The war in Ukraine and the global cost-of-living crisis are hitting Latin America and the Caribbean hard. Growth in the region, which rebounded impressively from COVID-19 to reach an average rate of 6.8 percent in 2021, will fall to just 1.8 percent this year, with crippling effects on the most vulnerable people. Compared to 2021, Latin America’s poverty rate will increase by 0.9 percentage points to 33 percent, and extreme poverty will rise by 0.7 percentage points to 14.5 percent in 2022.
Still, many countries have an opportunity to redefine their economic policies. And while no two countries in the region are alike, they do face a common set of structural challenges, including dependence on natural resources, low productivity, weak public-sector capacity, and narrow fiscal space.
Tackling these structural challenges will require progressive governance and a focus on clear economic objectives like creating jobs, boosting productivity, reducing poverty, closing the digital divide, and accelerating the clean-energy transition. To sustain this agenda, governments will need a new narrative that puts innovation-led growth front and center. This is not to suggest that LAC countries need disruptive innovation for its own sake. But they do need purposeful innovation to solve concrete, longstanding problems like the growing digital divide and rising greenhouse-gas emissions.
Thus, in a new report for the United Nations Economic Commission for Latin America and the Caribbean -- Transformational Change in Latin America and the Caribbean: A Mission-Oriented Approach -- I aim to offer a workable plan for wealth creation across the region. Rather than outlining a definitive pathway for all governments to follow, the report provides a new vocabulary and framework for policymakers, and identifies the kinds of policies, tools, and institutions that are needed to power innovation-led growth.
To achieve an inclusive, sustainable economy of shared prosperity, I propose that LAC governments adopt mission-oriented industrial strategies. This approach would place less emphasis on tried-and-tested policies -- like those designed to strengthen import substitution or achieve price competitiveness -- and more emphasis on rethinking the role of the state.
The state should be seen not as a barrier to growth, but as a capable and confident market shaper that is uniquely positioned to bring ambition and boldness to bear on a country’s biggest challenges. But for the state to succeed in this role, governments must set clear objectives and demonstrate a willingness to use all the instruments at their disposal, from procurement to loans. That is the only effective way to catalyze bottom-up experimentation across multiple sectors of the economy.
Governments can start with the Sustainable Development Goals, and then devise missions to drive a collective, cross-sectoral mobilization in pursuit of each. As the report makes clear, this will require a clear strategy to strengthen the public sector’s dynamic capabilities, by leveraging new outcomes-oriented tools and policies, and by building new mission-oriented institutions.
A mission-oriented approach requires recognition of the time that major, far-reaching transitions can take. The valuable accumulated skills and capabilities in oil and gas can be reoriented so that subsidies for those sectors can be repurposed for a green directional shift.
The report examines eight cases from different LAC countries where mission-oriented policies and institutions could satisfy the appetite for change. Consider the problem of natural-resource dependence, exemplified by the “Lithium Triangle.” Wedged between Argentina, Bolivia, and Chile, this region, along with Peru, holds around two-thirds of the world’s lithium reserves. But while lithium is crucial for driving both digitalization and the global energy transition, Chile, Bolivia, and Argentina have struggled to get governance of the region’s development right, because they have allowed resource extraction to fuel directionless growth.
By positioning a natural resource like lithium at the center of a specific mission policymakers can reshape the incentive system. Instead of encouraging mindless exploitation of natural resources, they can ensure that rents are reinvested in more innovative and rewarding activities. Through this kind of strategic, cross-sectoral approach, Argentina, Bolivia, and Chile can transform their resource curse into an opportunity for rapid social and environmental progress.
Likewise, Caribbean countries have an opportunity to green the tourism sector across the entire supply chain, from transportation to construction. By adopting ocean and seabed preservation as an ambitious policy mission, governments can foster innovation and investment in multiple sectors, following the example set by Barbados under its inspirational prime minister, Mia Mottley.
Ultimately, the LAC report is about forging a new social contract between the state, business, organized labor, and ordinary citizens. A bolder and more capable state can be a better partner for business, paving the way for new public-private partnerships that will maximize public benefits rather than just private profits. A crucial element of the mission-oriented approach is to hold the newly empowered state accountable through increased citizen participation.
Strategic clarity is needed now more than ever to face both the immediate cost-of-living crisis and the region’s longer-term structural challenges. Fortunately, there is a growing sense of urgency and purpose within progressive LAC governments. With a mission-oriented approach, they can start to redirect growth toward a more inclusive and sustainable future. I hope the report helps show the way.
Mariana Mazzucato, the founding director of the UCL Institute for Innovation and Public Purpose, is the chair of the World Health Organization’s Council on the Economics of Health for All. -- Ed.