Watkins Advisory – Development Economics & Climate Policy for LAC

Category: Evolutionary Economics

Applies evolutionary and complexity‑based economic thinking to development, technological change, structural transformation, and long‑term growth dynamics.

  • The Costs of Technological Change

    The Costs of Technological Change

    Latin America and the Caribbean have experienced multiple technological waves, beginning with steam and railways. The region has been more of a spectator to these waves than a participant, arriving late to the party of innovative technologies. The first railway line in Britain appeared in 1825; LAC built its first lines between 1850 and 1860. We have already entered a new technological wave, and the region is beginning to see the effects – commodity pressures and global market shifts. LAC can play a significant role in this technological wave, if only because of its mineral wealth and renewable energy potential. 

    If the region is to become a more active participant in this technological wave, it is helpful to understand the consequences of past technological waves to better manage the process. 

    Technological revolutions tend to deplete natural capital, widen inequality, destabilize institutions, and fracture social order. LAC can be left behind by failing to lead change and by failing to manage the inevitable consequences of change. While technological revolutions offer many positive socioeconomic changes, they also have documented negative consequences, including stranded industries, volatile markets, weakened governance, and communities left behind. The purpose of this blog is to present the more negative aspects of technological revolutions. By understanding the pressures on capital, social institutions, and social order, LAC could design a more resilient transition. 

    Technological revolutions reshape prosperity

    Past technological revolutions have rapidly increased the extraction of natural capital. Innovative technologies accelerate the conversion of forests, soils, minerals, and water systems into inputs for rapid industrial expansion. The growth of coal extraction in Britain between 1770 and 1830, which multiplied severalfold, devastated landscapes in northern England and Wales. Environmental challenges concentrate in areas that are either the origins of natural resources or the destinations – cities – where industrial production takes place. Both types of areas are subject to pollution and environmental degradation. Manchester in the 1850s was a pollution hotspot, while the London Smog of 1952, which killed up to 12,000 people, illustrates the effect of urbanization and industrialization with minimal regulation. Demand for resources and inputs can also lead states to justify militarized control over other nations’ resources to secure the inputs needed for continued growth. The competition for African minerals between 1880 and 1914 to feed European industry led to the use of military force to control 90% of the landmass. 

    Inequality increases within countries and between countries. High-skill workers and emerging industrial and urban elites disproportionately capture the gains of change, while low-skill workers may face displacement and wage stagnation. The Luddite rebellions of textile workers in Britain between 1811 and 1816 illustrate these conflicts, as factories and mechanized looms displaced traditional textile workers. Older industries from past technological revolutions and their workers may face obsolescence, with assets and jobs becoming stranded. The decline of coal mining in Britain from the 1970s to the 1990s left entire communities stranded. Employment in mining declined from 300,000 to 10,000 over 40 years, fueling significant conflict among the government, mine owners, and miners. Financial systems often become more volatile, as speculative finance and credit booms can drive bubbles in which many firms attempt to capture market share in innovative technologies. Everyone wanted to build railways in the 1840s, but not everyone could make them economically viable, which led to railway share prices collapsing by half. The dot-com bubble between 1995 and 2000 saw many companies fail, leading to a 75% decline in the NASDAQ index between 2000 and 2002. In the past, these imbalances could push societies toward hegemonic economic strategies – domination over emerging technologies or the supply chains to compensate for volatility at home. 

    Cultural capital is profoundly affected by technological revolutions and takes the longest to recover. Traditional knowledge systems lose legitimacy as the focus grows on areas of rapid economic growth, and social trust erodes. Many key agricultural products, such as maize, derive from indigenous traditional knowledge, but agrarian modernization between 1900 and 1950 focused exclusively on industrial agriculture. Migration and urbanization, driven by technological revolutions and new wealth hierarchies, can weaken community bonds and even disrupt intergenerational continuity. LAC’s urbanization rate rose from 40% in 1950 to more than 80% today, fundamentally changing the region. Artistic expression is often commercialized or homogenized to align with global norms, displacing localized identities. Simpler nationalist narratives may begin to replace more complex cultural narratives to bind communities and ensure unity and purpose in rapidly changing states.

    Social institutions fall behind

    Governance, regulatory systems, and institutions often struggle to keep pace with technological change. The earliest factory acts were enacted in 1833, decades after factories were established in Britain. Regulations were not yet ready, and it takes time for lawmakers to address new industries. For example, U.S. antitrust laws were enacted in 1890 and applied to Standard Oil in 1911, well after the company had dominated the oil industry, controlling up to 90% of refining capacity. Oversight systems become outdated or unable to manage rapid expansion, as in the U.S. railroads between 1850 and 1880. Some sectors or regions move rapidly, while others remain unchanged, making coordination challenging. Newly created governance and policy gaps create openings that individuals and corporations can exploit through elite capture, corruption, or the abuse of incentives. Under these circumstances, some governments turn to stronger centralized authority or coercion to reassert control, for example, Soviet industrialization in the 1930s.

    Public services such as health, education, housing, and social protection are often overwhelmed as people migrate to cities. The massive expansion and fivefold population growth in Manchester and London between 1800 and 1850 completely overloaded nascent urban services. New risks may emerge as pollution drives new health system needs. Education systems may not produce the skilled workforce required for innovative technologies. Housing shortages may increase in rapidly growing cities – or cities may shift to elevated levels of disorganization and informality. Informality is characteristic of the peripheral areas of many Latin American cities, resulting in favelas and barrios where more than a third of residents live. Social protection models often cannot keep pace with new areas of insecurity. Gig workers between 2010 and 2020 struggled to secure protections because they were outside traditional labor-management systems.

    Fiscal, financial, and infrastructure institutions are also acutely stressed during rapid economic growth. Tax systems may not be well equipped to capture value from emerging sectors. Digital platforms established between 2000 and 2020 often operated beyond traditional tax frameworks. Subsidies and industrial policy may be outdated and targeted toward supporting now-defunct industrial sectors. Coal subsidies in Europe between 1950 and 2000 persisted long after coal had become economically unviable and uncompetitive. Existing infrastructure systems may become congested or expand unevenly, creating bottlenecks that slow growth or, in some cases, creating investment bubbles or stranded assets as new forms of infrastructure take over. 

    Social order and cycles become turbulent

    Social order destabilizes as new power hierarchies fragment identities. New economic elites often emerge, sharpening the rural-urban divide and creating geographical inequalities. Silicon Valley created new technological elites and corporations between 1980 and 2020. Generational tensions can increase around innovative technologies and the values they may embody. The generational divide is particularly vivid as communications technologies have shifted from radio in the 1920s, to TV in the 1950s, and to the internet and social media in the 1990s. Societies may reformulate informal norms to meet new ordering needs. Changing identities creates opportunities to forge new political alliances around the new winners. 

    The “normal” individual, institutional, and environmental cycles are often substantively changed by technological change. Shift work in factories and mining in the 1800s, with 60-70-hour workweeks, significantly altered traditional daily work and family cycles. As a result, people who need to accommodate the massive social, economic, and cultural changes, including changes in work and urban environments, experience rising anxiety and burnout with health consequences. Political cycles can often shorten when governments respond reactively to public frustration, rather than working through structured long-term plans that recognize and manage change.

    Technological revolutions strain environmental, demographic, and market cycles. They can increase commodity pressures by demanding inputs, such as rubber, copper, and oil, between 1880 and 1970. They can create environmental crises through resource extraction or pollution, and they can shift migration pressures as countries seek new skills and people seek new opportunities. An excellent example of an ecological crisis caused by technological change is the Dust Bowl of the 1930s, which displaced hundreds, if not thousands, of people due to a shift to mechanized farming. Market cycles are integral to technological revolutions, with the initial stages dominated by speculative capital, which can often lead to investment bubbles and crashes. 

    Conclusion

    Technological revolutions reshape societies. The present technological wave will reshape countries across LAC. The region can either absorb the shocks of this ongoing revolution and capitalize on opportunities, or countries can shape their own pathways. 

