Transformation of the Productive Matrix: Sectorial, Social, Political Aspects

In many of our countries, it is necessary to transform the productive matrix to achieve a vigorous and sustainable, inclusive development. Such transformation not only involves the structure and sectorial functioning of the productive matrix but also who are the participating actors and the marginalized ones, the relationships among actors, and the role that the State usually plays or might play. As in every economic process, the sectorial, social, and political aspects matter.

What a productive matrix is and its significance

The productive matrix of a country, a region, or a province expresses how its productive system is structured and how it works, i.e. what is produced, who produces, how, where, when and how much is produced as well as how and where the production is sold. The productive matrix exposes the existent value chains (relationships among economic actors in the different sectors of the economy) and how the results of the productive process get distributed among those actors, being them local, national or foreign.

A sound analysis of the productive matrix sheds valuable light on its impacts over the course of the economic system; it allows us to appreciate the level of effectiveness in the use of available productive factors, the dependence on imported inputs and, a very important fact, how a country generates and distributes value, specifying existing mechanisms of value appropriation and how they operate in diverse realities and circumstances.

How a productive matrix emerges

The structure and functioning of a productive matrix are mainly the result of multiple and diverse interactions between individuals and economic groups, either domestic or foreign, that have consolidated throughout history. These interactions take place in an international context over which we can seldom influence; it may end up being favorable or not depending on the type of insertion we are able to work out and the abilities used to face every situation. In any case, the productive matrix ends up being molded by public policies that regulate the operation of markets and guide the flow and distribution of resources. These public policies are the result of the correlation of prevailing social forces; i.e. the relative power of each actor and the alliance that might be built among them. Thus, the type of the prevailing productive matrix tends to express the will and interests of actors with highest relative weight and, as such, it is not only an economic construction but a political one as well.

Productive Matrix Problems

The problems that affect a productive matrix can be: a) functional in nature; i.e. functioning difficulties of the productive system related with deficiencies in terms of availability of infrastructure, market access, availability of credit and other variables that affect the productive flow; b) of structural nature, that is related with a sectorial and social structure of the productive matrix that, almost everywhere, generates a severe concentration of wealth and recurrent episodes of systemic instability; or c) of mixed nature, both functional and structural, the most common situation in the emerging economies of our countries in the Southern Hemisphere.

It is necessary to make explicit that what each person considers a problematic situation differs depending on the objectives and visions they pursue. There are those of us who are committed with the vision of a full democracy, not just formal in terms of a representation more or less manipulated by those with that capacity of forming public opinion but full in terms of equity, justice, transparency, social inclusion, productive vigor and creativity. There are also neoliberal individuals and organizations that place their trust in the free market to correctly align economic variables to produce generalized benefits; they believe in the trickle-down theory which supports the idea that a country must first concentrate in putting the economy in order, leave actors to freely decide how to act, and, then, once a vibrant growth gets consolidated those advantages and gains initially concentrated in a few hands will spill over the entire society.

The history of emerging economies shows that this is not what happens in reality but that the advantages that some enjoy to accumulate faster than the rest tend to reproduce themselves and even accelerate through time. The prevailing productive matrix allows for stronger actors to abuse their market power to appropriate a large part of the value that others generate. Moreover, these concentrated sectors do not locally allocate the huge extraordinary profits they obtain but rather they flight most of them abroad and evade their fiscal responsibility. In this way, instead of producing the so praised trickle-down effect over the society as a whole, a good part of the surplus generated with the whole country productive effort gets sterilized by the large capital flight and tax evasion. An economic system of this nature leads towards recurrent episodes of systemic instability [1].

(i) A typical example: external sector bottleneck

A typical case is the ill-famed external sector bottleneck that in emerging economies tends to be generated by a productive matrix concentrated mainly on agricultural exports. This matrix has its more vulnerable spot in the concentrated nature of the commercialization of export products usually in the hands of big transnational corporations which, due to their strategic place in the value chain and the unequal capacity to negotiate prices and other marketing conditions, are able to appropriate part of the value generated by small, medium, and even big producers. In addition, there is the tax evasion that they materialize by under-invoicing what they sell to subsidiaries based in other jurisdictions of low or null tax burden; then, their subsidiaries resell the products to the final recipients at full price remitting profits to their headquarters in affluent countries or, more frequently, to accounts in tax havens.

