Subject:
Economy
Trying to eliminate or limit the actions of these new intermediaries of Internet commerce is unthinkable, when we need to be closer and closer to understand the new dynamics of the global market and play with the same cards of creativity and innovation that are the judges of the market.
Since ancient times, trade has been based on the skill and strategy used by intermediaries to connect producers with end users or consumers. These intermediaries were called merchants or traders. Now, with the Internet comes a new reality in which the old intermediaries (shopping malls, bookstores, music stores) are eliminated, and merchandise begins to be traded that, until recently, their existence and the value they could have, was not conceived.
The COVID-19 pandemic, among other things, has accelerated the elimination of traditional players in the reality of global commerce2, and has strengthened e-commerce at national1 and global levels. The latter has brought about changes in various industries3 and has shown its potential to be an economic engine, even for small businesses4. At the same time, this situation highlighted the weakness of the Latin American economy based on tourism5 and the commercialization of commodities, without considerable added value to sustain a real demand6.
This reality shows that Latin American countries are poorly prepared to face the Fourth Industrial Revolution and the new Innovation and Knowledge Economy7. In this sense, it is necessary that Latin American countries, which enjoy so many coincidences, cooperate to strengthen our economy by 1) optimizing institutions; and, 2) modern commercial infrastructure, which will lead us to redesign public policy aimed at product and service innovation in Latin America and the improvement of our regional e-commerce.
Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation or decline8. In this regard, three institutions require the most careful attention with respect to the issue at hand: 1) legal certainty; 2) intellectual property rights; and, 3) education, research and technology transfer.
The predictability that a society has of the consequences of the acts of its nationals is known as legal certainty and is based on a strengthened and efficient justice system. The justice system is fundamental for the development of an innovation ecosystem, in which the different actors in the economy interact with each other to generate new business opportunities. Creating a better justice system is no longer an exclusive initiative of the State, but has become the mission of both public9 and private actors10 ; these two sectors propose innovative solutions to create more confidence in the market11. New dispute resolution systems must adjust to the new order created by technology and the rise of assets that were previously unnoticed or undervalued, such as personal data and knowledge based on intellectual property.
A paradigmatic example of the challenges brought by this new reality are Google, Facebook, Amazon and Netflix, which have found a way to create new markets for the West where they impose the rules of the game and are the new intermediaries that allow others to enter their virtual shopping malls12. They have their stores open, with no limits of space and time; and, in addition, they direct advertising to the potential consumer using the personal data of their users, knowing their preferences, vulnerabilities, needs and purchasing power. Thus, they offer to be more effective in selling products and services in their stores.
The questions arise when these companies, based on the transactions they verify within their commercial platforms, begin to absorb those suppliers of goods and services that are successful in their markets, as this distorts competition, even on their own platforms.
While in Latin America we are still thinking about how to get physical retail chains to give access to small entrepreneurs or informal traders on their shelves, in developed digital markets the dilemma is based on how to limit the preferential display of products and services already purchased by the owners of these platforms on their virtual shelves. One viable solution is to limit their ability to market their own products or services on their platforms13. To this end, the strengthening of regional competition law, which is still incipient in Latin America, is very important, since local fines or corrective measures are no longer a deterrent for any of these companies.
This new justice system must also adapt, understand, act together and immediately with the owners of these new digital marketplaces, to stop those who try to cheat their users within their platforms, otherwise, users will be more and more reluctant to interact within these marketplaces in our countries and those emerging companies we need, will not consolidate, or will not be born.
Another relevant issue that must be taken into account is that Latin American countries have not consolidated property rights as the basis of our economy. These rights were instituted by the Nordic countries in the eighteenth and nineteenth centuries, and today they are the fundamental basis of the system of representations on which the world capital market is based.
This situation is aggravated by the bureaucracy, corruption and unnecessary red tape that in our countries prevent all those who own assets (without property titles) in the economy from using these representative titles as collateral to take risks, obtain financing and generate new ventures and businesses. In other words, the assets we have -because they do not have the legal recognition that this entails- become "dead capital "14 , which does not allow them to be traded.
To these considerations we must add that property rights nowadays have a wider scope: the new world order has catalogued intellectual property rights as the basis of the knowledge innovation economy15 and they constitute the main assets that the world market is trading; for example: in May 2012, Google bought Motorola Mobility for 12.5 billion dollars. After the acquisition, Google's CEO and co-founder Larry Page revealed that the acquisition of Motorola was a strategic move to strengthen Google's patent portfolio and consolidate its position in the Android technology market16.