    The likely consequences of technological waves are predictable and historically documented, even if it is challenging to predict the specific technological changes. It is possible to design transitions by focusing on stronger institutional capabilities, protecting people, and preserving cultural identity while still embracing, even leading, technological change. 

    The challenge for LAC countries is to anticipate changes before they arrive, lead the necessary institutional shifts, and ensure that the technological wave serves as a foundation for shared prosperity across the region rather than another missed opportunity. Today, states should consider the necessary skills, systems, planning processes, governance shifts, and industrial policy sequencing to maximize regional benefits. 

  • From Microchips to Megatrends: The Global Shifts of 1970–2020

    From Microchips to Megatrends: The Global Shifts of 1970–2020

    Between 1970 and 2020, the world changed faster than at any other time in human history. Microprocessors, digital sensors, personal computers, the internet, smartphones, and cloud computing all emerged over the course of five decades. The 1971 Intel 4004 chip contained just 2,300 transistors; by 2020, Apple’s M1 chip held 16 billion. These technologies now underpin everyday systems—mobile banking, telemedicine, online education—shaping how billions of people live, work, learn, and connect.

    These innovations rewired the global economy. Capital now moves at the speed of light. Cross-border capital flows expanded from tens of billions to more than US$1.2 trillion. Merchandise trade grew from hundreds of billions to US$18–19 trillion. Internet use rose from millions in 1990 to 4.5 billion users in 2020. East Asian economies emerged as global manufacturing hubs, while the United States consolidated its dominance in finance, digital platforms, and knowledge networks. In Latin America and the Caribbean, new opportunities for growth, innovation, trade, and integration appeared—but exposed longstanding challenges in productivity, inequality, and institutional capacity.

    Speed, scale, and knowledge exemplify today’s world. Countries that invested early in education, research, infrastructure, and capabilities became innovation leaders, lifted millions out of poverty, and intensified global competition. Participation in value chains now extends beyond natural resources and manufacturing to include data, technology acquisition, and the capabilities needed to adapt and learn.

    Understanding the last fifty years is essential for shaping the next fifty. Latin America and the Caribbean have talent, natural capital, and creativity. The region could lead to the emergence of green, digital, and knowledge-based economies. Doing so will require learning from the past and adopting deliberate strategies that build on regional strengths to turn global change into regional opportunity.

    This blog examines the transformations that occurred, the forces that drove them, and the role of states in shaping their trajectories.

    Systemic Changes in Capital Flows at Speed and Scale

    The most striking feature of this period was the speed and scale of change. Foreign direct investment stock rose from roughly US$100 billion in 1980 to nearly US$40 trillion in 2020. Finance could move instantaneously across borders. Global trade expanded from about US$2 trillion to US$18–19 trillion as supply chains stretched across continents. Trade in financial, technological, informational, and digital services reached US$6 trillion. Knowledge now moves in milliseconds, and people increasingly migrate to fill labor shortages or build skills. Trade shifted from simple goods to complex, fragmented value chains and to services and data rooted in intellectual property and knowledge.

    A Reconfigured Global Economy

    The global economy was fundamentally reshaped. East Asia—first Japan, then Korea, Taiwan, Singapore, Hong Kong, and later China and Vietnam—became the world’s manufacturing hub. Many of these economies moved from low‑ or middle-income status in 1970 to high-income status by 2020. South Korea’s per capita GDP rose from under US$300 in 1970 to more than US$30,000 in 2020. China became a central node for trade, manufacturing, and technology, while the United States shifted toward dominance in finance, platforms, and knowledge networks.

    Advanced economies such as the United States, Germany, the Netherlands, and the Nordic countries retained their leadership in technology and finance, with large corporations becoming increasingly influential. The internet, smartphones, and digital platforms reshaped the movement of knowledge, capital, and trade. Resource-rich and well-governed exporters—including Norway, Saudi Arabia, the UAE, Qatar, and Kuwait—leveraged oil and gas rents to accelerate development, supported by large inflows of migrant labor. New middle powers such as South Korea, India, and Brazil strengthened their positions as they integrated into global supply chains.

    Countries facing conflict or severe mismanagement fell further behind the global frontier, struggling to integrate into trade and knowledge flows and becoming increasingly dependent on aid, remittances, or single commodities. In Latin America, countries such as Chile, Uruguay, and Costa Rica advanced, but the region did not overcome persistent challenges in productivity and inequality.

    Technologies, Liberalization, and Knowledge as Drivers of Change

    The technologies of this ICT revolution reflected two powerful empirical patterns. Moore’s Law observed that the number of transistors on an integrated circuit doubles roughly every two years. Wright’s Law showed that for every cumulative doubling of production, the cost of a technology falls by a constant percentage. Together, they drove a dramatic decline in the price of computing and digital infrastructure.

    The internet, mobile computing, cloud services, and fiber‑optic networks created a new technological paradigm. Borders became porous to capital, knowledge, and information. The logistics revolution—especially containerization—reduced shipping costs by 75–90% and cut shipping times in half, making global value chains more feasible and increasing the need for international standards. Financial innovations, including deregulation, derivatives, global capital markets, electronic trading, and mobile money, transformed how cash flows and laid the groundwork for digital assets such as cryptocurrencies. Daily foreign exchange trading rose from the low hundreds of billions in 1980 to US$6.6 trillion in 2019.

    Cost competition drove offshoring, nearshoring, and friendshoring as global supply chains expanded. Energy shocks spurred efficiency, diversification, and a focus on energy independence. Geopolitics shifted with the end of the Cold War and the rise of China, as the global economy moved from industrialization and production toward technology and knowledge. Trade and capital liberalization, supported by international agreements, encouraged private‑sector engagement and privatization.

    Capabilities as the New Currency of Nations

    Capabilities became increasingly decisive. Education, research and development, and digital infrastructure were essential for securing national comparative advantages. Early movers such as the United States and the United Kingdom became financial hubs. In contrast, early, low-cost industrializers such as China and South Korea scaled up manufacturing and became hubs of production. The global economy became more integrated and moved toward digitization, knowledge, and networked production. Knowledge flowed directly through digital networks and indirectly through migration, with the Gulf states alone hosting more than 30 million migrant workers.

    States and Multilateralism

    States played a significant role in shaping long-term development pathways. Korea, Taiwan, and China actively pursued industrial advancement, calibrating the pace of liberalization in trade, capital, and migration. Other countries positioned themselves as financial or corporate centers or moved rapidly into clean energy to reduce dependence and volatility. Financial deregulation in the United States and the United Kingdom accelerated global capital flows by relaxing capital controls, reducing trade barriers, and promoting privatization and public-private partnerships. Many countries invested in migration, education, and R&D policies to cultivate the talent and capabilities needed to leverage innovative technologies.

    Multilateral organizations—including NAFTA, ASEAN, and the EU—helped stabilize change and set standards for a global marketplace. NAFTA tripled North American trade from US$290 billion in 1993 to US$1.1 trillion in 2016. The WTO codified global trade rules and accelerated supply chain integration, while the G7 and G20 provided coordination in an increasingly complex global economy. In Latin America and the Caribbean, MERCOSUR, CARICOM, and the Pacific Alliance supported regional integration.

    In some cases, state interests and multilateral systems evolved together, producing what some analysts call “hyper‑globalization.” Yet global change also created winners and losers within advanced economies. Some regions lost manufacturing jobs to trade and automation, while urban areas captured gains from finance, technology, and knowledge flows. In the United States, manufacturing employment fell from 19 million in 1979 to 12 million in 2020. These internal disparities fueled populism and domestic backlash, challenging multilateralism.

    Conclusion

    The last 50 years clearly show that countries can take an active role—and adopt long-term strategies—to accelerate economic growth. The Asian Tigers sustained growth rates of 6–8% for decades. The United States continued to lead in finance and innovation. The Gulf states transformed oil and gas wealth into US$3.5 trillion in sovereign wealth funds, accelerating broader development.

    Latin America and the Caribbean now face a similar moment of choice. The next wave of global transformation—energy, biotechnology, advanced manufacturing, data management, and artificial intelligence—is already underway. Countries that invest in institutional and individual capabilities and open channels for knowledge and trade based on their comparative advantages will scale their economies. Those who hesitate risk missing the opportunities ahead.