Meanwhile, the country with a productive matrix orientated towards agro-exports needs to import all kinds of consumer goods and inputs as well as productive equipment. When external unfavorable factors, in terms of prices or markets access, add up to the maneuvers to reduce export values and evade paying taxes, they cause unbalances between currency inflows and outflows. This unbalance is frequently approached by acquiring external debt that can only be done for a certain time; if, however, it were to be prolonged indefinitely, the situation would become untenable.

(ii) Another example: diversification of the productive matrix towards activities intensive in the use of scarce or nonexistent local factors

In the effort to prevent a country from remaining exclusively dependent on primary production, sometimes governments tend to promote the establishment of any other type of activities, including those that are intensive in the use of scarce or nonexistent productive factors. Such is the case of industry that is heavily dependent on imported inputs or on a large energy provision. If the country were suffering from a shortage in currency or the energy offer were deficient, it would not be wise to promote these types of industries, unless they could generate the missing currencies or an increase in the provision of energy had been planned. In any case, in an initial phase of a productive matrix transformation, it would not harm to boost activities that could generate currencies and were not big energy consumers, as tourism, agro-industry, light engineering and services, particularly those intensive in knowledge (available knowledge or one that could be generated by fostering education, science, and technology).

Sectorial Transformation of the Productive Matrix

The decision to transform the productive matrix implies recognizing the existence of severe obstacles and deficiencies that impede obtaining a just and sustainable development, and, moreover, that prevail the will to solve them. The transforming effort involves all the actors, but it is the State who leads it using the great variety of instruments at its disposal: financial, taxes, regulatory, exchange-rate, and the supply of social, productive, and scientific-technological infrastructure, investment and commercial agreements, among others. The focus that the State might take depends on which forces are in control of it, what reinforces the notion that the productive matrix transformation is primarily a political decision even though subject to a series of restrictions and constraints.

As was mentioned before, it would be advisable that the productive matrix transformation should promote activities that could appropriately use the available factors of a country, as its natural resources, its market location, the existent social and productive infrastructure or a new one that has been planned. It is clear that it is not about a static situation as the relative endowment of factors can be altered and enhanced especially through knowledge development and its productive application. That is, the competitive base of a country in not anchored in the quantity, quality, and placement of existent factors, rather it is dynamic and as such can be modified through effective promotional policies and by taking advantage of the changes in internal and external circumstances.

Thus, for example, even though the primary economic base of our countries was the main characteristic of the national productive matrix (often as a result of the international division of labor that was imposed upon us), this primary production evolved, slowly or rapidly, towards activities manufacturers of raw materials that added value (more jobs and incomes). Today, it is very much needed that the productive matrix includes more and more knowledge-intensive activities, which is the most promissory productive field in our times.

The Social and political aspects in the transformation of the productive matrix Much more could be said about the sectorial transformation of the productive matrix but, instead of further dwelling on these aspects, in the following lines we will focus on unveiling the social and political aspects of such transformation, dimensions that not by chance are less recognized: the different actors that participate, the relationships that exist among them and other new actors that could be included if the conditions of the productive system were better. Those of us who promote full democracies point out that the productive matrix must include all actors that have the will and disposition to work and that their inclusion must be promoted in such a way not to widen the existing base for appropriation of value. To accomplish that, work in various levels must be done.

Within the existent matrix:

An important level refers to the increase in jobs and the distribution of results within the existent productive matrix. The increase in jobs is related to the growth and types of organization and technology that get adopted, an entrepreneurial sphere of decision-making though susceptible to be influenced by public policies. In terms of the distribution of results, it is critical to establish reliable and transparent spaces for negotiation among those who contribute to the productive process of the enterprises: workers, managers, owners, State. It is about aligning interests in such a way as to secure at the same time the well functioning of the productive activity and a just compensation for those who make it possible. This implies, on the one hand, prevent owners and managers from appropriating part of the value generated by other participants due to their higher negotiation power and access to information and, at the same time, that unsustainable demands do not undermine the own viability of the productive activity.

