China News Service, Beijing, October 7 Title: Why is Latin America and China's performance different in globalization?
By Carlos Alberto Aquino Rodriguez (Peru)
Latin American countries and China are both developing countries, and in the past 40 years, they have been committed to pursuing economic growth through opening up. China has successfully seized the opportunity of globalization to become the world's second largest economy and declared a moderately prosperous society in an all-round way. And almost all Latin American countries have performed mediocrely in recent decades. What causes these two different results? How has China used globalization to benefit its country and people?
Infographic: View of the container terminal and the Qianhai Towers in the distance from the sea. Photo by China News Service reporter Sultan
Why has Latin America not seized the opportunities of globalization?
Since the 1980s, Latin America has seen the slowest economic growth in the world. Latin American economies adopted closed protectionist measures in the 1950s and continued to open up to the outside world in the 1980s. Opening up was necessary because the economies of Latin America were exacerbated by the debt crisis caused by excessive indebtedness, severe inflation caused by excessive government spending, and the bankruptcy of public companies.
However, latin America has not been able to fully seize the opportunities of globalization, especially after the 1990s. Why is that?
First, economic openness has privatized many state-owned companies and more foreign capital flows, which in Latin America also means more loans and foreign debt. Some countries, such as Argentina, were once again facing external debt servicing problems, while others, while increasing exports and increasing foreign investment, remained dependent on raw material exports.
Second, economic openings have also reduced tariffs, which have led to cheaper foreign products, but have also exposed domestic companies to more intense market competition.
Third, Latin American countries have invested little in infrastructure for many years. Better use of globalization requires a corresponding transport network, such as larger ports and airports.
Fourth, Latin American countries have under-invested in human resources and research and development. To occupy a favorable position in the global industrial chain, raw materials need to be converted into industrial products. However, to this day, the economic structure of many Latin American countries is still relatively thin, mainly relying on the export of raw materials.
Why should Latin America continue to export raw materials? Or should we ask, why doesn't Latin America export higher value-added products?
One of the main reasons is the lack of human resources to transform these raw materials. Latin America has not created a qualified workforce or professionals for this purpose, has not developed the necessary human capital, has not had the science and technology needed, and has not invested in research and development to transform raw materials into higher value-added products.
In terms of R&D investment, Latin American countries spend an average of only 0.5% of GDP (Peru has just arrived at 0.1%). Developed countries, such as OECD countries, account for an average investment of more than 2%, China accounts for more than 2%, and Israel and South Korea account for 4%.
Infographic: Brasilia, the capital of Brazil, where local students attend schools.
In addition, many young Latin Americans prefer to choose humanities and social sciences majors at university, such as HSLE (the acronym for humanities, social sciences, law, and education), rather than natural science majors, such as STEM (i.e., the acronym for science, technology, engineering, and mathematics).
In East Asia, such as China, the proportion of college students studying STEM majors is 48% and HSLE majors is 24%, while in Latin America, the proportion of STEM majors is 17%, and the proportion of HSLE majors is 63%.
Why is that? One of the reasons may be that Latin American primary and secondary school students have lower levels of mathematics and science and are therefore more inclined to major in the humanities and social sciences. This can be seen in the International Student Assessment Project (PISA) test, which is a research project conducted by the OECD on the evaluation of mathematics, science and reading comprehension skills of 15-year-old middle school students, and Latin American countries rank low in the world.
Another reason for the failure to take advantage of globalization is the relative weakness of Latin American countries, and the lack of meritocracy and accountability in public office has led to a growing problem of corruption. This not only creates the problem of low economic growth, but also increases economic and social inequalities.
Why can China use globalization to benefit its people?
So how should Latin America use globalization to achieve development? China is an example worth studying. China began its reform and opening up in 1979, using foreign investment and technology to develop increasingly complex industries, creating a large number of jobs and lifting many people out of poverty.
This is possible in China because there is an elite-based government that has established a strong and stable system to promote business development. At the same time, China also has a competitive education system, such as China ranking first in the PISA test, and in a test in 2018, China ranked first.
Data map: Aerial photo of the new landmark of Shenzhen Bay - the charm of "spring shoots". China News Service reporter Chen Wen photographed
Shenzhen, China is a good example. The city, which grew from a small fishing village, began to reform and open up in the 1980s, set up special economic zones to attract foreign investment, and joined forces with state-owned enterprises to export low-value-added labor-intensive products to the world, such as assembling televisions and bicycles.
However, China has not stopped there, but has continued to transform into knowledge-intensive and capital-intensive industries by investing in education, science and technology, learning from the world's leading technologies, and independent innovation. Today, Shenzhen no longer produces cheap labor-intensive products, and has successfully transformed into "China's Silicon Valley" to produce high-tech products. That's why Chinese high-tech companies like Huawei, ZTE, and Tencent, as well as DJI, the world's largest drone maker, are headquartered in Shenzhen.
At the same time, China's infrastructure has also reached the world's leading level, with modern ports, airports, railways, power plants and so on. It is in these areas that China can help Latin America. Many Latin American countries have joined the Belt and Road Initiative and should take this opportunity to modernize their infrastructure.
Data map: The scene of the material delivery ceremony of the China-Cuba Climate Change South-South Cooperation Project. Thunder shot
Latin American countries must learn from China's experience, absorb foreign technology, and innovate independently, so as to get rid of their dependence on raw material exports.
At the governmental level, while there may currently be a tendency in Latin America to place more emphasis on protectionism and greater state intervention, unfortunately, this tendency has also been felt before and has almost failed.
This wave, which emerged at the beginning of this century, such as Lula in Brazil, Chávez in Venezuela, and Kirchner in Argentina, did not succeed. This is why neoliberalism has re-emerged, but many Latin American countries have not succeeded, so there has been another wave. Oscillating from side to side, this phenomenon has been around in Latin America for decades.
What the world needs are elite governments with strong institutional advantages that invest in education and infrastructure so that they can take advantage of globalization for better access to technology, capital, commodities and markets.
It should be noted that China has been the most successful in being able to use globalization to improve people's living standards.
In the future, the world needs a globalization with clear rules that allows countries to benefit from it, an open trade and investment system, no protectionism, no trade wars, and avoiding unfair trade practices.
In order to better seize the opportunities of globalization and acquire the machinery, materials and new technologies needed to develop their industries, developing countries in Latin America, Asia and Africa must invest in education and science and technology, and must learn from the successful experiences of other countries, such as China, which have achieved satisfactory results: not only economic growth, but also increased people's well-being. (The writer is director of the Center for Asian Studies at the National University of San Marcos, Peru)
About the Author:
Carlos Alberto Aquino Rodríguez, Ph.D. in International Economics, Kobe University, Japan, is currently the director of the Center for Asian Studies and Professor of Economics at the National University of San Marcos, Peru, specializing in international economics and Asian economic issues, and is the author of "China's Economic Development and Its Impact on the World and Peru" and "Introduction to Asian Economy".
Source: China News Network