    The region has abundant energy resources, the world’s largest lithium reserves, exceptional solar potential, vast natural and cultural capital, and a growing digital economy. The question is whether LAC countries will work together to shape the next technological wave—or be shaped by it.

  • First Industrial Revolution: Mines, Canals, Steam, and Textiles

    First Industrial Revolution: Mines, Canals, Steam, and Textiles

    From 1760 to 1830, Britain did not just industrialize; it rewired its economy, society, and infrastructure. In about 50 years, the country moved from cottage industries and water wheels to steam-powered factories, canal transport networks, and global trade dominance. 

    Britain’s share of world industrial output rose from modest to dominant over this period. Britain’s economy grew because of rapid changes across an integrated system of capital, natural resources, and institutions. 

    What can we learn from examining Britain’s and the world’s first experience in changing capital and capital flows through shifting social institutions and active state support? This blog explores Britain’s unique capital, the changes in capital flows, the context and institutions that drove them, and why Britain moved first and fastest to lead the world’s first industrial revolution. 

    Capital and capital flows shifted rapidly. 

    The changes in Britain were not just technological; they were systemic. Coal replaced timber as the energy source, and output more than tripled from 1770 to 1820 to 15-20 million tons. Iron and copper became strategic as part of supply chains, as the basis for steam engines, factories, transport, and industrial infrastructure. Cotton imports from the Americas became the core input for the newly mechanized textile production system. 

    Mechanization transformed textile production. Innovations like the spinning jenny, water frame, mule, and power loom became standard. As a result, labor productivity soared, and the number of factories grew from 120 in 1760 to 5,500 in 1830. Where a hand spinner worked a single spindle, early spinning jennies let one worker operate 8–24 spindles; later models operated over 100; and spinning mules in large mills eventually carried over a thousand spindles on a single machine. These machines reorganized production around centralized power sources and standardized processes, enabling levels of scale and speed impossible in the cottage industry. 

    Steam power expanded 30-fold between 1770 and 1820, enabling rapid scaling and greater reliability. Geographical flexibility came from canal systems expanding from 55 miles in 1760 to 2,600 miles in 1830, reducing transport costs and helping the concentration of factories and connections to export and import ports. Cotton output rose from 105 million pounds to 950 million pounds, a 9-fold increase. Coal prices at the mine versus delivered prices changed with improved canal transportation. Mechanized British textiles, powered by coal-fired steam engines and fed by imported raw cotton, became dramatically cheaper than hand-spun and hand-woven cloth produced in traditional centers such as India. The number of steam engines grew exponentially, with energy production increasing by a factor of 30.

    Financial investments for large projects, including canals and factories, expanded through national banks, canal share markets, and credit circles, which acted as intermediaries. The enlightenment reframed knowledge as a productive asset, and scientific societies, technical publications, and patent law created a culture of innovation and diffusion. As a result, the urban population doubled, with cities like Manchester and Liverpool seeing tenfold growth and creating both labor markets and expanding national product demand. Britain’s exports grew from £14.7 million in 1760 to £43.2 million in 1800. 

    The context and the system accelerated change. 

    High wages and cheap coal exerted intense pressure for labor-saving, energy-intensive technologies, including steam-powered textile machines. Steam power massively increased factory productivity, driving textile growth and urbanization. Britain had abundant coal and iron, which became more accessible through the canal network, and these resources were geographically close to rapidly growing ports, notably Liverpool, which handled over 80% of the cotton, and Newcastle, which became a coal-export powerhouse. Britain imported raw cotton from the rapidly expanding agriculture of the Americas to feed its increasingly mechanized textile mills. 

    The “industrial enlightenment” reframed knowledge as a productive good, enabling systems for experimentation, improvement, and knowledge sharing. Britain’s culture of experimentation drew on institutions like the Royal Society—founded in 1660—which had already spent a century nurturing scientific exchange and practical inquiry by the time industrial innovators began transforming machines, materials, and production. Networks of artisans, engineers, and entrepreneurs, and scientific studies and burgeoning scientific publications, accelerated innovation and diffusion across the country. Apprenticeships were also important, allowing the rapid scaling of skilled labor. People were connected through workshops, foundries, patent records, scientific societies, and informal knowledge circuits, accelerating the development and diffusion of innovative technologies. Continuous incremental improvements in spinning, weaving, carding, and steam power reduced costs, increased reliability, and made factory production decisively cheaper than traditional methods.

    The state played an essential role in ensuring predictable rules, property rights, and contract enforcement, enabling private investment. Parliament shaped infrastructure through the Canal Acts, which helped create structures to raise funds, addressed eminent-domain issues, and set predictable transportation fees. Financial institutions mobilized capital at scale – pooling savings and commercial profits to fund factories, mines, canals, and machinery – thereby reducing financial risk and enabling capital pooling. For example, the Bridgewater Canal Company—authorized by Parliament in 1759—raised capital through shares that merchants, manufacturers, and even small savers could purchase. Its success in halving coal prices in Manchester sparked a wave of canal companies financed through similar joint‑stock structures.

    Canal and mining infrastructure were major catalysts, enabling industrial-scale expansion by connecting coal and iron mines to manufacturing and ports, thereby reducing transport costs. Parliament also approved the Enclosure Acts, which changed agriculture by consolidating farms, eliminating common rights, and enabling more intensive agriculture, but disrupted traditional rural livelihoods and indirectly displaced rural populations. The state approved patent law that enhanced innovation and supportive commercial regulations. The “system” was path-dependent and replete with positive feedback loops. Canals provided cheaper coal and cheaper energy for textile production with machines, leading to higher exports and generating more capital for canals and mining. Infrastructure enhanced production through mines and canals, opening the space for steam engines to expand. Steam power was already available and used in mines before textile factories. The textile expansion drove cotton imports, port growth, and urbanization, creating and reinforcing national demand and productive labor. Britain also worked to expand Atlantic and imperial trade networks, so that capital, infrastructure, technology, production, and trade all reinforced one another. 

    Britain moved extremely fast; other countries did not.

    Britain had the natural, economic, and social capital, the social systems, and an appropriate social order to enable rapid change. They had a unified market, stable governance, high labor costs, and weak guilds, which lowered barriers to mechanization. They had the bases for dense clusters for focused growth in Manchester, Birmingham, and the Midlands. They also had substantial export markets that rewarded scale, standardization, and cost-reducing innovations. British real wages were also higher than those in France and Germany, while coal was cheaper.

    France, on the other hand, had lower wages, higher energy costs, fragmented markets, and prolonged political upheaval, which reduced incentives for mechanization. France underwent a revolution for 12 years from 1787, then revolutionary wars with other European states for 10 more years, followed by the Napoleonic wars for 12 more years. The German states had strong guilds, fragmented governance reflected in wars among the states and then war with Napoleon, and an underdeveloped infrastructure for their coal. Britain’s stable governance and unified market directly enabled rapid industrialization, while France’s political turmoil and Germany’s fragmentation hindered them. The United States was at an earlier stage of development, with abundant land, scarce labor, and only nascent infrastructure, which pushed it toward a different early path, e.g., water-powered mills and frontier expansion, before large-scale coal-based industrialization.

    Britain was also at war, but never in Britain – the wars created massive state demand for iron, ships, textiles, and weapons – and the wars also allowed Britain to have global naval dominance to secure trade routes and cotton supplies.

    Belgium was the second European country to industrialize after 1807. They had ready access to coal and iron, merchant capital, and benefited from Napoleonic legal reforms and direct imports of British machinery and expertise. Belgium’s success was remarkable, but it could not occur until other states had stopped fighting over their territories.  

    Conclusion. 

