Aiming to the transformational productive investment

Transforming a country’s productive matrix is achieved by promoting productive investment as to boost the real economy instead of the financial one but putting special emphasis on those productive investments that have higher transformational potential. A productive investment generates production, employment and incomes distributed among investors, managers, workers and the State (taxes that finance public expenditure and social security contributions), both directly and through what, at the same time, their suppliers generate. These characteristics differentiate productive investment from financial allocations that usually generate speculative revenues for the owners of the resources and those who allocate them, with the aggravating factor that they often evade or elude their fiscal responsibility. A transformational productive investment adds an important trait to the ones of traditional investment: the capacity to contribute to transforming the productive matrix, whether local or national. It is worth mentioning that this is not any productive investment but one that is oriented to activities that:

(i) are intensive in terms of added value, maximize the direct and indirect generation of decent employment, fairly distribute revenues, contribute with their demand to the national technological development and assume full social and fiscal accountability;

(ii) integrate promising value chains that are structurally committed to the country’s interests and, therefore, likely to reinvest the revenues rather than transfer them abroad or incur in capital flight;

(iii) have a favorable effect on the result of the trade balance, whether it is due to not being intensive in imported inputs or exporting more than they import;

(iv) use organizational methods that facilitate the productive inclusion of low and mid-low income sectors, including the unemployed and underemployed;

(v) help reduce imbalances between regions within the country;

(vi) Operate preserving the environment and the natural resources.
Aiming to transformational productive investment does not imply punishing traditional productive investment that also plays an important role in the country’s development. The intention is to re-direct towards transformational productive investment resources that do not currently finance the real economy but that are oriented towards financial speculation. Transforming a country’s productive matrix is achieved by promoting productive investment as to boost the real economy instead of the financial one but putting special emphasis on those with higher transformational potential.

Productive investment financing

The applicable resources to productive investment come from private investors as well as from the public sector. The availability of private resources is greatly conditioned by the expected returns of investments so, considering the elevated revenues that speculation offers, resources that could be allocated in financing productive investments are deviated towards speculation. This factor, added to the malicious influence they have on economic policies as well as on the values of greed and selfishness inherent to their actions, accentuate the importance of bringing down financial speculation.

To do so, it is necessary to work in several fronts, among other the following ones:

(i) To begin with, narrowing financial speculation’s profit margin through firm regulations, control and fiscal measures;

(ii) encouraging productive investment, specially the transformational one, with a wide range of supports, such as accessing capital markets to fund investments and long-term loans, receive tax incentives (making the reinvestment of their profits tax-deductible) and count with the provision of productive and social infrastructure;

(iii) an issue of equal or higher importance is taking action to change destructive values that have been imposed upon us (greed, neglecting others, the ´anything goes´, the selfishness and irresponsibility of ´I come first and the rest who cares´) for others that will promote responsibility in all areas (social, economic, political and environmental) of life in society.

On its part, the contribution of public resources to finance productive investment depends on the fiscal solvency that conditions the available amounts; its impact will depend not only on its quantity but also on the effectiveness of its allocation.

Main sources of public resources are taxation and debt which are subject to limits that cannot be trespassed without suffering consequences. This way, a very high level of taxation implies a burden on productive activity that can be very difficult to endure. Likewise, the level of public debt cannot be greater than the State’s capacity to face the corresponding payment flow.

It is worth making it explicit that, while the quantitative restrictions in terms of fiscal solvency (tax burden and levels of debt) cannot be ignored, the way to make them converge with the purpose of decisively favoring the promotion of transformational productive investment requires acting in critical and sensitive areas. On one hand, the area of value appropriation that extracts resources from those who generate them and concentrates them in a few hands (a large share outside the country) and, at the same time, in terms of restructuring the tax system and the allocation of public expenditure. An action of such dimensions and transcendence will require generating the necessary political support in order to face significant challenges, among others the following:

– dismantling the existing value extraction mechanisms that take out an enormous volume of resources from small and medium producers, consumers and the State itself that could be substantially dedicated to financing productive investments; a description of diverse value extraction mechanisms can be found in Differentiating generation, redistribution and extraction of value http://opinionsur.org.ar/wp/differentiating-generation-redistribution-and-extraction-of-value/?lang=en )

– Significantly levying very high incomes (2 or 3% of taxpayers), today subject to an absurdly low taxation despite the enormous fortunes gotten from the unbridled wealth concentration process that prevails almost worldwide.

