Transcript The challenges for the developmental state in the

Role of government in promoting
technology development
Sanjaya Lall
Oxford University
[email protected]
Why do developing countries need government
policy for technology development ?
Usual case for technology policy in economics is
to remedy market failures due to externalities
(under-investment in R&D), public goods (basic
research, standards), information and scale
problems (SME support)
This requires generic ‘market friendly’ policies
This is useful but inadequate for developing
countries: selective policies are also required to
overcome problems of multiple growth paths
Choosing feasible path requires ‘vision’
Implementing it needs government capabilities
Technology market failures in developing
countries is due to ‘tacitness’ of knowledge
Latecomers cannot import & use existing
technology efficiently by simply opening up to
technology inflows
Tacit nature of technology means local learning
is essential, and this is not trivial process
Learning faces market failures at 3 levels:
 In-firm mastery: cost, uncertainty, duration, lack of
information and unpredictability (infant industry)
 Inter-firm interaction and externalities: coordination
and collective action
 Deficient factor markets and institutions: coordination
and development of basic endowments
Learning is cumulative and pathdependent
Each country has a unique learning path, with
complex economic and social interactions,
feedback and disturbances
Technology literature uses ‘national innovation
system’, NIS, to capture individual structural
(systemic) features of each country
‘NIS’ is mainly applied to industrial countries, but
it applies equally to developing countries
National system are difficult but not impossible
to change: need country specific & constantly
evolving policies
Features of ‘ideal’ technology policy
Use globalization effectively:
This may mean more
‘openness’ but not
 Access new technologies promptly necessarily non-selective
(neoliberal) policies on
 Attract other mobile resources
trade, FDI, skills
R&D or finance
 Enter integrated production systems
 Link local value chains to global chains
 Upgrade technologies and functions in value chains
Build local capabilities to exploit globalization
 Attract high value mobile resources
 Build domestic skills & technological capabilities to
handle dynamic activities and technologies
 Develop strong local clusters capable of competing in
global value chains
There are important choices on mode of
accessing foreign technology over time...
Heavy dependence on internalised modes (FDI)
provides rapid and efficient access to operating
know-how, skills and global markets
But it may not lead to upgrading of functions
beyond those based on existing skills
And it may not lead to the rapid development of
innovative capabilities
To build innovative capabilities, it is necessary to
 Either restrict FDI and promote local firms and R&D
 Or to induce MNCs to deepen technological activity,
by incentives, skill development and R&D capabilities
Why are the policies of Asian Tigers
of interest?
At the start of the current era of economic
development (post II World War) East Asia was
much poorer than Latin America, with a less
developed industrial sector
Many Asian countries were also resource rich
Most also embarked on import-substituting
industrialization policies
They had better macro management but more
political strife, wars, ethnic problems and so on
But they were far more successful in sustaining
high growth than Latin America
Take regional MVA in developing world
60%
50%
40%
1985
1998
30%
20%
10%
MENA
SSA 2
SSA 1
LAC
S Asia
E Asia 2
E Asia 1
0%
Technology strategies in the East
Asian Tigers
There was no ‘Asian model’: given export
orientation, each had own strategic vision
Each ‘vision’ entailed different mixes of selective
and functional (tactical) interventions
Differences in strategy were in fact more
important than differences in tactics
These led to striking differences in industrial and
technological structures
Leaders are ‘mature’ Tigers. New Tigers are in a
very different ball-park, with low innovative
capabilities and uncertain strategy
Three technological strategies in
export-oriented Tigers
Autonomous: based on domestic firms, with
high local content, minimal reliance on FDI,
heavy emphasis on skill building and R&D.