    Britain’s industrial revolution offers essential lessons about the conditions that engender technological revolutions. The lessons include the critical importance of infrastructure – canals and mining – that built the backbone for economic change. The second lesson is the importance of aligning and integrating financial capital, institutions, and innovation for growth. Britain’s unified approach enabled it to achieve economies of scale. Third, Britain was able to move because it was ready to move – it had the natural capital, social and economic capital, and already the bases of strong institutions. One condition was critical: labor costs were high enough to ensure the profitability of a shift to textile machines and steam engines. The British state played a strong leadership role – they fully supported the direction of growth, set the rules, invested in infrastructure, helped manage risk, created innovation ecosystems, and reinforced trade systems. The positive feedback loops and economies of scale continued to reduce costs and sustain the system’s growth. 

    What lessons from Britain’s industrial revolution can guide today’s technological transformations? 

  • Economic Evolution and Revolution: Resources

    Economic Evolution and Revolution: Resources

    All economies change over time. Most of the time, that change is slow and incremental. But under certain conditions, an economy can shift rapidly — almost explosively — into a new mode of creating value. These moments are economic revolutions: system-wide reorganizations of production, technology, and social coordination. During these periods, annual growth rates can jump from 1–3% to 5–25%, reducing doubling times from 24–72 years to 3–14 years. 

    Revolutions compress centuries of change into 50 years.

    The world is in the middle of a technological wave. The question for Latin America and the Caribbean (LAC) is whether countries will ride this wave or watch it pass by. To seize the moment, countries will need to transform, despite uneven capabilities, fragmented institutions, and rising external shocks. 

    Bringing together evolutionary economics and the study of technological revolutions can help identify where action is most urgent — and most possible. 

    Natural resources and economic change

    Economic health depends on the stocks and flows of natural, socio-economic, and cultural capital. Natural resources — minerals, land, water, forests, and energy — often form the backbone of development. Countries with strong natural endowments can position themselves strategically in global supply chains. Chile’s Atacama Desert, with its high levels of solar radiation and lithium reserves, gives it leverage in the battery and electric vehicle sectors. Brazil’s landmass and hydropower underpin its agricultural and bioenergy strength. Suriname and Guyana are navigating the opportunities and risks of new offshore oil discoveries, balancing fiscal expectations with the need to diversify before the next commodity cycle turns.

    Natural‑resource rents from copper, soy, oil, and hydropower can expand fiscal space for investments in infrastructure, digital connectivity, innovation, and institutional capabilities. Chile and Brazil have used this space to extend transmission lines and integrate renewable energy into their grids. In contrast, Haiti’s long history of resource extraction and deforestation has eroded soils, reduced agricultural productivity, and trapped the country in a low‑productivity equilibrium.

    Countries with resource constraints face different pressures. Droughts affecting water for drinking and agriculture have pushed Central American governments to reform water governance and invest in drought-resistant crops. Chile’s lack of domestic oil and gas has accelerated its push toward solar, wind, and storage. Fossil‑fuel import dependence in the Caribbean and Central America exposes economies to price shocks and balance‑of‑payments stress, creating strong incentives to adopt renewables, efficiency measures, and regional energy integration. When traditional energy pathways are expensive or politically constrained, countries may leapfrog directly to renewables and distributed systems — as Uruguay and Costa Rica have demonstrated.

    Resource shocks can also trigger paradigm shifts. Commodity booms and busts — such as the post‑2014 decline in oil and mineral prices — have forced Brazil and Colombia to rethink their dependence on extractives and explore diversification and green competitiveness. Climate-related shocks, including hurricanes, droughts, and floods, can cause losses of 10–30% of GDP in Caribbean and Central American countries. In extreme cases, such as Dominica, Grenada, and Antigua & Barbuda, when hit by Maria, Ivan, and Irma, estimated damages have exceeded annual GDP. These events reshape business models, accelerate resilience investments, and open political space for reforms that would otherwise be impossible. 

    Resource flows are the basis of economies

    People are a foundational economic resource. Worker mobility, migration, and diasporas spread knowledge across firms and borders. In Costa Rica, engineers trained at Intel have seeded capabilities across the local tech ecosystem. Regional hubs — Campinas (ICT/biotech), Guadalajara (electronics), Montevideo (gov-tech/fintech) — accelerate innovation and diffusion. The Colombian diaspora in Miami and Madrid has become a channel for entrepreneurial knowledge, fintech innovation, and cultural industries. Education and training institutions amplify these flows. SENAI in Brazil, INCAE and CATIE in Costa Rica, and Mexico’s automotive training centers build absorptive capacity and help firms adopt innovative technologies and business models.

    Scaling during economic revolutions depends on scaling resource flows. Capital flows matter not only for firms but for the infrastructure that moves people, energy, materials, and knowledge. Grids, transmission lines, ports, roads, railways, fiber‑optic cables, canals, and airports are the physical networks that enable production. Panama’s canal, ports, and free zones illustrate how logistics platforms can become regional hubs for trade, data, and services. Cheap and reliable energy underpins global competitiveness and enables electricity-intensive industries such as data centers.

    Other socio-economic resources — ideas, standards, regulations, and networks — create coherence across firms and sectors. Government standards and procurement can level the playing field and accelerate diffusion. Online platforms and performance-based contracts can push innovation. Cultural capital — trust, legitimacy, professional associations, chambers of commerce, and clusters — reduces perceived risk and helps new practices spread. 

    Financial resources are crucial

    Crises can accelerate change. Debt, inflation, and banking crises in the 1980s forced structural adjustments across the region. Commodity shocks reshape investor expectations and redirect capital. Public finance remains essential for strategic change: aligning budgets, supporting state-owned or parastatal enterprises, and using development banks to steer investment toward future-ready sectors. Brazil’s BNDES has long shaped national priorities through investments in biofuels, agriculture, and renewables.

    Economics is about how systems work, not just about money. But economic revolutions depend heavily on finance. Capital allocation is shaped by profitability (past and present performance) and investment attractiveness (future potential). The hardest part of a technological revolution is identifying future winners and losers as global paradigms shift. Early phases of a technological wave attract speculative finance; later phases see production capital scale proven models. Countries that align their policies, regulations, infrastructure, and capabilities with emerging technologies are best positioned to attract long‑term investment.

    Two features of technological revolutions matter especially for LAC. First, as production expands, costs fall, and quality improves — a dynamic known as Wright’s Law. Second, innovative technologies emerge in clusters that reinforce one another. LAC is already seeing clusters around artificial intelligence, online platforms, cloud computing, electric vehicles, batteries, renewable energy, digital payments, e-commerce, and logistics. These clusters spill over into digital identity, e-government, and improved tax collection. Countries should target clusters rather than isolated technologies, using policy to connect finance with energy, transport, and skills to enable scalable production. 

    Conclusion

    Economic revolutions occur when resources — natural, human, institutional, cultural, and financial — align and reinforce one another. Finance alone cannot drive transformation; it must be connected to knowledge, raw materials, energy, and human capabilities. Today’s technological wave is a once-in-a-generation opportunity for LAC countries to reposition themselves and expand their productive capacity. The region has the resources to succeed. What it needs now is the commitment, organization, and capability to recombine those resources into new engines of growth.

    As Carlota Perez argues, countries must target clusters of technologies and avoid slipping back into the role of raw‑material suppliers. The challenge — and the opportunity — is to turn natural endowments into competitive advantages and become core actors in the next global technological surge. 

    The advice would be to: 

    · Target clusters of technologies, not isolated technologies. Build ecosystems around EVs, batteries, AI, and digital services.

    · Redirect capital toward future-ready sectors rather than patching old systems.

    · Invest in absorptive capacity. Skills, standards, and institutions determine whether technologies take root.

    · Align public finance with the new paradigm. Development banks, budgets, and regulations should steer investment toward scalable and integrated systems.

    · Build infrastructure that lowers costs. Energy, transport, universities, and digital networks are the backbone of competitiveness.

  • Spreading Successful Ideas Across Economies

    Spreading Successful Ideas Across Economies

    The most significant difference between Latin American and Caribbean economies that move forward and those that fall behind is not necessarily how many innovative ideas they generate, but how quickly innovative ideas spread across people, firms, and sectors. When promising routines and technologies remain trapped in a few places, productivity stalls, inequality widens, and public confidence erodes. When ideas move freely, societies learn, adapt, and grow faster. 