Thus, unfortunately, Latin America is not a protagonist in this new world order, since our weak economy is based on the export of primary goods that do not entail the protection of intellectual property rights that deserve international recognition. In addition, intellectual property offices in Latin America are not prepared to help boost our economies, since, for example, the registration of a patent in our countries can take an average of 6 to 8 years17; in other words, by the time patents are granted in Latin America, the "protected" technology is already obsolete, and our entrepreneurs, who need this title to raise capital or obtain financing, would have to wait all that time. In view of this, the most sensible thing to do is to migrate to other more efficient markets, thus joining a qualified migration that does us so much harm, due to the inefficiency of our institutions.
Thus, it is necessary to invest in training, in the recognition and importance of intellectual property and to strengthen local offices for the adequate and effective protection of intellectual property rights in the region.
Multinational companies bring together the world's greatest innovations, becoming the largest investors in the generation of invention patents (inventions), whether they acquire them directly from their research and development centers or from academia. If these companies are close to the latest advances in science and technology, what do they need to host and transfer their technology or establish their research and development departments in Latin America?
The most common answer to the question tends to allude to the need for competitive (cheap) labor. Surprisingly, research on the decision of companies to host and transfer their high technology does not show that this factor is a determining factor for such a decision; for, if this were the case, the first destination of technology would be a country of forty-one million inhabitants, with a continuously growing labor force18 and where the minimum hourly value19 per worker has reached one cent20.
Studies have determined that the fundamental factor in deciding to host or transfer technology to a given country is closely related to the capacity for abstraction of foreign technologies or their consequent capacity for imitation21. Thus, abstraction capacity is the key to generating foreign direct investment and technology transfer, either to avoid the implicit risk of imitation, or to benefit from the high probability of obtaining further solutions or innovations to what already exists in the market.
In this sense, Latin America needs to improve its capacity for abstraction, improving its education system, using the tools that allow it to access foreign technology, apprehending, imitating, decomposing, improving and discovering the technology behind the art of invention, of what has been solved by other powers. Only in this way will the system itself ensure that the fundamental actors, academia and the private sector generate sufficiently innovative products with high added value for the world market and thus enter this new innovation economy22.
In order to significantly improve the modern business infrastructure, the critical points to be addressed are at least three: 1) access to new technologies; 2) crowdfunding; 3) mobile money, cryptocurrencies and blockchain.
Internet access is fundamental for Latin America23. After this pandemic, we have realized that access to the Internet is of paramount importance, as it allows us to buy food, study and even move around more efficiently and safely. Countries such as Estonia, which guaranteed internet connection as a human right for its citizens, has managed, with scarce resources and in a short time, to bring its people close to the latest advances in science and technology; these facts have allowed them to create disruptive platforms for the global market such as Skype, Hotmail and the most recent Transferwise24 in just 30 years of independence from the former Soviet Union.
Along with free access to the Internet is access to electronic devices, which are capable of connecting people, not understood as luxury goods, but as necessary for communication and information, fundamental rights that must be guaranteed by the States. For this reason, making access to these devices more expensive with taxes, is not redistributing wealth, but putting a cost to modern literacy, which opens more and more our knowledge gap in relation to developed countries.
In our countries, the financial and securities markets have not been sufficiently effective in supporting the productive apparatus. Their contribution to generate new businesses and finance ventures has not yielded the expected results. And this is not the isolated result of the malfunctioning of the capital market, but rather the lack of solidity of our institutions hinders the dynamism of these markets in the economy25. Thus, the vast majority of entrepreneurs cannot access financing and venture capital to bring their projects to market.
However, in recent years and thanks to the Internet, a third actor has emerged in the capital market: crowdfunding. This consists of raising funds from multiple investors through the publication of the project on Internet platforms, thus dissipating the risk among all the investors who support these good initiatives26. This is a powerful tool for financial inclusion27.
In Latin America we have very creative people, but they do not have access to formal means of financing, which excludes them from the economy. How can a Latin American entrepreneur with an excellent product idea obtain financing to go to market? Perhaps if this entrepreneur were to go to a financial institution to ask for financing for his business idea, he would be told that he needs real collateral. Crowdfunding allows entrepreneurs, owners of a prototype, to test the market thanks to the reach of the Internet: if they fail, they can rethink their project to make it successful, but if their prototype is successful, they will find more investors willing to back a proven idea.
Therefore, it is imperative to give confidence to crowdfunding to support those good initiatives of innovative ventures that we want to see them in the market.