Pervasive use of industrial policy
Directed FDI: reliance on MNCs, but with
stress on moving into high value activities,
with significant use of selective policy
FDI dependent but passive: success largely
due to welcoming policies, stable macro
environment, low wages, disciplined & semiskilled labour and good luck/location
Share of MNCs in exports
India
Korea
Taiwan
China
Indonesia
Philippines
Malaysia
Singapore
0
10
20
30
40
50
60
70
80
UK
Germany
USA
Japan
Sweden
Indonesia
Philippines
Thailand
India
China
Malaysia
Singapore
Taiwan
Korea
Enterprise financed R&D, recent (% GDP)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
High technology exports and R&D
70
1
0.9
60
HT%total exports
R&D/HT Exports
50
0.8
0.7
0.6
40
0.5
30
0.4
0.3
20
0.2
10
0.1
Philippines
Thailand
Malaysia
Mexico
Singapore
Ireland
China
Taiwan
UK
Finland
S Korea
Germany
USA
0
Japan
0
Skill creation: tertiary enrolments in
technical subjects as % population
1.8%
1985
1997
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
Korea
Taiwan
Singapore
Philippines
Indonesia
Malaysia
Thailand
China
0.0%
Strategic differences: cluster analysis of 1995 RCAs in hightech exports, with R&D and FDI
2.5
Bubble size indicates average value of
RCA inHigh-Tech Exports,
1995
2
Korea
Taiwan
RCA:1.47
1.5
R&D
OECD
RCA:0.86
1
0.5
Other Developing
Countries
RCA:0.12
0
-2
0
2
4
6
8
-0.5
FDI
10
12
China
HongKong
Malaysia
Mexico
Philippines
Singapore
14
Thailand
RCA: 1.63
16
18
Now let us consider country
strategies for industrial technology
development...
Korean strategy: Interventionist,
nationalistic, strategic and high-tech
 Industrial policy dominant - strong, clear leadership
commitment to competitiveness
 Import protection: high, prolonged but selective
 Offset by strongly export-orientation, with ‘push’ not
‘pull’: detailed targeting and pressures
 Chaebol spearheaded export, technology drive
 Inward FDI tightly restricted -- until financial crisis.
Outward FDI promoted
 Heavy investments in human capital
 Directed and subsidised credit.
 Support for SME R&D: 2,278 units by 1997
Korea: financing R&D
 Subsidies:
 Designated R&D Program funded 50% of R&D for large,
80% for SMEs, in ‘important new technologies’. $2 billion
invested 1982-93, 58% from government
 National Research Projects provided up to 67% of costs for
selected R&D. 1987-93: $1.1b. total, 41% subsidy
 Highly Advanced National Project started 1992 for very hitech R&D: 11 projects, $350 m. subsidy
 Loans:
 Three funds with low interest rates, $1.2b. lent till 1994
 VC industry, 58 companies, $3.5 b. disbursed 1990-94
 Banks with special technology ‘windows’. KDB provided
$3.4 b. during ’90-94
 Guarantees for technology loans to SMEs: $8b. 1990-94
Taiwan: Building high-tech SMEs
 Selective protection, subsidised and directed credit.
 Strategic technology targeting
 Human resources: education and training
 Technology promoted by
 FDI targeting and local content/diffusion
 Superlative extension services: subsidised training,
finance, technology and marketing
 Strong public R&D, incentives for contract R&D,
venture capital, public R&D spin-offs
 Government ‘orchestration’ of technology: import,
adaptation, diffusion and innovation
 Science parks and technology clusters
‘Linking, leveraging and learning’ in Taiwan:
Innovation consortia as leveraging tool
IBM unveiled its new PowerPC microprocessor, a product made by IBM, Motorola
and Apple, in New York in June 1995. It was followed one day later by the
unveiling in Taipei of PowerPC based products by a group of 30 firms from
Taiwan.
The Taiwanese firms had not done this on their own. They were part of an
innovation alliance, the Taiwan New PC Consortium formed by a government
research institution, the Computing and Communications Laboratory (CCL), set
up in 1993 to bring together firms from all parts of the IT industry in Taiwan. Its
purpose was to transfer, master and diffuse the new PowerPC technology over
the whole range of products from PCs and peripherals to software and
multimedia applications as well as to semiconductor manufacturers. The firms
involved were relatively small by international standards, and CCL brought them
together and negotiated on their behalf with IBM and Motorola.