    This blog highlights how LAC countries can strengthen the systems that help innovative ideas travel across individuals, firms, sectors, and borders.

    Good Ideas Spread When People and Firms Can Absorb Them

    Diffusion begins with people. Workers and managers who can learn, adapt, and apply new routines are the first carriers of change. Firms that invest in training and managerial capabilities become engines of transmission, spreading better practices across supply chains and sectors.

    In Brazil, Embraer’s long partnership with the Instituto Tecnológico de Aeronáutica (ITA)—dating back to the 1950s—created a steady flow of engineers who could absorb and adapt to global aerospace technologies. These capabilities spread internally through rotations and project teams, and externally through suppliers and spinoffs, helping Brazil build a competitive aerospace sector.

    Uruguay’s Plan Ceibal, launched in 2007, expanded digital literacy by equipping students and teachers with devices and training. Rather than claiming global leadership, Ceibal helped Uruguay build a solid foundation for digital adoption, enabling firms and public agencies to take up new tools more easily.

    In Mexico, automotive firms in Guanajuato and Nuevo León—including Nissan, GM, and Toyota—co-developed training centers with state institutes during the 2010s. These centers helped local suppliers upgrade quality systems and robotics capabilities, spreading global production routines across the region. Many recognize the Bajío as one of the more competitive manufacturing regions in the Americas; it got there by sharing training and supplier upgrading, which accelerated diffusion.

    Crises also accelerate learning. The early-2000s economic crisis drove Medellín’s shift from a manufacturing city to a knowledge-intensive economy, pushing firms to adopt new digital and managerial practices. Ruta N, created in 2009, helped hundreds of firms reorganize around innovation, spreading agile methods and digital tools across the city.

    Worker mobility, return migration, and diasporas also carry ideas. Engineers trained at Intel Costa Rica, for example, later moved into local firms and startups, spreading global production and management routines across the country.

    Good Ideas Spread Faster When Institutions Scale What Works

    Policies that support experimentation create the raw material for diffusion. Start‑Up Chile, launched in 2010, did more than attract entrepreneurs—it spread routines for rapid prototyping, customer testing, and global networking. These practices diffused into Chilean firms, universities, and public agencies, strengthening the country’s entrepreneurial culture.

    Diffusion depends on variation, selection, and transmission—the three conditions that determine whether innovative ideas survive and spread.

    Costa Rica’s Payments for Ecosystem Services (PES) program, created under Forestry Law 7575 in 1996, also generated variation. By compensating landowners for conservation, PES introduced new routines for monitoring, verification, and contract management. These routines later spread into water utilities, municipalities, and private firms, helping scale sustainable land management.

    Institutions shape which ideas win. Brazil’s transmission auctions (2004–2010) rewarded firms that could deliver reliable, low-cost infrastructure. The auctions sharpened competition, encouraged managerial upgrading, and spread best practices across the electricity sector.

    Public procurement and finance amplify scaling. ChileCompra, launched in 2003, allows agencies to purchase innovative solutions, creating demand for firms that meet higher standards. Development banks across the region increasingly use performance-based financing to reward firms that adopt cleaner, safer, or more efficient technologies.

    Supply chains are powerful transmission channels. In Colombia and Mexico, supplier development programs in automotive, aerospace, and agribusiness help smaller firms adopt quality systems, digital tools, and logistics practices used by global buyers. These upgrades spill over into other sectors—manufacturing practices migrate into services, logistics improvements spread into agriculture, and digital tools move across industries.

    Standards also accelerate transmission. Mexico’s energy‑efficiency standards (NOMs) and Chile’s renewable‑energy auctions created clear expectations that pushed firms to adopt better technologies more quickly.

    Good Ideas Spread Through Networks and Trust

    Dense networks—clusters, associations, and digital platforms—help ideas travel faster. The Campinas Technology Hub in Brazil, anchored by UNICAMP since the 1990s, connects researchers, startups, and established firms, enabling rapid exchange of ICT and biotech capabilities. In Peru, the Colegio de Ingenieros del Perú spreads engineering standards and best practices across regions. In Jamaica, the JMEA helps SMEs adopt modern production and export routines.

    Digital platforms multiply these effects. Brazil’s SENAI expanded online training in robotics and automation in the mid‑2010s, allowing firms across the country to access advanced skills without geographic barriers. Open data systems—such as Chile’s Open Energy Data Platform—enable innovators to build forecasting tools and renewable‑integration solutions.

    Trust and legitimacy make cooperation possible. Brazil’s ANVISA, established in 1999, is widely respected for its technical rigor, encouraging firms to adopt food and pharmaceutical safety standards. Barbados’ Social Partnership Model, in place since 1993, builds trust among government, employers, and unions, helping the country adopt new labor and productivity practices more smoothly.

    Latin America and the Caribbean have no shortage of creativity. The challenge is ensuring that innovative ideas do not remain trapped in a few firms, sectors, or cities, but instead spread widely across individuals, firms, sectors, and countries. When societies strengthen their capabilities, institutions, networks, and trust, they accelerate the movement of ideas that improve productivity, resilience, and opportunity. The faster LAC economies learn and adapt, the quicker people will see better jobs, better services, and better prospects for the future.

  • Latin America and the Caribbean: Three Centuries of Competition

    Latin America and the Caribbean: Three Centuries of Competition

    For more than 300 years, powerful economic selection forces have shaped Latin America and the Caribbean (LAC). Much like natural selection in biology, competition has repeatedly rewarded firms, sectors, and countries with the right “traits” — capabilities, institutions, technologies — while punishing those that fail to adapt. These forces have determined which firms thrive, which stagnate, and which disappear.

    Understanding this long history of economic selection is not an academic exercise. It is essential for today’s policymakers and citizens because the same pressures that shaped the past are intensifying again. Across the region, thousands of small, low‑productivity, often informal firms dominate the economy, concentrated in sectors that employ many people but struggle to compete globally. Decades of institutional choices, policy incentives, and structural legacies have interacted with markets to produce this outcome.

    The challenge for LAC countries is clear: strengthen their economic systems so they can compete globally on their own terms. The selection environment should reward investment, innovation, and productivity rather than protection, lobbying, or regulatory evasion. In a moment defined by rapid technological change, digital platforms, and the emerging low‑carbon economy, decisions made now will determine future prices, job quality, service reliability, and access to opportunity. Viewing competition policy through the lens of economic natural selection offers a powerful diagnostic tool. It helps identify which institutions and incentives hold back economies, which reforms can unlock productivity, and who stands to gain or lose from business‑as‑usual versus change. It reframes competition not as a narrow regulatory issue, but as the mechanism that shapes the region’s long‑term development path.

    From colonial extraction to commodity booms, from import‑substitution to neoliberal liberalization, and from digital disruption to climate shocks, LAC has endured wave after wave of competitive upheaval. One pattern stands out: the region is a battlefield of strong selection, where winners emerge through adaptation, learning, and institutional strength, and losers succumb to path dependence, volatility, and weak state capacity. This blog explores that history and shows how understanding economic selection can help LAC build more resilient, innovative, and inclusive economies.

    The Shadow of History: Early Selection Shaped the Regional Trajectory

    Colonial extraction created the region’s first major economic selection pressures, shaping how local societies learned to compete, adapt, and eventually assert independence. From 1720 to 1820, plantation systems in Barbados, Jamaica, and Hispaniola generated extraordinary wealth for European powers. France even sent tens of thousands of soldiers to Haiti in 1801–02 in a failed attempt to preserve its plantation empire. Spain extracted immense riches from the silver mines of Potosí and Zacatecas, while Portugal dominated gold and diamond extraction in Minas Gerais. These systems created protected “winners” — colonial elites and monopolies — while suppressing indigenous economies and blocking diversification. When these monopolies collapsed, they left behind highly unequal, undiversified, and institutionally fragile economies.

