Guatemala: Competitiveness and Innovation

Xavier Sala-i-Martin

Columbia UniversityColumbia University

Guatemala, June 13, 2011

World Economic Forum

� Competitiveness: “The set of institutions, policies, and factors that determine the level of productivity of a country”

Guatemala

� Score 2011: 4.04

� Rank: 79 (mainly unchanged relative to 2010)

Competitiveness: MUST INNOVATE!

� You may think that poor countries can compete in prices (make things cheaper), and they can… for a while!

� Then you must compete in quality (make things better)

� Eventually, only one options: Innovation (make different things)

History of Pizza: From Phoenicians to Tomatoes

Belladona o

Uvas del Diablo

Arameic word

for bred:

PITTA

Early Pizza: From Marinara to Napolitana 1st Pizzeria in the World:

Antica Pizzeria Port d’Alba in Naples

Pizza Margarita

New York Pizza

Lombardi’s employee (Tonono Pero)

and Coal Oven

The Pizza Slice: Harlem, NY

Chicago Pizza Ric Riccardo and Ike Sewell

Pizza Delivery: Domino’s

Tom Monaghan

Pizza Hut: McDonald’s in Pizza

DiGiorno Frozen Pizza: Di GiornoRising Crust Technology

Gourmet or California-style pizza

Lessons from History of Pizza for Innovation� EVERY COUNTRY MUST INNOVATE

� IT IS NEEDED IN EVERY SECTOR

� SMALL STEPS

� MOST IDEAS ARE NOT R&D: � Chance/Employees (Tonono Pero at Lombardi’s)� But when R&D is needed, it is DRIVEN BY NEEDS, NOT BY TAX

INCENTIVES!!� But when R&D is needed, it is DRIVEN BY NEEDS, NOT BY TAX

INCENTIVES!!

� Innovation is done by individuals (workers) or SMALL BUSINESSES

� Some times “copying what works elsewhere” is a way to succeed (Pizza Hut)

� But some times, in order to succeed you need to innovate by adapting to your own specific circumstances� to the tastes of your customers –Chicago� to the environment –there is lot of cheap coal in NYC� to the income of your customers –slices in Haarlem� to the desires of customers –fast delivery in college

Where do (Business) Ideas Come From?

� Amar Bhidé ( “Origin and Evolution of New Businesses”)

� 500 growth businesses in USA

� Origin of Business Ideas� Origin of Business Ideas� 71% of enterprises “saw” an idea while working for

someone else: WORKERS!� Ray Krock (milkshaker seller) of McDonalds� Chad Hurley, Steve Chen, and Jawed Karim of Youtube

� 21% found an idea “by chance”� Mark Zuckeberg of Facebook (initially it was a facebook for

colleges, and then introduced pictures and newsfeed…)

� Only 8% through formal R&D... � Successful R&D often consists in screening startups: Apple,

Microsoft

Apple

� Iphone:

� The touch and gesture features of the iPhone are based on technology originally developed by FingerWorks

� Camera: OmniVision

� Facetime: a company called Facetime was purchased

� Itunes:

SoundJam MP, developed by Casady & Greene in 1999, purchased by Apple in 2000� SoundJam MP, developed by Casady & Greene in 1999, purchased by Apple in 2000

� Ipod:

� Software developed by PortalPlayer

� Interface developed by Pixo

� Safari:

� Konqueror (free software for Linux)

� Garageband:

� Garageband was a company purchased in in 2002

Microsoft:

� Since Microsoft IPO (1986):

� Purchased 128 companies (including hotmail)

� Has stakes in 60 more (including Facebook)

Innovation “Policy”

�WHAT IS NOT:� It is NOT R&D subsidies (you would not target the right people or the right sector)

� It is NOT industrial policies or PLANS directed by clever bureaucrats or political prima donnas.