John Mathews
Examples of R&D alliances in Taiwan, 1983-1997
Alliance
Year(s)
Companies Budget
NT$ m
A. Electronics and information technology
1. PC 100 (IBM PC XT-compatible)
2. PC 400 (IBM PC AT-compatible)
3. Workstation (Sun SPARC-compatible)
4 Notebook PC
5. Graphics terminal
6. Palmtop PC
7. Pentium server
8 Taiwan NewPC (PowerPC)
1983-1984
1984-1985
1989-1991
1990-1991
1991-1993
1991-1992
1991-1993
1993-1997
5(9)
3
2(3)
46
34(9)
16
2
40
40
24
150
100
25
50
50
250
B. Consumer electronics and communications
1 Ethernet switch
2. Digital loop carrier
3. LCD consortium
4. HDTV
5 Interactive TV
6. V5 Network access standard
7. High speed loop access system
1993-1996
1992-1994
1995-1997
1994-1996
1995-1997
19961996-
5(8)
3(4)
4
11
21
12
14
75
60
230
250
200
150
120
C. Mechanical engineering/materials
1 1.2 L engine
2. Electric scooter
3. 250cc motorcycle engine
1992-1997
1991-1996
1996-
4(3)
10
2
1,400
500
600
D. Software/services
1. Java-based Internet products
2 Electronic commerce
19961996-
24
61
250
300
Singapore: ‘Using’ MNCs
 Dynamic comparative advantage by design
 From labour to capital intensive, then to technology
intensive and finally to innovation itself
 Growth of local ‘technopreneurs’ based on innovation
 Latest industrial strategy is biotech and bio-medicine
 How did Singapore ‘use’ MNCs?
 Targeting by efficient, honest and competent agency
(EDB) with power to coordinate & implement changes
 Public sector played catalytic role, leading private sector
and MNCs, recently in R&D by setting up laboratories
 Superb infrastructure, financed by highest savings rate
 MNCs participated directly in policy making process
 Upgrading education & industrial skills (‘best workforce
in world’) and importing high level manpower
Singapore’s skill system ...
 School leavers given pre-employment industrial
training of high quality
 Tertiary system tightly regulated and guided, but with
ample financing and closely linked to industry
 Ample, varied industrial training courses, some run
by MNCs, some jointly with foreign governments
 Skill Development Fund funds full cost of training by
SMEs
 Large firms are penalised for low-skill employment
and lack of training, and subsidised for providing
training
 Funding for foreign trainers
 Liberal entry for skilled expatriates
Hong Kong: Nearly Laissez Faire
 Interventions for SME upgrading and export marketing;
land subsidies for manufacturing
 Unique initial advantages: Hongs, entrepôt experience,
financial and physical infrastructure, influx of skills from
Mainland China
 High initial export growth, but lack of deepening forced
industry to relocate
 Manufacturing and export growth now negative: only
Asian Tiger to go into industrial decline
 Some late attempts at technology promotion
 Growth based on servicing China -- but Shanghai taking
over important functions
 Few lessons for other countries in technology policy
New Tigers: Malaysia, Thailand,
Indonesia and the Philippines
Weak skills and technology, but Philippines is
best in skills and Malaysia in R&D
Domestic entrepreneurship (led by Chinese) is
weakest in Malaysia and strongest in Thailand
Active industrial policy in domestic oriented
sectors, but not advanced capabilities
High-tech strategies in Malaysia and Indonesia
not successful
Facing severe competitive threat from China
Moving to FDI targeting, but lack authority of
IPA to design and implement strategy
Conclusions
Technology policy has taken very different forms
in Asian Tigers
Korea and Taiwan have strong domestic
innovative bases, with skills & institutions to
cope with technical change and new competitive
challenges (though China will be major threat as
it upgrades)
Singapore is building technology base, but
remains vulnerable to external forces
New Tigers have to match domestic skills and
technological capabilities to high technology
export structures. If they cannot they will be
extremely vulnerable to new competition,
especially from China
Policies are converging: Autonomous ones are
now more open and market oriented. Passive
FDI strategies are becoming more targeted.
And all countries are trying to build local
capabilities, enterprises and innovation
systems.
But history matters -- there will not be rapid
convergence