Watkins Advisory – Development Economics & Climate Policy for LAC

Tag: Complex Systems

Focuses on economies and societies as complex systems characterized by interdependence, non‑linearity, and emergent outcomes.

  • 300 Years of Technological Revolutions Reshaping Nations

    300 Years of Technological Revolutions Reshaping Nations

    Technological revolutions do not just introduce modern technology and business innovations. They reorganize the entire economic ecosystem. They accelerate flows of energy, materials, capital, and knowledge. Over the last three centuries, successive technological revolutions have increased global energy use by more than an order of magnitude. They hit fast, scale hard, and reorganize entire economies before institutions can catch their breath. Electricity, cars, and the internet all transformed daily life faster than governments could adapt. Technological revolutions destabilize the social order in ways that can lift nations—or break them. Understanding these dynamics is essential for any country navigating the next wave.

    Latin America and the Caribbean have lived through this pattern before—from the steam age to electrification to the digital wave—and each time the region has faced the same question: adapt early or absorb the shock later. 

    Today’s transition is larger and faster than any previous one. AI, clean energy, electrification, and digital‑physical integration are reshaping global markets, supply chains, and geopolitical power. Some estimate that AI adoption doubles every 6-12 months, that international clean energy investment will surpass 2 trillion in 2025, and that global EV production will continue to grow at 25-30% year-on-year. Countries that can manage these shifts will unlock new sources of productivity, industrial competitiveness, investment, and resilience; those that cannot face widening gaps, rising volatility, and growing social pressure.

    The challenge is simple to state but difficult to execute. Technological revolutions transform flows, institutions, and social orders far more quickly than societies can absorb them. The only actors with the mandate, scale, and legitimacy to guide these transitions are states. And the region’s future depends on whether governments can build the capabilities, coalitions, and long-term strategies needed to steer this wave rather than be swept aside by it.

    This blog distills the core lessons from past technological revolutions—what changes they drove, what drove them, and what states must do to turn disruption into development.

    Human ecosystems change faster than societies can absorb.

    Capital stocks and flows transform at breakneck speeds. Every technological revolution begins with a surge in flows—energy, materials, finance, and information. Between 1800 and 1910, global freight capacity increased by orders of magnitude as steamships and railways reshaped trade routes and volumes. These flows expand by orders of magnitude and shift their geographic centers. They create new capital stocks: railways, grids, ports, data networks, and industrial clusters that lock in development paths for decades. The speed of expansion often outpaces society’s ability to adapt, triggering bubbles, busts, fiscal pressure, infrastructure bottlenecks, and geopolitical competition as states and firms race to control the new flow architecture.

    Institutions struggle to keep up with the pace of change. Institutions designed for smaller, slower economies suddenly face volumes and velocities they were never built to manage. Institutional responses to major technological shifts often lag by a decade or more. Governments must reinvent planning, legal systems, financial architectures, education systems, procurement, and regulatory regimes to address new risks and coordinate larger markets. When adaptation lags, inequality spikes, political polarization intensifies, and governance systems enter crisis. Only four LAC countries: Chile, Brazil, Mexico, and Costa Rica, appear towards the top of the Global Innovation Index, reflecting persistent institutional gaps in science, technology, research, and development. 

    Social order becomes more volatile and turbulent. Mechanized industry in Europe triggered dozens of major riots and uprisings between 1811 and 1848. Technological revolutions reorder power. They disrupt labor markets, unsettle political coalitions, and challenge established elites. The result is turbulence: protest waves, backlash movements, and, at times, open conflict. Policy sequencing and transition management are critical to success. Wars, revolutions, and authoritarian turns often emerge when old orders resist change or when new groups demand inclusion. These cycles determine whether societies harness technological change or fall into militarization and rivalry.

    Variation, selection, and diffusion drive technological revolutions.

    Variation increases when knowledge flows, and innovative ideas flourish. For example, the number of scientific publications has doubled every decade since 1950. Breakthroughs emerge when communication technologies, scientific institutions, and cultural norms increase the generation and exchange of ideas. Variation spikes when experimentation becomes cheaper, literacy rises, and dense urban clusters intensify knowledge flows. These bursts of novelty create the raw material for new industries, infrastructures, and social models.