The first initiative in the dematerialization of physical money were credit cards, this innovation avoided the need to carry physical money and increased the security of transactions, dynamized and simplified the world economy. However, financial institutions have had to invest a lot of effort and resources in the implementation of security measures to protect their customers' money. For this reason, there are costs of banking services that are passed on to the users of this type of transactions, which, in the most developed economies, have been reduced to the point of being almost imperceptible. In our countries, this is a pending task because it would make transactions and financial inclusion of small traders who need access to this formal sector of the economy more dynamic28. If these financial services are not efficient in the short term, it will be cryptocurrencies that will take the place of trust that centralized state currencies have lost. And this trust is also in the internet and how users can now interact with each other to control the transactions of the entire monetary system through the blockchain, without the need for financial intermediaries. The blockchain is a useful revolutionary structure that makes information transparent, in a decentralized and unalterable way, and gives confidence to all those institutions that are so much in decline in our countries29.
Trying to eliminate or limit the actions of these new intermediaries of Internet commerce is unthinkable, when we need to be closer and closer to understand the new dynamics of the global market and play with the same cards of creativity and innovation that are the judges of the market. At the end of the day, the new internet intermediaries are still intermediaries and it will be technology itself that will be in charge of replacing them, or, perhaps, creating more efficient platforms that will eliminate the intermediaries once and for all, bringing producers and manufacturers directly closer to end consumers.
Improving the technology abstraction capacity of our nationals is the basis for generating that foreign direct investment with technology transfer, which we so long for in our countries, can improve the competitiveness of our local companies and at the same time boost the local innovation system to create further innovations. And the key lies in that linkage between academia and the productive sector to generate risk education strategies and provide support programs for those brave enough to try to bring a new idea to the market.
To this end, it is necessary to design a joint regional public policy, sustained and focused on creating the right incentives to change the reality of our countries. The Pacific Alliance will allow us to boost the growth, development and competitiveness of our region, identifying and leveraging our commonalities to combat poverty, attack social gaps and achieve well-being for our nations.
1 Data show at least a 15-fold increase in purchases through digital channels or websites since the onset of social distancing. There is even a change in the behavior of buyers who previously used these channels infrequently or not at all. See: Pwc; E-Commerce in Ecuador; 2020; Page 2. Available at: https://www.pwc.ec/es/publicaciones/assets/e-commerce-ecuador.pdf.
2 Anam Bhatti, Hamza Akram, Hafiz Muhammad Basit, Ahmed Usman Khan, Syeda Mahwish Raza Naqvi, Muhammad Bilal; E-commerce trends during COVID-19 Pandemic; 2020; International Journal of Future Generation Communication and Networking; p. 1450.
3 Sarah Davis and Lauren Toney; How Coronavirus (COVID-19) Is Impacting Ecommerce; ROI REVOLUTION; 2020; Available from: https://www.roirevolution.com/blog/2020/10/coronavirus-and-ecommerce/
4 World Trade Organization; E-commerce, trade and the COVID-19 pandemic; 2020; Available from: https://www.wto.org/english/tratop_e/covid19_e/ecommerce_report_e.pdf
5 For an in-depth review of the issue of the poorly performing tourism-based economy, as well as the potential and obstacles surrounding it, see: Glauber Eduardo de Oliveira Santos; Latin American Economy and Tourism; Springer; p. 17; Available at: https://link.springer.com/chapter/10.1007/978-3-319-05735-4_2.
6 For an analysis on Latin America's economic model, considering issues such as extractivism and scarce diversification, and market opportunities that require goods with value, see: Llorente y Cuenca; La diversificación de las exportaciones en América Latina; 2016; Available from: https://ideas.llorenteycuenca.com/wp-content/uploads/sites/5/2016/10/161006_Dl_IR_divers_productiva_ESP.pdf
7 Id. See the aforementioned report by Llorente y Cuenca.
8 North, D. (1991). Institutions. The Journal of Economic Perspectives, 5(1), 97-112. Revised: October 8, 2020; Available at: http://www.jstor.org/stable/1942704.
9 A clear success story in the public sector is the Civil Resolution Tribunal in Canada, which focuses its potential on designing its services to make them more user-centric and leverage the capabilities offered by technology. For more information see: Civil Resolution Tribunal; What is CRT and What can I use it for; 2020; Available at: https://civilresolutionbc.ca/wp-content/themes/civil-resolution-tribunal/assets/docs/translated_documents/Spanish_CRT-What-why-for-Web.pdf.
10 In the private sector, meanwhile, companies such as Kleros have emerged that combine crowdsoursing, blockchain and game theory to offer a dispute resolution system to an underserved - if not neglected - segment of the population (low-value disputes). To learn more about it, see: Kleros; DISPUTE REVOLUTION: THE KLEROS HANDBOOK OF DECENTRALIZED JUSTICE; Available at: https://ipfs.kleros.io/ipfs/QmZeV32S2VoyUnqJsRRCh75F1fP2AeomVq2Ury2fTt9V4z/Dispute-Resolution-Kleros.pdf
11 See, for example, the initiative on remote courts worldwide, launched by the world reference Richard Susskind, author of the book "Online Courts and the Future of Justice ": https://remotecourts.org/.
