Professor Eric Hershberg treated a packed audience at the UWI, Learning Resource Centre to an informative discourse during the latest session in the UWI St Augustine Campus Distinguished Open Lecture Series recently (February 25). The presentation focused mainly on the social implications of industrial upgrading for Latin America and the Caribbean.

According to Professor Hershberg, globalization is characterized by an increasingly transnational approach to the production and delivery of goods and services. This approach has its genesis in forces created by the unique combination of advances in technology and the changing policy prescriptions of major developed countries and international financial institutions such as the World Bank and the International Monetary Fund. Professor Hershberg asserted that the transnational approach emphasizes the disaggregation, and distribution of different aspect of production/distribution process (the value chain) around the world (decentralization) based on a continuous search for lower cost options based on the peculiar competences of different destinations.

It was also suggested that the elements of the disaggregated value chain vary in complexity, susceptibility to being mastered internationally, and therefore, scarcity. These attributes are likely to influence the bargaining power of producers (firms, communities, nations and regions) in the transnational production process and the price their contribution to the process can command. For instance, producers involved in the production of value chain segments that are relatively complex, difficult to master, and for which producers are scarce, are likely to face competition that is based on ones capacity to deliver a customized input. As a result, they may command premium prices for their contribution to the value chain. Conversely, producers involved in the production of value chain segments that are relatively simple and easy to master, and for which producers are abundant, are likely to face the vagaries of cost-based competition. As a result, their contribution to the value chain may undervalued and their participation in the process may be constantly under threat.

Based on his analysis of the challenges posed by globalization, Professor Hershberg suggested that Latin America and the Caribbean should focus on developing their capability to successfully execute the more complex segments of the production/distribution process. That is, they should move away from merely knowing “what to do” towards knowing “why to do” and “how to re-organize processes to get it done more efficiently and effectively”.

This industrial upgrading represents a radical shift in strategy for most of Latin America and the Caribbean and may take one of three forms. Firstly, producers (firms, localities, countries, regions) may transfer basic competences acquired in a simple sector (industry) to more complex sectors. Secondly, producers may move from the production of relatively simple forms of products (e.g., mass produced clothing) to the production of more complex forms or higher grades of the same products (e.g., designer clothing). Thirdly, producers may change the way processes are organized to improve efficiency, variety, quality or effectiveness.

According to Professor Hershberg, the successful implementation of all three forms of industrial upgrading depends on regional economies becoming knowledge based. He also suggested that the conversion to knowledge economies is contingent on two ingredients. The first ingredient is a desire and capacity on the part of participants in the production/distribution process to learn, while the second ingredient is a relatively high degree of resources to brainpower. These resources will enable producers to purchase technology, invest in research and development activities, and gain access to information, markets and managerial techniques.

Additionally, Professor Hershberg asserted that the level of resources needed for industrial upgrading is usually beyond the scope of individual firms generally and small and medium-sized firms in particular, the very segment of the local/regional economy that is most likely to engage in the innovative behaviors that create sustainable competitive advantages and high quality jobs. To overcome this constraint, Professor Hershberg suggested that it is imperative for governments, trade and business association, and trading blocks to help provide the resources needed to facilitate industrial upgrading.

Professor Hershberg advised regional governments to provide universal access to high quality education to at least the secondary level, and to increase access to high quality tertiary education and to technical education that is not specific to a particular industry or sector. He also advocated the use of business associations and business incubators to facilitate SME access to management support systems and market intelligence.

In closing, Professor Hershberg suggested that industrial upgrading was a potentially effective and sustainable way for the region to replace the current widespread hardships, social ills and hopelessness being experienced by stakeholders with opportunities for prosperity and social order.