Extraction-withholding of value in productive chains

A crucial level of intervention refers to value chains. A diversity of actors participates in them: consumers, small and medium-size productive units, leading enterprises of value chains, the State in its double role of regulator of markets functioning and main supplier of productive infrastructure and services that are essential for an effective functioning of value chains. Within most value chains there are in place harsh mechanisms of value appropriation that need to be removed. In other texts, we have reviewed some of those main mechanisms [2]; in these lines we will just use one example: the area of food production.

Food production implies a vast and diversified productive fabric that includes diverse value chains (cereals, dairy products, meat, vegetables, fruits, and so on). As each value chain has its own structure and functioning logic, the interventions that may be required should contemplate their different singularities. However, and beyond the specific modalities with which they present themselves, it is possible to indentify a common denominator: certain actors (big corporations or intermediaries) control strategic phases of the productive chain, being at the level of production, marketing, export or import. This paves the way for the appropriation of part of the value generated by suppliers and consumers through prices and other restrictions. If the State were to act to abate market power abuses exercised by oligopolistic operators, it would be possible to change the profile of the distribution of results among small, medium, large-size producers, manufacturers, and domestic and foreign traders.

In addition, big corporations are generally technology-intensive, work force savers (with great impact on the generation of jobs and incomes) and heavy demanders of imported equipments and inputs. Instead, small and medium-size producers tend to use technologies adjusted to the dimension of their productions, which end up being more labor-intensive and less dependent on imported inputs and equipments.

Promotion of new types of economic actors

A third level of intervention is to promote the establishment and development of new types of economic actors, innovative organizing ways of production capable of integrating within them workers and small producers in such a way that they can join promissory value chains and not residual spaces as it is happening today. What is worth noting is that not all actors necessarily behave in the same way when they get involved in the production process, especially if social forces and the State promote other values and attitudes.

It is about fostering new types of productive ventures that, by their own functioning, contribute to enhancing at the same time the generation as well as the distribution of income. Those units could help expand and strengthen the productive base of the society, effectively organizing its production and adjusting its course towards values and ways of relationships of a full democracy. Their objectives will combine being successful in competiveness and market access with an appropriate reinvestment of profits, respecting social and fiscal obligations, caring for the environment and the communities in which they operate. With their development, the new units could also establish entrepreneurial behavioral patterns that might serve as reference for the rest of the productive sectors.

Ventures with transforming potential

Having recognized the existence of great majorities that are left out the main productive flows and results, a new, critical challenge must be faced: how to conceive people based ventures with an inherent transforming potential. Current precariousness conditions in which small and micro producers are working, each of them trapped inside his own isolation and low productivity, make it very hard for them to emerge to a more prominent productive role. It is, thus, more likely that, cycle after cycle, they keep on working on marginal economic spaces with very limited possibilities of accessing sustained improvements in their situation. If we aim at fostering successful, new people based ventures we must structure and establish new types of productive organizations: medium-size ventures with transforming potential based on productive engineering capable of integrating within them a wide array of small producers now dispersed or unemployed. There are already numerous experiences alike that could serve as reference and that have been the matter of several articles published in Opinion Sur [3] .

Multidimensional process and the role of the State

Talking about transforming a productive matrix just in sectorial terms it is nothing but a dangerous reminiscence of the obsolete trickle-down theory aforementioned. The sectorial, social, and political aspects are all dimensions of a single process that may help transform or not the productive matrix. Not considering the social and political dimensions implies by itself a definition of the scope intended for the intervention on the productive matrix: improving its functioning just as it is structured today without removing the abuses and privileges that generate severe unbalances and ensure the reproduction of the present concentration of wealth.

Here is where the role of the State weights in. If we have States structured to facilitate the reproduction of the established order (established by those who detent power to mold it on their behalf), the contrary of what the trickle-down theory declaims would actually occur. Instead, a State that promotes a vigorous and sustainable inclusive development and that exercises its regulating power to transform and not to preserve the concentration process will be able to make it harder for those who control the markets and subordinate the rest of actors by appropriating the value generated by workers, suppliers, and clients, to keep doing it. With a critical additional benefit: a good part of the surplus the country generates (i.e. its society with everybody’s effort) will no longer flow as it is currently doing towards other economies and fiscal havens, or towards the outrageous superfluous consumerism of the minorities benefited by the prevailing type of productive matrix.