Entrepreneurial development, economic growth and income distribution in Córdoba (Argentina) from a structuralist standpoint

Conferencia; High Tech, Small Firms Conference; 2018

Universidad de Groninga

Concentration and heterogeneity in Latin AmericaIn Latin America, there are significant productivity gaps between specialized activities with higher productivity, that are directly or indirectly linked to the natural resource-intensive tradable sector, and the rest of the sectors, generally linked to informal and subsistence activities.When sectors with higher productivity do not manage to absorb the available labor force, part of the labor force should be directed to less productive sectors. This generates inequalities in the primary distribution of income in favor of those who work in higher productivity sectors. In order to raise the level of aggregate productivity and reduce existing productivity differentials, labor must be transferred from sectors with lower productivity to sectors with high productivity.In Latin America, the technological progress observed in the most productive sectors, does not extend evenly and significantly to the rest of the economy due to the weak linkages link with other sectors.When increases in productivity translate into decreases in higher profitability for productive units, this new income will hardly translate into higher income for most of the workforce. This is not only a consequence of the land tenure and exploitation regime, but also of the high capital ratio, the low qualification and labor informality existing in those sectors. Furthermore, if this income does not translate into greater investments in industrial or agroindustrial sectors that demand qualified labor, the process of diffusion of technical progress and, therefore, the increase in the levels of productivity and income in the economy will continue to be hampered.Heterogeneity and income distribution in Latin AmericaIn general, a heterogeneous economy shows high levels of inequality in the primary distribution of income among formal workers and that fraction of the labor supply that is not absorbed by the most productive sectors. This occurs because the asymmetries in terms of productivity between the top activities and those of low performance translate into wage differences between workers. Governments try to correct income inequality through social policy, relying on the a posteriori redistribution of part of the income generated by growth. In these conditions, the social insertion of a large number of people is basically achieved by providing a level of income that allows a minimum level of consumption, but that is not articulated with society through work, the main factor of social integration and citizenship.This suggests the need to progressively complement the redistributive policies with others of a distributive nature, that is, policies that make it possible to reduce the asymmetry between the productivity of the most productive activities and those of subsistence, which would progressively reduce the corresponding wage differences. Otherwise, wages will be low for workers of low productivity sectors, and social expenditure will continue in a significant and growing volume.Entrepreneurial development, productive structure and economic developmentThe productive structure is key to understand the income level of an economy and the primary distribution of this income among its people. This structure is not static, but it changes driven by the degree of diversification and heterogeneity that the economy presents. A diversified productive structure specialized in goods with high technological content, favors the knowledge spillovers and the diffusion of technical progress to the rest of the productive branches. In turn, this promotes structural changes in the direction sought and decreases the degree of heterogeneity in the economy.In order to promote economic development, there are two obstacles that need to be overcame: concentration and heterogeneity. In order to do so, the productive structure must be transformed, seeking to diversify production and raise labor productivity levels. A structural change could homogenize the levels of productivity among economic sectors, reducing the wage gaps between workers employed in modern sectors and those who work in subsistence activities, which would improve the primary distribution of income.A greater participation of innovative enterprises with high productivity, and high potential for technological diffusion should contribute to the structural change and productive transformation in the sought direction. The goal is to achieve a diversified and specialized production structure in dynamic sectors that diffuse technologies, reducing concentration in the production and export of primary goods.The case of Córdoba (Argentina)The productive structure of Córdoba does not escape the reality observed in Latin American economies in terms of productive concentration, occupational heterogeneity and income inequality. This hinders economic development in the province. Therefore, policies that contribute to the productive transformation favoring the growth of innovative productive enterprises are needed.The economy of the province of Córdoba concentrates its production and exports on primary and industrial goods that are intensive in natural resources. When studying those sectors? productive chains, few backwards and forwards linkages are observed. It should be noted that those sectors do not usually have a strong link with the so-called knowledge spreading industries. This means that the technical progress observed in a productive unit is not spread homogeneously over the rest of the economy, deepening differences in productivity levels and.In Córdoba, high levels of productivity are observed in sectors linked to the export sector and in large companies. However, these sectors and companies fail to capture a significant part of the existing workforce. This leads many workers to seek for jobs on service sectors such as commerce, construction and domestic service. These sectors present below-average levels of productivity, wages and formality.This describes a situation of economic duality, where highly productive and dynamic sectors coexist in the same territory with informal sectors, with low levels of productivity and income. In this way, heterogeneity generates a downward drag on the average income of workers and an unequal distribution of income.In order to achieve a better performance in terms of economic growth and income distribution, it is necessary to avoid productive concentration in sectors that are intensive in natural resources. It is desirable to specialize in high productivity activities that belong to complex and dense production chains and networks, with significant backward and forward linkages, and linked to sectors that locally incorporate a high relative degree of technical progress.From a public policy standpoint, a transformation of the productive structure must be promoted, favoring growth of knowledge spreading industries. Diffusing technical progress along the productive structure tend to reduce the level of heterogeneity in the economy by simultaneously improving the level and distribution of income.The birth and growth of innovative productive ventures with high value added help to transform the productive structure of an economy by raising levels of aggregate productivity and of income. If entrepreneurship by opportunity is fostered, labor would be attracted from informal enterprises with low productivity and low growth potential. In addition, growth of innovative ventures gives higher productivity to companies to those companies that are connected by backwards and forwards linkages.