    Selection rewards technologies that reduce distance effects and complexity. Across all waves, winning technologies are those that reduce the cost of moving energy, people, goods, and information. Steam engines, railways, electricity, automobiles, microchips, and digital networks all share this trait. Steam engines cut transport costs by 90%; railways cut travel times by 95%; containerization reduced shipping costs by 50%. These changes enable the emergence of larger markets and more complex organizations. Industrial policy choices select successful firms, reinforced by capital flows, standards, and political decisions that privilege scalable, interoperable systems.

    Diffusion rates depend on institutions and social capacities. Technologies spread fastest where states and firms can mobilize capital, build complementary infrastructure, and train skilled labor. Diffusion is slow where hierarchies and elites resist change, institutions lack capacity, or social norms discourage experimentation. Countries with stronger institutions tend to adopt innovative technologies more rapidly than those with weak regulatory and financial systems. The speed and breadth of diffusion determine whether revolutions generate inclusive growth or deepen global divergence.

    States must guide technological revolutions.

    States need to build core infrastructures. Every successful technological revolution sits on foundational systems—transport, energy, communications, finance, and standards. In the United States, the federal government provided substantial support for early railway expansion and covered most of the cost of the interstate highway system. China’s state-led development model channeled several trillion dollars into energy and transport infrastructure between 2000 and 2020. These infrastructures reduce uncertainty, lower transaction costs, and enable large-scale investment. Private actors cannot build them alone. Public-private coordination and state support for long-term financing are crucial. Without state leadership, innovative technologies remain local curiosities rather than national or global systems.

    States need to manage social disruption and its causes and stabilize expectations. Technological revolutions create winners and losers. States must cushion shocks through education, social insurance, labor protections, and redistribution. Countries that invest in social protection during technological transitions tend to experience fewer episodes of political instability. Managing social disruption is particularly important in LAC, where up to half of the workers may be informal, making them highly vulnerable to technological displacement. Effective states prevent disruption from spiraling into unrest or authoritarianism by ensuring transitions are socially and politically sustainable. When states fail, societies fracture.

    States need to steer direction through long-term strategy and low volatility standards. In LAC, a small group of countries: Barbados, Chile, Colombia, Costa Rica, Uruguay, Brazil, Guyana, and Mexico have adopted national or sectoral strategies with multi-decadal horizons. States shape technological trajectories by setting standards, funding research, coordinating industrial policy, and negotiating international rules. As flows globalize, multilateral and regional institutions become essential for governing cross-border capital, data, energy, and materials. Strategic states use these tools to align revolutions with national priorities. Intra-LAC trade accounts for only 15% of total trade, compared with approximately 60% in the EU. External forces shape weak states, not the other way around. 

    Conclusion

    Technological revolutions are not just periods of technological and business innovation. They are system-level reorganizations of how societies produce, govern, and live. They determine who grows, who falls behind, and who gets left out entirely. For LAC, the next wave is already underway. AI is reshaping production systems, and some suggest it could add up to US$15 trillion to the global economy by 2030. Still, without a deliberate strategy, LAC would capture only a small share of this value. Clean energy is redrawing the international map of competitiveness. Electrification is reshaping cities, transport, and industry. Deep electrification in the LAC region could reduce oil imports by tens of billions of dollars annually. Industrial competitiveness and fiscal stability are bound to this technological revolution. 

    The region has a choice. It can treat these shifts as external shocks and respond to them, thereby perpetuating the cycle of late adoption and limited gains. Or it can approach this moment as a strategic opportunity: to modernize institutions, mobilize investment, build productive capacity, and design transitions that are fair, stable, and aligned with national priorities. States will need to plan and coordinate across sectors to deliver the required investments. 

    History is clear. Countries that lead technological revolutions do so because their governments act early, decisively, and with a long view. They build the infrastructure on which markets depend. They manage disruption before it becomes a crisis. They set standards that shape industries. They negotiate internationally from a position of purpose rather than vulnerability.

    The next technological wave will reward ambition and punish hesitation. LAC can shape this transition—if its states choose to be at the forefront.

  • 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.

  • Natural Selection and Technological Revolutions

    Natural Selection and Technological Revolutions

    Policy makers in Latin America and the Caribbean today face a historic challenge. The world is entering a new technological revolution, reshaping energy, transport, and infrastructure. At the same time, the urgency of climate change demands that this revolution be green, fair, and inclusive. The question is not whether change will happen, but how it will unfold—and whether our region will lead or lag.

    The metaphor of natural selection offers a powerful way to understand this process. Just as species evolve through variation, selection, and survival, technologies and institutions evolve through competition, adaptation, and diffusion. Policy makers are not passive observers of this process. They are the architects who design the conditions under which new ideas survive, spread, and transform societies.

