*An electric bus and a cyclist share a road in Santiago, Chile. The country contains large deposits of lithium, a crucial material for the global energy transition. Photo courtesy of* *Tamara Merino*.

Prospects in Latin America are looking exceedingly grim. The World Bank forecasts that the region’s GDP growth will slow to the lowest rate compared to all other areas of the world in the coming years. Inflation, while receding from its post-pandemic peak, remains high across the zone. This economic turbulence has spurred on political instability epitomized by a wave of victories by populist candidates who lack the political capital to engage in wholesale political reform. It has also yielded both external migration and domestic entry into illicit markets, causing human capital flight and an explosion in violence. Incentives for disadvantaged young Latin Americans to enter criminal markets have been compounded by a surge in demand for drugs like cocaine, inciting bloody wars for dominance between rival gangs throughout the region. Is there any way out of Latin America’s profound political and economic crisis?

The answer might lie in the incipient global green transition. Latin America holds immense potential to leverage the economic shifts of the 21st century. It boasts abundant reserves of critical raw materials like lithium and copper, which are crucial for the energy transition. Its rich biodiversity, accounting for over 50% of the world’s total, makes its forests and reserves leaders in global decarbonization and biomass production. Its strategic positioning between the U.S. and China allows it to benefit from trade and investment from both of the competing global powers. But can the region make the most of these opportunities?

Technology and Economic Underperformance

During a recent event hosted by the Columbia Institute of Latin American Studies, Ricardo Haussmann, the director of the Harvard Growth Lab, argued that Latin America’s economic underperformance is largely due to a region-wide neglect of technological adoption and innovation. Latin America has lagged far behind other nations in embracing new technology, resulting in a declining or stagnant market share in non-extractive industries.

*Source:* *Ricardo Haussmann, Harvard Growth Lab, “Latin America at a Crossroads,” Columbia ILAS, 04/08/2024.*

In contrast, developing nations in Asia have prioritized such innovation, dramatically increasing their market share in crucial industries like electronics and electric vehicles. This diversification has yielded fast growth across the region, in contrast to Latin America’s sluggish development.

Even though technological investment is the key to lifting Latin America’s economic prospects, the region’s economy remains driven by extractive industries. Raw materials like crude oil and copper dominate the region’s economic output, and Latin America’s global market share in these commodities is only increasing. A remnant of the region’s colonial past, this extractive commerce continues to degrade the environment and displace communities. Without forward-thinking policy changes throughout the region in favor of technological innovation, Latin America will continue to be a victim of the resource curse, a phenomenon in which many countries with a wealth of natural resources fall victim to political instability and hampered development due to their overreliance on extractive industries.

So far, leaders in the region have often forgone long-term action in favor of politically expedient policies in the short term, often shifting resources away from prolonged investment in technology in favor of populist cash transfers or unsustainable social programs. Unless Latin American politicians make the right choice—not the most convenient choice—and invest in long-term technological growth, the region is doomed to continue along its path of stagnation.

Latin America’s failure to invest in non-extractive areas has kept the region in a rut of commodities and raw materials, heightening its exposure to boom-and-bust economic cycles and discouraging the technological innovation necessary for sustained, dynamic growth.

A Path Forward

Despite these challenges, intelligent long-term policy that capitalizes on the economic shifts of the 21st century could bring Latin America onto a path of economic prosperity.

The threat of climate change has spurred massive investment in the green technology required for the global energy transition, yielding profitable opportunities for those well-positioned to attract that financing. In 2022 alone, foreign direct investment in renewable energy globally surpassed $350 billion, more than any other sector. Latin America’s material conditions leave it uniquely situated to emerge as a major player in the global energy transition, portending a significant boost in growth if political leaders can convert on this opportunity. An astounding 60% of the region’s energy comes from renewable production like wind, solar, and hydroelectric, taking advantage of Latin America’s rich biodiversity. Further, the area hosts some of the largest producers of lithium, a crucial material for electric batteries. Already, Chinese foreign direct investment in Latin America has increased heavily in areas central to the energy transition, including renewable energy, lithium production, and electric vehicles. Investment in these sectors promises stable green jobs and solid growth for the beleaguered region.

But simply relying on external investment in the region’s green-tech potential is not enough to overcome the resource curse. In fact, it may simply perpetuate Latin America’s reliance on extractive industries into a new, renewable era. The key to truly harnessing the opportunities of the energy transition is investing in renewable technological capability domestically, which will require sound governmental policy across the region to achieve. This means forgoing the short-term populist policy decisions that have raised debts in Latin America countries to over 70% of GDP and prioritizing creating an economic and political environment that encourages technological advancement through the competition and growth of innovative companies.

Historically, rampant political instability has hampered the development of entrepreneurship in Latin America. Populist policies have deprived businesses of the certainty that firms need to count on before making investment decisions, keeping innovation and growth below the region’s potential. Unfortunately, current political trends do not seem to indicate any improvement in this dynamic: political polarization in Latin America is the highest it has ever been, contributing to social unrest and legislative gridlock. This is already yielding a cycle in which exasperated citizens vote for outsider candidates who further destabilize the region’s business and policy climate, hurting growth and restarting the cycle of political disillusionment.

Still, the ascension of leaders who prioritize pragmatic investment in key industries, primarily ones pertaining to the energy transition, could promote development and prosperity throughout the region. If Latin America can resist the temptation of short-term populism and capitalize on its singular advantages in clean energy, it can turn its perennial story of stagnation into one of economic might in a green new world.

This article is the second in a series on politics and populism in Latin America. By exploring the social and economic drivers of anti-establishment populism across the region, columnist Jonathan Pollak (CC ’27) seeks to identify a new form of stable growth in the developing world—one that doesn’t leave its people behind. His first piece can be found here.

Jonathan Pollak (CC ’27) is a Peruvian-American columnist at CPR studying political science and economics with a minor in Latin American studies. His interests include institutional stability and economic development in Latin America.

Green Technology: Latin America’s Way Out of Stagnation