New Globalization and Global Value Chains
From the '90s onwards, something that Richard Baldwin (2017) called "the new globalization" begins to take place, characterized by the ease of transmission of know-how from the development of ICTs, and the growing relevance of knowledge in the positioning in Global Value Chains (GVC). In this sense, the ease of "moving ideas" gives rise to the denationalization of the comparative advantages that have governed the international division of labor since the beginnings of international trade.
This changes the competitive landscape for all nations, but it is particularly a unique opportunity for developing countries, for while inequities remain, there is no longer a need for an industrial structure or the old-fashioned acquisition and/or manufacture of capital goods.
The value added that makes GVCs scale is the intensive use of knowledge through the generation of patents and technology (i.e. Research and Development - R&D), and sales and after-sales (marketing, branding, etc.) (1). On the other hand, production is presented as the stage with the least value generation, unlike the traditional industrial model where this was the key process.
GVCs allow the development of a new pattern of industrialization without the need for deep industrial bases, and in this sense, this is an opportunity for developing countries.
A bit of history of EDC in Argentina
Argentina has had different international trade insertion policies throughout its history: historically, it has been an agricultural and livestock farming country, with a medium industrialization achieved through an import substitution model, industrialization disarticulated with the indiscriminate trade liberalization of the 1990s, partly rebuilt during the administrations of Néstor and Cristina Kirchner, with a protectionism that was not always fertile, in some cases clinging to ideas from other times.
Notwithstanding the above, during the administration that began in 2003 and ended in 2007, driven by the incipient business sector related to software and IT services (SSI) and the scientific and technological system, a policy aimed at supporting new technologies began to take shape.
Thus, two founding milestones of the Economy of Knowledge (EDC) took place: the recognition of the software production activity as an industry, through Law No. 25.856 of 2004 (which made it a recipient of all benefits for the industry), and subsequently Law No. 25.922 on the Promotion of the Software Industry, which established special benefits for software developers and associated services. This law was in force for ten years and was subsequently extended by Law No. 26,692 of 2011, which was in force until the end of 2019, and was replaced by Law No. 27,506 on the Promotion of the Knowledge Economy, enacted in 2019. These laws and their respective regimes overcame administrations of different political colors and have thus been consolidated as a State policy that unites the entire political arc.
Throughout these years, EDC has become a relevant export sector and a generator of quality jobs with much potential yet to be explored. This encompasses all knowledge-intensive activities, and in particular, according to the law that promotes it: SSI, audiovisual production and post-production, biotechnology, bioeconomy, biology, biochemistry, microbiology, bioinformatics, molecular biology, geological and prospecting services, nanotechnology and nanoscience, aerospace and satellite industry, nuclear industry, industry 4.0, among others (2).
We can observe that the importance of services in the field of international trade has increased significantly in recent years: in 1980 it represented 16.2% of global trade in goods and services, while in 2022 this percentage rose to 22%. In the same year, and speaking in particular of Knowledge-Based Services (KBS), they contributed 7.3% of Argentina's total foreign sales, ranking as the country's fourth largest export complex. It is important to note that the category of KBS does not encompass all activities related to the economic exchange of KBS, since it also includes the production of goods that are marketed under the classification of the final product (for example, the commercialization of transgenic seeds is reflected in the System of National Accounts as seed sales, without taking into account the value added generated through biotechnology; just as a waterproofing paint through a nanotechnological process cannot be quantified as nanotechnology). Therefore, the real impact of EDC is even greater than what can be reflected through the system of national accounts (SNA).
Opportunities and challenges for Argentina
In this context, our country has great advantages to take advantage of: the availability of qualified human capital, valued not only for its academic credentials, but also for its creativity, innovation and ability to adapt to new environments (although it always runs behind the needs of the market), the installed capacity from the know-how granted with the location of leading multinationals worldwide, a virtuous articulation between the technological scientific system and the productive structure, State policies (such as those mentioned above) that understand the relevance of the country's positioning in key instances of the GVCs.
Among the disadvantages we can name the poor connectivity infrastructure, both due to the low speed of fixed connections and the low penetration of fiber optics and the low geographical availability in rural areas. Secondly, and although R&D is usually encouraged by the State through subsidies to private companies, or by state-owned companies dedicated to this purpose, the unstable macroeconomic situation does not generate the right incentive for the private sector to make risk investments or finance technological startups. Thirdly, and linked to the above, the exchange rate gap discourages the generation of exportable supply, or else ends up generating a triangulation with international subsidiaries in order to avoid local restrictions, which has a negative impact on the trade balance. Last but not least, the country does not have incentives for patenting, since it does not adhere to the Patent Cooperation Treaty (PCT) signed by 152 countries. The facilities for patenting through the PCT have to do with the costs, which are much lower than the local ones, and the speed to register a development as original.
In short, the country has clear opportunities and installed capacities that give us "the upper hand" when it comes to positioning ourselves in the GVCs. Likewise, we have the opportunity to take advantage of our historical pattern as an agricultural and livestock farming country to generate specialized value added related to it.
However, for all this to happen, public and private efforts are required, with a north that must not be lost sight of. It is reiterated that the State must play a preponderant role in maintaining the policy of promoting EDC and encouraging science, technology and innovation, but that this is not enough: without macroeconomic stability that provides security and projection capacity, any effort will be in vain.
(1) This is better known as the smile curve, a concept embraced by Stan Shih in 1992, from which his company (Acer Inc.) reoriented its business strategy.
(2)For further details, see Art. 2 of Law No. 27,506.
Bibliography used
Baldwin, Richard. 2017. "Changes in globalization: how, how much and what do they mean for GVCs?" no. 355 (December), 75-82. https://iosapp.boletintechint.com/Utils/DocumentPDF.ashx?Codigo=d402d7ed-6795-47d6-b06c-2945c6b3bf29&IdType=2.
Baldwin, R., Ito, T., & Sato, H. (2014, March). The smile curve: evolving sources of value added in manufacturing. https://www.uniba.it/it/ricerca/dipartimenti/dse/e.g.i/egi2014-papers/ito
Estenssoro, M. E. (2019, October 13). To patent or not to patent? The protection of discoveries, a debate that is renewed in Argentina. La Nación. https://www.lanacion.com.ar/economia/patentar-o-no-patentar-la-proteccion-de-los-descubrimientos-un-debate-que-se-renueva-en-la-argentina-nid2296583/
López, Andrés, Adrián Ramos. 2018. "El sector de software y servicios informáticos en la Argentina," Evolución, competitividad y políticas públicas. CECE.
Svarzman, Gustavo, Ricardo Rozemberg. 2022. "An approximation to the direct and indirect export of knowledge-based services in Latin American and Caribbean countries." In Exporting knowledge: the era of services in Latin America, 258-282. IDB INTAL.
Knowledge Economy Observatory. 2022. "Knowledge Economy Report." 23rd ed. https://www.argentina.gob.ar/sites/default/files/ioec23.pdf.
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