    Independence did not break the commodity cycle. Instead, British merchants and financiers stepped into the vacuum, driving booms in guano, coffee, sugar, and rubber from the 1820s to the 1880s. Peru’s guano wealth fueled a short‑lived expansion before it collapsed. Coffee reshaped Brazil’s Paraíba Valley and later São Paulo, while Central American coffee elites consolidated land and political power. The Amazon rubber boom created fleeting prosperity in Manaus before Asian plantations outcompeted it. These cycles entrenched path dependence in precious metals, sugar, coffee, and, later, oil in Mexico, Trinidad and Tobago, and Venezuela. These industries shaped infrastructure and institutions around their needs, often at the expense of innovation and diversification.

    Limited access to skills and opportunity weakened the region’s ability to build a broad, competitive workforce. Narrow elites retained privileged access to education, entrepreneurship, and innovation. Only a few countries began to break this pattern. Chile built a professional bureaucracy and public education system after the 1830s. Uruguay expanded labor rights, pensions, and public education to grow a middle class. Costa Rica abolished its army in 1948 and reinvested in education and institutions. Barbados strengthened rule‑of‑law institutions and social partnerships. Elsewhere, elite dominance and commodity dependence reinforced each other, limiting the emergence of more complex, competitive industries.

    The 20th Century: Protection, Liberalization, and Extinctions

    From 1930 to 1980, import‑substitution industrialization (ISI) protected domestic firms through high tariffs, enabling rapid manufacturing growth. State‑owned enterprises such as PEMEX, Petrobras, and YPF expanded. Brazil built automotive and steel industries and founded Embraer in 1969. Mexico’s textile and consumer goods industries grew, but rarely exported. Argentina developed machinery and chemical industries, but became increasingly inefficient. Protection created national champions — but also insulated them from global competition. Many firms failed to innovate or meet international standards.

    The 1980s debt crisis delivered a brutal selection shock. Hyperinflation, austerity, and structural adjustment wiped out many protected firms. In Mexico, manufacturing output fell sharply in the early 1980s. Brazil shifted toward financial engineering for hyperinflation rather than sustained industrial upgrading. Argentina saw widespread closures in textiles, footwear, and machinery. Peru and others experienced explosive growth in informality as households sought survival strategies.

    The 1990s reshaped winners and losers again. Global trade created new competitive pressures. Brazil built competitive aerospace capabilities, with Embraer becoming a world leader. Argentina and Brazil expanded agribusiness, supported by EMBRAPA and modern technologies. Chile expanded export services and agroindustry, including salmon, fruit, and wine. Mexico, under NAFTA, deepened its electronics, auto‑parts, and assembly industries. But weak industrial policy and macroeconomic volatility meant LAC missed the manufacturing boom that lifted East Asia. Privatization often replaced public monopolies with private ones — Telmex in Mexico being a famous example — limiting actual competition. Across the Caribbean, privatized utilities and telecoms frequently became entrenched oligopolies with little incentive to innovate or reduce prices.

    The 21st Century: New Selection, Winners, and Vulnerabilities

    The commodity supercycle between 2000 and 2014 reshaped competitive dynamics once again. High global prices fueled extractive booms. Vale expanded iron ore production in Brazil. Oil exporters — including Brazil, Mexico, Argentina, Colombia, and Guyana — also benefited. Soy production surged in Brazil, Argentina, and Paraguay due to Chinese demand. But efficiency gains were limited. When prices collapsed in 2014, many economies faced fiscal crises and accelerated deindustrialization.

    After 2010, as the commodity boom faded, a vastly different kind of competition emerged. Digital technologies introduced a new wave of selection. Fintech, e‑commerce, and delivery platforms scaled rapidly across the region. Nubank became one of the largest digital banks in Latin America, with tens of millions of customers. Kavak and Rappi expanded across Mexico, Colombia, and Brazil. Traditional intermediaries lost ground as network effects favored scale, creating new oligopolies and squeezing analog firms.

    Extreme weather, shifting markets, and new energy technologies are becoming major economic forces that countries must prepare for. Caribbean tourism faces existential threats from hurricanes, sea‑level rise, sargassum, and potential European carbon taxes on flights. Hurricanes Irma and Maria devastated tourism infrastructure in Dominica, the British Virgin Islands, and Puerto Rico in 2017. Countries such as Uruguay and Costa Rica are using renewables to reduce dependence on imported fuels, stabilize energy costs, and attract data centers and new industries. Chile and Peru benefit from rising copper demand, while Chile, Argentina, and Brazil are major producers of lithium. Costa Rica, Guatemala, Belize, Brazil, and Guyana are advancing forest‑based climate strategies. Renewables and storage technologies are becoming more competitive, offering new opportunities for countries that invest early and strategically. These pressures are not abstract environmental concerns — they are already reshaping investment decisions, insurance markets, and the competitiveness of entire sectors.

    The Most Adaptable Survives

    Across three centuries, relentless selection pressures have shaped LAC — colonial extraction, commodity booms, industrialization, liberalization, financial crises, technological revolutions, and now climate change. The winners have consistently been those who adapted, built capabilities, invested in institutions, and aligned with global technological waves. The losers were those who relied on protection, windfalls, or political privilege rather than productivity and innovation.

    The next era of selection is already underway. The traits most likely to be favored are low‑carbon competitiveness, institutional reliability, technological adaptability, and social inclusion. In this evolving landscape, LAC’s future winners will be those who treat competition not as a threat, but as a catalyst for transformation. The question now is whether leadership across the region will seize this opportunity — or allow history’s selection pressures to repeat themselves.

  • Variation Matters: Diversity Shapes Economies in Latin America

    Variation Matters: Diversity Shapes Economies in Latin America

    Variation and diversity define the world people experience every day. They are also the foundation of how economies evolve. Differences across people, firms, industries, and countries shape how quickly societies adapt, how they respond to shocks, and why policies succeed in one place but not another. Variation is central to productivity growth, innovation, competitiveness, job quality, fiscal stability, and resilience.

    Countries in Latin America and the Caribbean (LAC) start from vastly distinct positions. They have different resource endowments, geographies, and population sizes. Their industries vary in maturity, competitiveness, and technological depth. Some countries are large and complex, making coordination difficult. Others are small, or island states that face constraints on scale but can sometimes move more quickly. Across the region, policymakers and citizens are seeking ways to build on existing strengths, raise productivity, expand opportunities, and ensure that global shifts do not derail national development paths.

    This blog examines variation across people, firms, industries, and countries—and what it means for the evolution of LAC economies.

    Individual and Firm-to-Firm Variation

    People differ in skills, capacities, values, and behaviors. In LAC, this variation is visible in the contrast between software developers in Brazil and Mexico, agricultural workers in Guatemala and Haiti, and the millions of Venezuelan migrants who have brought new skills and practices to Colombia, Peru, Chile, and beyond. Indigenous communities across the Andes, Central America, and the Caribbean maintain distinct knowledge systems and cultural traditions that shape their engagement with markets, natural resources, and institutions.

    These differences influence labor markets, entrepreneurship, and innovation. Individuals bring diverse networks, learning capacities, and experiences. They make choices based on identity, opportunity, and constraints. This micro-level variation is the foundation of broader social and economic diversity.

    Firms are organizational expressions of this variation. They differ in strategy, capabilities, governance, and risk appetite. Tourism firms in the Dominican Republic and Barbados leverage global connections and economies of scale. At the same time, family-run guesthouses in Saint Lucia or Guyana compete through personalized service and niche positioning. Agribusiness leaders in Brazil, Argentina, and Paraguay use advanced technologies, logistics, and data systems, while smallholder farmers operate with limited capital and narrower risk tolerance.

    Firms also respond differently to shocks. During COVID-19, online delivery platforms in Colombia, Mexico, and Brazil expanded rapidly as consumer behavior shifted. In the Caribbean, where hurricanes are becoming more frequent and intense, construction firms and hotels are adopting more resilient building practices. Leadership plays a critical role in identifying new opportunities, mobilizing diverse teams, and selecting which innovations to scale.

    Industry-to-Industry Variation

    Industries are clusters of economic activity that share products, technologies, skills, institutions, and competitive dynamics. They vary widely across LAC.