    This blog explores how policymakers in Latin America and the Caribbean can use the logic of natural selection to guide green transitions. It shows how variation in technologies and institutions creates opportunities, how selection pressures determine winners and losers, and how successful innovations spread to reshape economies and cultures. Most importantly, it highlights the role of policy in shaping these dynamics—ensuring that transitions are not only efficient and competitive, but also fair and sustainable.

    Setting the Stage: Why Policy Makers Matter

    Technological revolutions do not happen in a vacuum. They depend on the right mix of policies, institutions, and cultural conditions. For Latin America and the Caribbean, this means building frameworks that encourage innovation, reduce costs, and ensure that benefits reach all citizens.

    Competitiveness is at stake. Countries that lead in green technologies will reduce service costs, attract investment, and secure long-term growth. Those that fall behind will be locked into outdated systems, facing higher costs and weaker resilience. Policy makers must therefore act as architects of competitiveness, designing the rules and incentives that allow new technologies to flourish.

    The region already has a strong foundation. In 2025, over 75% of electricity in Latin America and the Caribbean comes from renewable sources, one of the highest shares in the world. Hydropower remains dominant, but solar and wind are expanding rapidly. Chile, for example, increased solar generation from just 2% in 2015 to more than 20% in 2024, while Brazil added over 16 GW of solar capacity in 2023 alone. These shifts show that the region is not starting from zero—it is already a global leader in clean energy.

    Understanding Variation: The Raw Material of Innovation

    Variation is the starting point of natural selection. In the technological world, variation exists in ideas, inventions, business models, cultural practices, and institutions.

    In energy generation, we see variation across fossil fuels, nuclear power, solar, wind, geothermal, and hydropower. Each has strengths and weaknesses. Fossil fuels are dense and reliable, but polluting. Solar and wind are clean but intermittent. Nuclear is powerful but politically sensitive. Geothermal and hydropower are location-dependent.

    In storage, variation exists across fossil fuel reserves, lithium-ion batteries, solid-state batteries, and other emerging technologies. Each offers different trade-offs in terms of energy density, safety, affordability, and infrastructure needs.

    In mobility, variation is evident across internal combustion engine, hybrid, battery electric, and hydrogen fuel cell vehicles. Each technology competes for survival, shaped by consumer preferences, regulatory frameworks, and infrastructure readiness.

    Variation is not a problem—it is an opportunity. It provides the raw material from which better solutions can emerge. Policy makers must therefore nurture variation, supporting research, experimentation, and pilot projects. Barbados offers a good example: its National Energy Policy aims for 100% renewable energy and carbon neutrality by 2030, backed by an investment plan of nearly USD 9.5 billion. By encouraging diverse solutions, Barbados is creating space for new technologies to prove themselves.

    Selection: How To Determine Winners and Losers

    Selection is the process by which some technologies survive and spread while others decline. In business and technology, selection depends on efficiency, profitability, cultural resonance, political support, and policy frameworks.

    Consider energy generation. Solar and wind have become dominant in many countries because they offer lower costs per kilowatt-hour, economies of scale, and scalability. Once China and Europe invested heavily, costs fell globally, making these technologies competitive everywhere. In Latin America, Chile’s rapid solar expansion and Brazil’s booming wind sector show how policy support can tilt the balance.

    Consider storage. Lithium-ion batteries have dominated because they combine high energy density with affordability and scalability. But solid-state batteries are emerging, offering faster charging and greater safety. Policymakers can accelerate their adoption by supporting research and building infrastructure.

    Consider mobility. Electric vehicles are spreading rapidly because they offer efficiency, lower maintenance costs, and are supported by regulatory changes. Infrastructure is catching up, with charging networks expanding worldwide. Colombia, for instance, has introduced tax incentives and streamlined licensing to support renewable projects, helping EV adoption grow alongside solar and wind.

    Selection is not random—policy choices shape selection. Brazil’s National Energy Transition Policy (2024) will mobilize nearly USD 400 billion in investment, while its Future Fuel Law boosted bioenergy and small-scale solar. These frameworks show how governments can guide markets toward sustainable solutions.

    Diffusion: How Successful Innovations Spread

    Once a technology proves successful, it spreads, reshaping economies and cultures: the diffusion stage of natural selection.

