impediment to development, it opens up important opportunities. And Brazil, for Perez, can lead the leap towards development with quality of life. For this, however, appropriate policies are needed.

Large companies are still relevant, but there is room, according to the economist, for different local groups of medium and small companies, research and high technology services, which can generate additional markets for the large companies.

Unlike the mass production model of the previous paradigm, intelligent laws and technical and financial support are able to create a “crowd of profitable small and medium-sized companies and employers in every corner of the territory, producing from ultra-processed products to organic foods, from standardized products to custom-made ones”.

For this, however, it is necessary that the State and the market are well articulated, the theme of the third part of the class, entitled “Neither State nor Market, Both at the Same Time”.

“More State or more market? Before, I didn’t ask that. It was understood that both went together. Since Milton Friedman [economista americano, 1912-2006], began to believe in things that are not true. History shows that no country has made a leap towards development without state intervention.”

For her, successful national projects follow a pattern: opportunities are identified and appropriate institutions are created for their promotion, raising the technical capacity of the State. The key point is financing.

“It is imperative that there be a clear direction for prioritizing financial resources, which depends on strong policies and a consensus between society and the business world.”

Perez regrets, on the one hand, that today many governments and politicians remain trapped in the centralized model of mass production and the States are permeated by an excess of regulations; on the other hand, that economic elites remain clinging to the illusion of a minimal state and free market. “An illusion that didn’t work”, he evaluates.

The governments of the most developing countries currently support and finance technological advances in infrastructure, education, science, technology, etc. “There are no big leaps without strong public support for innovation. Elon Musk, although he hides it today, had his first investment financed with state money.”

Development, warned the professor, must be linked to full employment and well-being for all. For her, economic progress devoid of social progress is unstable.

The current technological revolution, however, favors this balance insofar as it is supported by the use of natural resources, the improvement of rural life and the reduction of the population flow towards the cities, the reduction of the informal economy, the rescue of community and local values and in attractive to work at a distance.

“In the 1960s and 1970s, we had a protectionist State. From the 1980s onwards, a non-intervening State. From 2020 onwards, we need a promoting, active and innovative State. But success will depend on institutional innovation efforts, based on consensus between government, business, educational system, trade unions and social organizations”, he says.

“The new era will accelerate changes in production methods with increased demand for a green economy and sustainable lifestyles. We have to seize the opportunity”, he adds.

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Carlota Perez, 83

Anglo-Venezuelan economist and honorary professor at University College London (UCL) and the University of Sussex, in the United Kingdom, she is considered one of the great specialists in the relationship between technological changes and the economy and their consequent political and social impacts. Invited by FolhaLab+ iFood, she taught the inaugural class of the New Economy for Journalists course, with the online participation of about a hundred subscribers