    Some industries are highly concentrated. Water utilities in many Caribbean islands operate as natural monopolies. Telecommunications and aviation tend toward oligopoly, with a few major firms dominating national markets. By contrast, retail and informal commerce in Peru, Bolivia, and Guatemala are highly fragmented, with thousands of microenterprises competing on price and proximity.

    Industries also occupy various positions in global value chains. Mining in Chile and Peru, agriculture in Brazil and Argentina, and oil and gas in Trinidad and Tobago sit upstream, supplying raw materials to international markets. Downstream industries — such as retail, hospitality, and logistics — serve domestic and regional consumers.

    Capabilities vary as well. Brazil’s aerospace sector requires advanced engineering and strict safety certification. Operating the Panama Canal demands highly specialized maritime pilots and logistics managers. Fintech ecosystems in Brazil, Mexico, and Colombia innovate rapidly, supported by digital infrastructure and venture capital. Creative industries in Jamaica and Trinidad and Tobago thrive on experimentation and cultural expression.

    Institutional contexts differ across sectors. Aviation, energy, and infrastructure services operate under stringent safety and regulatory frameworks. Tourism depends heavily on service culture and reputation. Industries also face distinct levels of exposure to external shocks — from commodity price cycles to hurricanes, droughts, and global market shifts.

    State-to-State Variation

    LAC countries share specific broad characteristics, including Indigenous, African, and Hispanic cultural roots; high inequality; persistent informality; and rapid urbanization. The region includes several megacities — Mexico City, São Paulo, Buenos Aires, Lima, and Bogotá — as well as dozens of small island states in the Caribbean.

    Yet each country is distinct.

    Resource endowments vary widely. Brazil has vast agricultural lands. Chile, Peru, and Argentina have world-class mineral deposits. Caribbean islands have limited land but extensive marine resources. Exposure to natural hazards also differs: Dominica, for example, ranks among the world’s most disaster-prone countries due to hurricanes and storms, while Chile faces frequent earthquakes but has strong building codes.

    Geography shapes connectivity. Islands such as Jamaica and Trinidad and Tobago depend on ports and airports for all goods. Panama has leveraged its location to become a global logistics hub. Smaller states face diseconomies of scale — Saint Lucia and Grenada rely on regional partners for specialized health care and higher education.

    Cultural capital also varies. Uruguay consistently ranks among the region’s most trusted and institutionally stable societies. Countries with high emigration — such as El Salvador, Haiti, Jamaica, and the Dominican Republic — have large diasporas that influence remittances, labor markets, and political dynamics. Brazil and Mexico, with large populations, can sustain more diversified domestic markets.

    Governance approaches differ as well. Chile and Costa Rica have long traditions of planning and institutional continuity. Other countries face more frequent political turnover or shorter planning horizons. Smaller economies may be more vulnerable to elite capture but can also be more agile in adopting reforms. Barbados, for example, has moved quickly on climate resilience and fiscal stabilization. Regulatory capacity, legal system strength, and tolerance for experimentation vary across the region.

    Conclusion

    The story of Latin America and the Caribbean is one of diversity and opportunity. Variation across people, firms, industries, and countries is not a barrier to development — it is the foundation. When policymakers understand these differences, they can design strategies that match real capabilities, constraints, and opportunities. Development is most effective when solutions are country-driven, sector-specific, and grounded in local strengths.

    The region’s diversity is a strategic asset. Encouraging experimentation, investing in capabilities, and learning from what works can help countries adapt more quickly, compete more effectively, and improve people’s lives. By using variation as a source of advantage, LAC can shape a more resilient and prosperous future.

  • Why Economies Change – Lessons from Evolutionary Economics

    Why Economies Change – Lessons from Evolutionary Economics

    Over forty years ago, Nelson and Winter argued that economies evolve through a process like biological evolution: firms follow routines, experiment with new ways of doing things, and those that succeed grow while others decline. Technological revolutions accelerate this process by reshaping industries, altering competitive advantages, and shifting geopolitical power.

    Many analysts argue that the world entered a sixth technological revolution around 2020. Countries in Latin America and the Caribbean now face a strategic choice: lead, follow, or fall behind. This wave will determine competitiveness, fiscal stability, and resilience for decades.

    Historically, the region has been commodity-dependent and vulnerable to crises. Yet evolutionary economics teaches that history is not destiny. Countries can change their trajectories by building capabilities, strengthening institutions, and setting clear direction. The region has a rare opportunity to shape its future—if it acts decisively.

    This blog explores how technological innovations drive rapid economic change, how institutions and capabilities determine who benefits, and how shocks and opportunities have historically opened windows for transformation.

    Technological innovations drive rapid economic change.

    Across the last five technological waves, innovative technologies have created entirely new industries, firms, and investment opportunities—first attracting venture capital, then large-scale real‑economy finance. Chile’s solar boom since 2015 and Mexico’s electric‑vehicle investments since 2020 illustrate how quickly new industry blocks can emerge. At the same time, older industries and business models decline in a process of creative destruction.

    Diffusion is uneven and path‑dependent. Countries and regions adopt technologies at separate times depending on geography, capabilities, and institutional readiness. Argentina and Mexico built extensive railway networks from the 1880s onward, while Central America lagged. Hydropower dominated Brazil, Costa Rica, and Paraguay from the 1970s, while Caribbean islands remained oil‑dependent. Guyana’s 2015 oil discovery triggered rapid development just as Venezuela’s mismanagement (2014–2020) collapsed its own sector.

    Path dependence matters: once a country builds enabling infrastructure, complementary technologies diffuse faster. Brazil’s smart grid pilots from 2008 made the later adoption of solar and distributed energy far easier.

    Technologies can be transferred, but absorption requires capabilities. Dominant technologies often emerge in leading economies and spread globally, but receiving countries must have the skills, learning systems, and firms to adapt and improve them. Brazil’s EMBRAPA, founded in 1973, transformed tropical agriculture by adapting foreign technologies to local conditions—an example of evolutionary “retention” and capability building.

    Institutions, capabilities, and visionary incentives determine who benefits.

    Institutions evolve alongside technologies. They can enable adoption or block it. Linear infrastructure, such as railways and transmission lines, requires land‑use reforms. Electricity systems require urban planning and regulatory clarity. In much of the region, governance fragmentation, weak regulation, and fiscal constraints slow institutional adaptation. Evolutionary economics emphasizes that institutional flexibility— “selection environments”—is as important as the technologies themselves. Brazil’s transmission reforms (2004–2010) unlocked long-distance lines for hydropower integration.

    Capabilities and learning systems determine whether firms can seize new opportunities. Dynamic firms grow when they can experiment, learn, and scale. Countries with strong learning systems and entrepreneurial ecosystems move faster during technological waves. Uruguay’s digital‑government investments (2007–2020) and Costa Rica’s engineering reforms after Intel’s arrival in 1997 show how capabilities compound over time. Conversely, Venezuela’s circumstances since 2000 eroded institutional capacity and accelerated sectoral collapses.

    Incentives shape direction. Commodity dependence has created powerful interests invested in maintaining the status quo. Subsidies and tax structures often reinforce older technologies and discourage investment in new ones. Evolutionary economics highlights that incentives influence which routines survive and which fade. Fossil-fuel subsidies across the region slow renewable adoption, while in 2014 Chile nudged utilities away from coal and toward solar and wind.

    Shocks and opportunities create strategic choices that can shape the future.

    Shocks can accelerate change or derail it. Wars, depressions, pandemics, and natural disasters reshape priorities and can disrupt long-term planning. The Latin American Debt Crisis of 1982 forced austerity and delayed modernization for a decade. Hurricane Maria in 2017 caused 225% of GDP losses in Dominica, overwhelming its fiscal capacities, but also triggered a bold goal to become the world’s first climate-resilient nation. Evolutionary economics shows that shocks alter selection pressures: some firms and institutions adapt, others fail.

    Occasionally, shocks open windows for reform—if institutions and capabilities are ready. Chile’s 2010 earthquake accelerated the implementation of seismic‑resilient infrastructure upgrades. 