– Bringing down the massive tax evasion and elusion that generate heavy inequality by unloading on those who pay their taxes the weight of the criminal behavior of those evading their responsibility.

– Substantially improving the effectiveness of public expenditure eliminating budget allocations that favor those who do not need them and reorienting the resources towards sectors that really need that support, including in those priorities the promotion of transformational productive investment.

Effectiveness and new organizational paradigms

The importance of promoting productive investments has been pointed out, especially those with higher added value which, using factors available in the country and in each region maximizes the retention of multiplying effects and prevents negatively pressing the trade balance’s outcome.

In that effort it is critical to confront eventual flights of the promotional resources by supporting economic actors whose interests are locally rooted, usually small and medium scale producers although there are some large-scale ones as well whose decisions are aligned with the country’s interests. Apart from certain exceptional cases, it does not make any sense to privilege with the scarce promotional resources wealthy actors that are driven by the maximization of their overall profit, for the most part subsidiaries of international corporations. It is not about discriminating them but recognizing they have resources, contacts, information and trade channels that significantly override the rest of the economic actors while, instead, the aim is to encourage those who are at the base of the productive apparatus and value chains. The history of our countries is full of situations that go against this goal where small but dominant power groups arose as beneficiaries of public policies imposing their interests over those of the ensemble of local actors.

The private sector plays an important role in terms of productive investment since their members are who ultimately choose what, where and how to invest. To align their investment decisions, induced by their expectations, with the interests of the ensemble, the State can adjust the parameters that define the context in which they operate (relative prices, taxation, and access to credit). On their part, economic agents take advantage of the available technological development (widely influenced by public and private policies) to which they add their capacity to explore and access domestic and foreign markets.

In this regard the subsidiaries of international conglomerates have the upper hand because they integrate already established value chains but, also, have disadvantages due to the same circumstance: it keeps them from accessing opportunities outside the network and global strategy their headquarters define. Generally, these corporate giants loose in terms of agility what they gain due to their enormous firepower which opens spaces for new actors to explore opportunities. It will be necessary to know how to combine agility with scale and to do so there are quite a number of available organizational modalities that can be employed.

It becomes more and more important to explore new types of agreements of productive complementation as well as of commercial partnerships, both between actors established within our countries and in other countries of the region. In a time where enormous multinationals prevail at all levels it would be a huge mistake to only cling to individual actions. Just a few cases can become main actors on their own; in addition, far from contributing to end with the concentration process they could aspire to becoming part of it. In that context most of our people and entrepreneurs will remain being left far behind.

Therefore the strategy has more to do with developing partnership solutions which in this phase of global development should be of meso-economic level and reach (the space of value chains and productive networks), both within the countries as well as between actors from countries of the same region that complement one another. We are not referring to a few partnerships but to hundreds of them so it is advisable that our States could open their promotional action as quickly as possible to these new paradigms of global competitiveness.

There are several support systems that would help materialize this objective; for the purposes of these lines we highlight the following ones:

– The establishment of developers of international opportunities that will support the development of transformational productive investment in each country with a section specialized in regional agreements of productive complementation and commercialization.

– A support system for the scientific and technologic development that, among other priorities, will place special emphasis on assisting the transformational productive investment as to develop dynamic competitive advantages adjusted to its scale.

– A support system oriented to developing inclusive ventures capable of integrating today scattered small and medium-scale producers. A version of this type of support can be found in this [article->http://opinionsur.org.ar/Insecurity-proposal-to-remove?lang=en ].

Critical conditioning

A critical factor that exceeds the purpose of these lines in favor of a full mobilization of the national productive potential (including transformational productive investment), is counting with a State with the capacity to decide its policies according to the country’s interests and not to any hegemonic group’s, whether it is national or foreign. The strategic decisions of that State seek ways to make justice and social equality converge with fiscal solvency, monetary and exchange rate stability, favorable structure of the trade balance, organic growth of productive demand and supply. That State would seek to orient the ensemble of social actors towards building spaces of convergence that will generate synergies and multiplying effects; this demands enormous and skillful efforts to align interests, needs and emotions of the set of social and political actors as to ensure support and continuity of the chosen strategic course.

Paradoxically, while having a State of the aforementioned characteristics conditions the viability of the specific transformation efforts, it is also true that the advances that could be achieved in specific areas, such as the one described about promoting transformational productive investment, would bring us closer to that independent State we are working for.

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