� It is NOT the promotion of “CLUSTERS” and “Technology Parks”

� It is NOT the promotion of “CLUSTERS” and “Technology Parks”� everyone wants to be Silicon Valley 2!!!. Latest one is Skolkovo in Russia, which is meant to fail.

�What IS:� Creation of an environment conducive to

� (1) creation of ideas and

� (2) implementation into real products, services and processes

Innovation “Policy” (2): A Business-Friendly Environment

� IDEAS HAVE TO BE IMPLEMENTED� Infrastructures:

� Physical and virtual (technological adoption!)� Not enough to have infrastructures, they have to be run efficiently!

� Institutional Quality� Trust in law and order � Tax system that works and is efficient� Tax system that works and is efficient

� Policy Certainty (opposite of Policy Reversals):� Crime� Private Corporations Scandals (Enron, Maddof, Banking, …)

� Regulation “barriers” :� Bureaucracy (World Bank Rankings of Doing Business)� Competition in Goods Market:

� DANGER OF PROTECTIONISM (Post-Recession Neo-Nationalism: E-on, France Suez, Danone, ...)

� Competition screens good from bad ideas (most Apple components are

Innovation “Policy” (2, Cont.): A Business-Friendly Environment

� Competition in Labor Markets� Legal.

� Spain (worst-hit country in Europe as far as unemployment is concerned)

� Mental (regional mobility)

� Meritocracy (Football again)

� Female Discrimination (Did Affirmative Action work?)� Female Discrimination (Did Affirmative Action work?)

� Financial Markets� Need to finance entrepreneurs and innovators (not so much real

estate): capital risk (self-finance –or Bootstrapping- is not always possible or limited -Facebook)

� Careful with demonization of banking system after the current financial crisis: no ideas can be implemented without banks

Competitiveness and the WEF: Guatemala

Competitiveness and the WEF

� Guatemala’s Not So Bad:

� Business Sophistication (Strategy, Quality of demand, supporting industries, …)

� Higher education

� Financial Market Sophistication, Trust, � Financial Market Sophistication, Trust,

� Guatemala’s Best:

� Macroeconomic Stability

� Ease of Foreign Investment

� Labor Market Flexibility

Competitiveness and the WEF: Guatemala

� Useful tool to identify bottlenecks:

� WORST SCORES FOR GUATEMALA (In reverse order):

� Health

� Competition in goods market (red tape, etc) Competition in goods market (red tape, etc)

� Innovation

� Private Institutions (corporate ethics, corruption, trust, etc)

� Government Efficiency (or inefficiency)

� Infrastructures

� Public Institutions (Corruption, favoritism,…)

� Crime, Security,

And the worst is….

� Basic Education

Innovation “Policy” Part 1: Creation of Ideas=Education

� The world is changing and the education system is not!

� World is moving so fast that, FOR THE FIRST TIME IN HISTORY:TIME IN HISTORY:� Kids know more than parents and teachers� Kids already live in the new world:

� Newspapers? Books?� Wearing watches?

� Reading (Remember “Don Quijote”), TV, Playstation, and ARES

ARES: (Assembling Reconfigurable Endoluminal Surgical System)

Education: Change HOW we teach

(1) Are we sure we still want to divide classes by age?

(2) Are we sure we use the best available tools to teach?

(3) Are we sure we can speak our student’s language?

(4) Are we sure we teach the “right” things?

(1) Are we teaching the right math? Statistics or Calculus?(1) Are we teaching the right math? Statistics or Calculus?

(2) Are we teaching “critical thinking”?

(3) Are we teaching “creativity”

(4) Are we teaching to solve real problems?

(5) Are we teaching to learn from mistakes?

(6) Are we teaching to “not give up”?

(7) Are we teaching to ask for help?

(8) Are we teaching to be entrepreneur?

(9) Are we teaching to lead or to obey?

Education outside school

� Parents:

� Weekly allowance?

� Reading or story telling?

� Public Speaking

� Save/invest=teach risk

� Sell toys

THE END