    Today’s technological wave—AI, ride‑sharing, augmented reality, renewable energy, battery storage, electrification, and digital platforms—is already diffusing globally. The region has real advantages: high renewable energy penetration, hydropower, early adoption of electromobility, and globally significant forests. But success depends on strong institutions, capabilities, and the ability to attract investment. Brazil’s ride-sharing boom (2014–2020) and Costa Rica’s and Uruguay’s rapid EV adoption show what is possible when markets and institutions align.

    Strategic vision and long-term directionality determine whether the region can leapfrog.

    Economies evolve rapidly when leaders choose a direction and sustain it. Evolutionary economics emphasizes “directionality”—the ability to guide variation, selection, and retention toward preferred futures. Long-term planning up to 30 years is essential for attracting private investment, which depends on stable rules, credible institutions, and fiscal reforms.

    The region has examples of long-term strategic vision:

    • Costa Rica’s 2050 Decarbonization Plan
    • Guyana’s Low Carbon Development Strategy 2030
    • Chile’s 2015–2050 Energy Road Map
    • Brazil’s Ecological Transformation Plan

    These strategies create predictable environments where firms can invest, innovate, and scale.

    Conclusion

    Technological waves drive rapid economic evolution, and the sixth wave is already reshaping global competitiveness. Evolutionary economics teaches that countries succeed when they build capabilities, adapt institutions, and create incentives that reward innovation. Latin America and the Caribbean have a once-in-a-generation opportunity to shape their trajectory and leapfrog into a more resilient, competitive, and prosperous future. The choices made today will determine who leads, who follows, and who gets left behind.

  • Why Technologies Rise, Transform the World, and Eventually Fade.

    Why Technologies Rise, Transform the World, and Eventually Fade.

    Every so often, societies experience periods of accelerated change. Innovative technologies emerge that do more than improve daily life — they reshape economies, reorganize communities, and alter how people relate to one another. In these moments, the decisions that individuals, businesses, and institutions make determine whether they adapt, stagnate, or fall behind.

    Today, we are living through one of those periods.

    Across the world, the systems that support modern life — energy, information, production, mobility, and finance — are shifting at a pace that would have been difficult to imagine a generation ago. Solar and wind power have become among the most affordable sources of new electricity. Battery costs have fallen dramatically, enabling the expansion of electric mobility. Artificial intelligence is spreading faster than any previous technology. Digital payments, online commerce, streaming services, and virtual learning have become part of everyday routines. Electric vehicles, once a niche product, now outsell gasoline cars in several major markets.

    These changes are not gradual. They are exponential.

    Some societies and companies are moving quickly, investing in innovative technologies and building the skills and infrastructure needed to support them. Others are moving more slowly. As in every significant period of transformation, the pace of adaptation shapes who benefits and who struggles.

    We Have Seen Transformations Like This Before

    Although today’s technologies feel new, the pattern of rapid change is not. Over the past 400years, human societies have experienced repeated waves of innovation — each reshaping how people use energy, materials, information, and capital.

    Early industrialization(1770–1820) introduced steam engines, canals, textile machinery, and the factory system. Britain’s textile output increased tenfold between 1770 and 1830. Coal powered the machines, and plantation agriculture provided raw materials and capital that supported industrial expansion.

    The transportation revolution (1820–1870) connected regions at unprecedented speed. By 1870, industry had built 100s of thousands of kilometers of railway worldwide, and steam had begun to replace sailing ships. Telegraph lines linked markets and accelerated communication, drawing distant regions into shared economic systems.

    Early electrification (1870–1920) transformed cities and industries through the widespread adoption of lightbulbs powered by expanding electrical networks. Steel production rose from 1 million tons in 1870 to more than 28 million tons by 1900. With the steel came canned products. Electric lighting, telephones, and mass manufacturing reshaped daily life.

    The oil and automobile revolution (1920–1970) changed mobility and consumption. By 1970, more than 200 million cars were on the road, and oil had become a central resource in global trade and industry. Petrochemicals from oil and electronics from refrigerators to color televisions appeared in every house. 

    The digital revolution (1970–2020) rewired the world. Computers, the internet, smartphones, cloud computing, and global supply chains created a new economic architecture. Today, more than 5 billion people use the internet, and digital platforms have become essential infrastructure. At the same time, global trade grew, fed by the shift to container shipping.

    It is tempting to imagine these revolutions as cleanly separated eras, but technological change rarely works that way. Old and new systems often coexist for decades. Infrastructure, institutions, and cultural norms evolve more slowly than the technologies themselves. Revolutions are not single events — they are long, uneven transitions.

    Over the past 250 years, the pace of technological change has accelerated dramatically. During the first wave of industrialization (1770–1820), core technologies like canals and steam engines grew at an average annual rate of 3.7%. By the age of rail and coal (1820–1870), growth had reached 6.84%. Electrification and steel (1870–1920) pushed this to 8.58%, while the oil and automobile era (1920–1970) sustained growth at 7.93%. The digital revolution (1970–2020) surged to 9.34%, and today’s transformation — driven by AI, renewables, and electrification — is accelerating even faster, with early indicators suggesting a growth rate of 11.56% and rising.

    What History Shows: Adapting to Change

    Despite the complexity, history reveals a consistent pattern. Societies and organizations that adapt successfully tend to:

    · Invest early in emerging technologies

    · Build strong institutions and skills

    · Remain open to innovative ideas

    · Take calculated risks

    · Develop infrastructure that supports innovation

    · Maintain a long-term perspective even when the path forward is uncertain

    Those who struggle often:

    · Resist change because the present feels familiar

    · Remain tied to older industries and systems

    · Underestimate new competitors

    · Delay decisions until options narrow

    In past transitions, companies that shaped their eras — from early trading companies to industrial manufacturers to digital platforms — did so by recognizing change early and building systems around it. Individuals who played key roles in these transformations — from engineers and inventors to entrepreneurs and financiers — were not simply creators of new tools. They were builders of new systems.

    At the same time, technologies only succeed with support. Societies influence which technologies grow through policy choices, infrastructure investments, education systems, and cultural acceptance. The steam engine, the railway, the automobile, and the internet all scaled up because governments and communities chose to support them.

    Why Technologies Rise — and Why They Fade

    Technologies tend to succeed when they offer more value for less cost. They fade when something better emerges.

    History offers many examples:

    · Cars replaced horse-drawn carriages between 1900 and 1930.

    · Internal combustion engines replaced steam between 1870 and 1920.

    · Steamships replaced sailing ships between 1800 and 1880.

    · Telephones replaced telegraphs between 1876 and 1920.

    · Digital cameras replaced film between 1990 and 2010.

    · Mobile phones replaced landlines between 1970 and 1990.

    · Streaming replaced broadcast television in less than a decade.

    Today, electric vehicles are replacing gasoline cars because they are faster, cheaper to operate, and easier to maintain — and because infrastructure and policy increasingly support them. Some old technologies survive in niche roles — books, mechanical clocks, candles, sailing ships — but they no longer define the economy. The direction of travel is consistent: societies move toward technologies that deliver greater value.

    But transitions also bring disruption. The first industrial revolution devastated traditional textile industries in India and created harsh working conditions in early factories. The first and second industrial revolutions relied heavily on agricultural products produced through enslaved labor and colonial extraction. The digital revolution has created new inequalities and new vulnerabilities.

    Technological change creates winners and losers within societies, not just between them. The social costs are real and must be managed.

    We Are Living Through the Sixth Great Transition

    Today’s transformation involves artificial intelligence, ride-sharing, virtual and augmented reality, renewable energy, battery storage, electrification, and digital platforms. These technologies are reshaping everything from household budgets to global supply chains. They offer the potential for cleaner air, lower costs, more resilient economies, and new forms of work.

    But the outcomes are not predetermined.

    The benefits depend on choices — by institutions, by businesses, and by individuals. Some communities have more resources and capacity to adapt than others. Not everyone begins from the same starting point.

    Leadership in this moment means more than embracing innovation. It means managing risks, supporting those who may be left behind, and ensuring that the benefits of change are widely shared.

    The future is not something that happens to us. It is something we build.

    And each of us has a role to play in shaping what comes next.