12Tradeand Development Board, Trade and Development Commission, Intergovernmental Group of Experts
on Competition Law and Policy; Competition issues in the digital economy; Available from: https://unctad.org/meetings/es/SessionalDocuments/ciclpd54_es.pdf
13 Chen Angela (2019); Four ways to destroy the monopoly of Amazon, Google, Apple and Facebook; MIT Technology Review; Available from: https://www.technologyreview.es/s/11219/cuatro-formas-de-destruir-el-monopolio-de-amazon-google-apple-y-facebook
14 De Soto Hernando (2000); El Misterio del Capital; Empresa Editora El Comercio S.A. Page 32.
15 The literature on this subject is extensive. An in-depth and current review of this issue can be reviewed in: Carlos Correa and Xavier Seuba (editors); Intellectual Property and Development: Understanding the Interfaces; 2019; Springer; Available at: https://www.springer.com/gp/book/9789811328558
16 Page, Larry (August 15, 2011) "Android Supercharged: Google acquires Motorola Mobility"; Official Google Blog.
17 Alejandra Vargas Morera; Latin America does not adequately protect its intellectual property; 2018; SciDevNet; Available from: https://www.scidev.net/america-latina/propiedad-intelectual/noticias/latinoamerica-no-protege-debidamente-su-propiedad-intelectual.html
18 The median value for Uganda during that period was 10.3 million people with a low of 6.31 million in 1990 and a high of 16.66 million in 2019 according to World Bank data. Information reviewed at: https://es.theglobaleconomy.com/Uganda/labor_force/
19 An updated review of this issue can be found in: Danish Trade Union Development Agency; Uganda Labour Market Profile; 2019; Pg. 17. Available from: https://www.ulandssekretariatet.dk/wp-content/uploads/2020/03/Uganda_lmp_2019.pdf
20 Gustavo Londeix; The list of injustice: The 10 countries with the lowest minimum wages in the world; 2017; Available from: https://bit.ly/2GQMmhF
21 Park, Walter and Lippoldt, Douglas; Technology Transfer and The Economic Implications of the Strengthening of Intellectual Property Rights in Developing Countries; Organization for Economic Co-operation and Development; Trade Policy Working Paper No. 62; January 25, 2008; p. 8.
22 Gonzalo Rivas, Sebastián Rovira, Stephany Scotto; Reformas a la institucionalidad de apoyo a la innovación en América Latina: antecedentes y lecciones de estudios de caso; 2020; ECLAC; p. 14; Available in: https://www.cepal.org/es/publicaciones/36797-nuevas-instituciones-la-innovacion-practicas-experiencias-america-latina
23 Diana Suarez and Gabriel Yoguel; Latin American development and the role of technology: an introduction; 2020; Economics of Innovation and New Technology; Available at: https://www.tandfonline.com/doi/pdf/10.1080/10438599.2020.1715058?needAccess=true.
24 https://www.visitestonia.com/en/why-estonia/estonia-is-a-digital-society
25 A broad view of the status, challenges and projections for this issue can be found: Esteban Pérez Caldentey and Daniel Titelman; Financial Inclusion for Productive Insertion and the Role of Development Banking; 2018; ECLAC; Available at: https://www.cepal.org/es/publicaciones/44213-la-inclusion-financiera-la-insercion-productiva-papel-la-banca-desarrollo.
26 Isenberg, Daniel. The Road to Crowdfunding Hell, 2012. https://hbr.org/2012/04/the-road-to-crowdfunding-hell (accessed 02/13/2020).
27 Ivo Jenik, Timothy Lyman, and Alessandro Nava; Crowdfunding and Financial Inclusion; 2017; CGAP; Available from: https://www.cgap.org/research/publication/crowdfunding-and-financial-inclusion
28 Roa García María José; García Nidia; Frías Alfonsina; Correa Laura; Panorama del dinero móvil en América Latina y el Caribe: Financial inclusion, regulation, risks and costs. Center for Latin American Monetary Studies; p. 106.
29 For an updated review on Blockchain issues and its potential, review: Deloitte;
Deloitte's 2020 Global Blockchain Survey; 2020; Available at: https://www2.deloitte.com/content/dam/insights/us/articles/6608_2020-global-blockchain-survey/DI_CIR%202020%20global%20blockchain%20survey.pdf
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