How to shape the economy of the future
Modernizing the state was a key election promise of Chile's President Sebastián Piñera, who as part of a five-point plan has vowed to eliminate the use of paper in public institutions by 2025, modernize regulation and improve access to digital services.
Finance minister Felipe Larraín has underscored the importance of manufacturing to the Chilean economy, representing 37% of the country's US$25bn in exports in 2017, but has recognized the need for an Industry 4.0 approach, focusing on digitization and connecting productive units of the economy.
The Economy of the Future is a program of Chile's economy ministry created by minister José Ramón Valente that aims to streamline procedures and public services through the incorporation of emerging technologies such as blockchain, artificial intelligence and big data.
To learn more about the program, BNamericas spoke to Julio Pertuzé, head of the Economy of the Future.
BNamericas: How would you sum up what the economy of the future is about and how does the government plan to approach it?
Pertuzé: President Sebastián Piñera gave us a clear mandate: to create the necessary conditions to insert Chile successfully into the Fourth Industrial Revolution. This is the main objective of the Economy of Future program. To achieve this, we need to identify and study which technologies are disrupting our daily lives and see how they can be incorporated in the public and private sectors. For example, we've been carrying out a pilot with Blockchain technology and looking at how it can contribute to the modernization and digitization of the state.
BNamericas: Public and private sector representatives have said that the Chilean economy needs to increase productivity, that productivity is low compared to Asian peers. How can that be achieved?
Pertuzé: There are short-term and long-term measures to increase productivity. For example, the Office of Productivity and National Entrepreneurship [OPEN], led by Andrés Osorio, is carrying out an x-ray of regulation in different sectors, looking to identify excessive bureaucracy that constitutes a barrier to innovation. Specifically, OPEN is studying Chilean legislation and regulations looking to simplify it so it is more coherent with the outside world.
In the long term, the only way for countries to increase productivity is by incorporating more technology and boosting innovation and this is where we at the Economy of the Future are hoping to make a contribution.
BNamericas: What Chile invests in R&D is low compared to countries like South Korea. Will investing more in R&D boost productivity?
Pertuzé: What you have to remember is that a lot of the R&D in Chile is state funded, unlike the majority of other OECD member states. The Chilean private sector finances only 39% of total R&D spending, while the OECD average is 69%. So we need to encourage more privately funded R&D and more innovation if we are to see more competitive Chilean companies on a global level.
We are working with the economy ministry's innovation division in adapting R&D legislation and creating a new technology transfer law that is helping to better connect scientific research with the needs of the public and private sectors.
BNamericas: What are the best ways to encourage more investment? Through financing of incubators like Startup Chile. Or does it have to do more with legislative and tax changes?
Pertuzé: Today among the main incentives is a credit against first category tax paid by companies. So if a company is not profitable, it cannot deduct taxes and cannot benefit from this mechanism. This means that many SMEs and startups receive no incentives to carry out R&D and that is something we're seeking to address with the new R&D law.
To encourage investment, you also need highly competitive markets. We need the incumbents to feel challenged by new entrepreneurs and companies and know that if they don't innovate, they could risk losing market share.
I also believe we need a change in our attitude towards technology, especially when we're talking about business models in network economies, there are advantages to being the first mover. So we cannot wait for a technology to mature before trying it out because although being first can be expensive and you can make mistakes, being second can be fatal.
BNamericas: What emerging technologies do you think could most impact and shape the economy of the future and how? Artificial intelligence, big data, augmented reality?
Pertuzé: It's hard to pinpoint the individual impact of each of these technologies. All can have a transformative impact individually and collectively.
That's why we're talking about a true industrial revolution. We have to see this revolution as a whole, because it's already changing the way we relate not only to each other, but also to our needs and our environment.
Technology is a tool and we decide how to use it. In the first industrial revolution the paradigm shift was not produced by the steam engine itself, but how it allowed us to reorganize factories and it triggered the specialization and division of labor. That was what was revolutionary. What is unique about current technologies is that never before has it been so easy to collaborate on such a massive scale. What is revolutionary about these technologies is how they enable us to create networks and the capacity to collaborate. The challenge is how we reinvent the workplace and labor activities through these technologies.
BNamericas: How can the private and public sectors collaborate in building the new economy of the future?
Pertuzé: Just as we cannot isolate the impact of a single technology, we cannot single out ourselves as players in the face of this technological tsunami we're facing. Public-private collaboration is, and should be, the way to incorporate new technologies and define their uses and potential. Nobody has all the necessary information to anticipate how a particular sector will respond to a certain technology. The only way to get a positive result is to get the largest number of players involved as possible.
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