    Solar and wind provide a clear example. Once solar and wind reached scale in China and Europe, they became globally dominant. In Latin America, Chile’s solar boom and Brazil’s wind expansion are now influencing regional markets.

    Batteries show another example. Lithium-ion batteries have spread rapidly, aligning with other innovations such as electric vehicles. Solid-state batteries are emerging, promising even greater efficiency. Policy makers can accelerate diffusion by supporting supply chains, building infrastructure, and encouraging consumer adoption.

    Electric vehicles illustrate the power of diffusion. Production is surging worldwide, and infrastructure is catching up. Costa Rica, which already sources 99% of its electricity from renewable sources, is well-positioned to integrate EVs into its clean energy matrix.

    Diffusion is not automatic. It requires policy support. Without the right frameworks, successful innovations may remain limited to niche markets. Policy makers must therefore design strategies that accelerate diffusion while maintaining economic and cultural stability.

    The Role of Policy: Guiding Evolution

    The metaphor of natural selection highlights the importance of policy, just as environmental conditions shape which species survive, policy conditions shape which technologies thrive.

    Policy makers must therefore act as evolutionary architects, designing frameworks that guide variation, selection, and diffusion:

    · Encouraging variation through research funding, pilot projects, and innovation hubs.

    · Shaping selection through subsidies, regulations, and infrastructure investments.

    · Accelerating diffusion through supply chain support, consumer incentives, and cultural engagement.

    The goal is not to pick winners directly, but to create conditions where the best solutions emerge naturally, avoiding the risk of locking into outdated technologies while ensuring fair and sustainable transitions.

    Practical Steps for Policy Makers in Latin America and the Caribbean

    1. Invest in Research and Development  

    Support universities, research centers, and private companies in exploring new technologies. Encourage collaboration across borders to share knowledge and resources.

    2. Build Infrastructure  

    Invest in grids, charging networks, and storage facilities. Ensure that infrastructure reaches both urban and rural areas, reducing inequality.

    3. Design Smart Regulations  

    Use regulations to tilt the playing field toward sustainable solutions. For example, set efficiency standards, require renewable integration, and limit emissions.

    4. Provide Incentives  

    Offer subsidies, tax breaks, or low-interest loans for green technologies. Encourage consumers to adopt new solutions by reducing costs until they scale and become cheaper than the competition.

    5. Engage Culturally  

    Recognize that technologies must resonate with local cultures. Promote narratives that connect green transitions to regional identity and values.

    6. Guide Finance Flows  

    Encourage speculative capital for early innovation, but ensure production capital for scaling. MDBs and IDFC channeled US$29 billion to Latin America and the Caribbean for climate mitigation.

    7. Ensure Inclusivity  

    Design policies that ensure no one is left behind. Provide support for vulnerable communities, retraining for workers, and access to affordable services.

    Conclusion: Architects of the Future

    Latin America and the Caribbean are not passive observers of technological revolutions. Policy makers here are architects of the green transition, capable of shaping the evolutionary process of innovation.

    By diagnosing systems, creating enabling institutions, and fostering cultural conditions, leaders can ensure that the region remains globally competitive, reduces local service costs, and builds social and environmental resilience.

    The green transition is not just about survival—it is about leadership. Policy makers in Latin America and the Caribbean can guide variation, shape selection, and accelerate diffusion. By doing so, they can ensure that the region not only adapts to change but leads it.

    The future belongs to those who design the conditions for survival. In the natural world, the strongest survive. In the technological world, policymakers decide what strength means. For Latin America and the Caribbean, strength means sustainability, inclusivity, and resilience.

    Over the past five years, countries like Chile and Brazil have shown how renewable investment and access to sovereign and private green finance can transform energy systems. Barbados has set a bold target of 100% renewable energy by 2030, while Costa Rica already generates nearly all its electricity from clean sources. Colombia is expanding solar and wind capacity at record speed. These examples prove that the region has both the ambition and the capacity to lead.

    The challenge is great, but the opportunity is greater. By embracing their role as evolutionary architects, policymakers can ensure that the green transition is not only successful but also transformative. They can build competitive economies, inclusive societies, and resilient environments.

    Latin America and the Caribbean stand at the frontier of history. The choices made today will determine whether the region becomes a leader in the global green revolution or will be left behind. With vision, courage, and decisive action, policymakers can ensure that the region thrives in this new era—an era defined not by fossil fuels and fragility, but by renewable energy and sustainable prosperity.