There is general agreement among economists and others, moreso in light of Covid-19, that we have to restart and reconstruct our economy to complement the depleting energy resource sector, particularly with the current and predicted low energy prices and the threat of climate change. Hence, there is talk about having to increase our tradables for export, even reducing the imports that we can make and further, attempt to feed ourselves.
The important fact here is that earning foreign exchange is key to our survival since as a small open economy we cannot produce locally most of what we need to survive.
What, however, is still a subject of debate is what should we produce for export. Many are keen on leaving this to the whims and fancies of the private sector with the State as a facilitator. Others recommend the attracting of foreign direct investment and still others point to aero-technology and even sugar. But today, global competitiveness is about innovation, about creating exports that are based on R&D.
Given our limited human and financial resources the range of products we can expect to export is limited. How then do we choose them a priori so that we can conduct the required R&D towards innovating?
One of the areas recommended by some is software applications/services, the building of “apps”, so much so that we hear the saying that data are the new oil and the success of the technology companies is quoted to support this claim—even though these companies do not themselves produce anything tangible. Indeed, the US has pushed manufacturing overseas and makes its money by providing services, consultancies and the like. The error of this approach became evident in the Covid-19 pandemic. Listen to David Rotman in the MIT Technology Review: “Our (US) failure to prepare and respond competently in the coronavirus pandemic is palpable- a failure of action and specifically our widespread inability to build (things). We do not have vaccines and medicines nor even masks, PPE or ventilators. We could have had these things but we chose not to— specifically we chose not to have the mechanisms, the factories that make them.
“The US is no longer good at coming up with new ideas and technologies relevant to our basic needs. We are great at devising shiny, mainly software driven bling that makes our lives more convenient in many ways. But we are far less accomplished in reinventing health care, rethinking education, making food production and distribution more efficient and in general turning our technical know-how loose on the largest sectors of the economy. So, yes, let us build… let us keep in mind that one of the most important failures revealed by Covid-19 is our diminished ability to innovate in areas… like health care and climate change.” The response of China in supplying the world with health equipment in this pandemic testifies to this concept.
One of the members of our government advisory committee spoke to us about the accomplishments of Estonia via its widespread use of its broadband telecommunications system and the Internet in its provision of many online and integrated government services, particularly the impact on efficiency of the e-identity card. This was enthusiastically endorsed by the Prime Minister, implying that T&T can adopt this networking aproach in providing services to its population and others. Though this would greatly increase our ease of doing business the network in itself builds nothing tangible and may be but an aid to our export thrust.
Still, support of an innovation-based export thrust needs investment in the R&D, market development and company start-ups. However, T&T to date spends some 0.05 per cent of its GDP on R&D and associated projects as compared with other progressive countries with some three to four per cent of GDP. Even of this minuscule amount spent in T&T the private sector spends next to nothing. Hence, we leave on the shelf a local patent in climate change/energy efficiency which increases the efficiency of electric motors re input energy. In other words, innovation in current economic activity does not exist.
What this says is that if our reconstruction is to be innovation-based then it will have to be initiated by the State. Indeed we will have to build a national innovation system, on, say, the Triple Helix model. The post-Covid-19 era will present constraints on this R&D funding.
Hence, the guideline for what we should build for export is: create the technologies and products that are relevant to the basic needs of the global populations—in, for example, the general areas of, healthcare, food security, impact of climate change, renewables, energy efficiency, housing/shelter, personal security, optimising the use of the depleting petroleum resource and devising the systems to accomplish these. However, manufacturing is a large consumer of ICT technologies (massive automation, digital systems, artificial intelligence) and also ICT services with which the products are now bundled.
Ricardo Hausmann’s advice is that export development should progress through the product space from existing products to the next and so on, reaching more and more complex products as it goes along.
China, Taiwan and South Korea demonstrated that they were able to build complex economies by using their research institutions to create the knowledge and innovations that catapulted them into the distant trees, complex products. We can do the same.