41i6 /0'S Developing Industrial Technology Lessons for Policy and Practice Farrokh Najmabadi Sanjaya Lall A World Bank Operations Evaluation Study Developing Industrial Technology Lessons for Policy and Practice Other Titles in the Series PREPARED BY THE WORLD BANK OPERATIONS EVALUATION DEPARTMENT The World Bank and Irrigation (1995; contains summaries in French and Spanish) 1993 Evaluation Results (1995; contains summaries in French and Spanish) Structural and Sectoral Adjustment: World Bank Experience, 1980-92 (1995; contains summaries in French and Spanish) Gender Issues in World Bank Lending (1995; contains summaries in French and Spanish) The World Bank's Role in Human Resource Develop.ment in Sub-Saharan Africa: Education, Training, and Technical Assistance (1994; contains summaries in French and Spanish) 1992 Evaluation Results (1994; contains summaries in French and Spanish) New Lessons from Old Projects: The Workings of Rural Development in Northeast Brazil (1993; contains summaries in French, Portuguese, and Spanish) World Bank Approaches to the Environment in Brazil (1993; contains summaries in French, Portuguese, and Spanish) Evaluation Results for 1991 (1993; contains summaries in French and Spanish) Trade Policy Reforns under Adjustment Programs (1992; contains summaries in French and Spanish) Evaluation Results for 1990 (1992; contains summaries in French and Spanish) World Bank Support for Industrialization in Korea, India, and Indonesia (1992; contains summaries in French and Spanish) Population and the World Bank: Implications from Eight Case Studies (1992; contains summaries in French and Spanish) Forestry: The World Bank Experience (1992; contains summaries in French and Spanish) Evaluation Results for 1989 (1991; contains summaries in French and Spanish) The Aga Khan Rural Support Program in Pakistan: Second Interim Evaluation (1990; contains summaries in French and Spanish) Evaluation Results for 1988: Issues in World Bank Lending Over Two Decades (1990; also available in French) Agricultural Marketing: The World Bank's Experience 1974-85 (1990; contains summaries in French and Spanish) Project Performance Results for 1987 (1989; also available in French) Renewable Resource Management in Agriculture (1989)Educational Development in Thailand: The Role of World Bank Lending Educational Development in Thailand: The Role of World Bank Lending (1989) Rural Development: World Bank Experience, 1965-86 (1988; also available in French and Spanish) The Aga Khan Rural Support Program in Pakistan: An Interim Evaluation (1987) Developing Industrial Technology Lessons for Policy and Practice Farrokh Najmabadi Sanjaya Lall THE WORLD BANK WASHINGTON, D.C. Copyright C 1995 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1995 The opinions expressed in this report do not necessarily represent the views of the World Bank or its member governments. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. To present the results of evaluation with the least possible delay, the typescript has not been pre- pared in accordance with the procedures appropriate tc formal printed texts, and the World Bank accepts no responsibility for errors. 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The latest edition is available free of charge from Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'lena, 75116 Paris, France. Cover: Building a fertilizer plant in Aquaba, Jordan. Photo credit: World Bank/Kay Chernush ISSN: 1011-0984 Library of Congress Cataloging-in-Publication Data Najmabadi, Farrokh, 1930- Developing industrial technology : lessons for policy and practice / Farrokh Naimabadi, Sanjaya Lall. p. cm. - (A World Bank operations evaluation study) Includes bibliographical references. ISBN 0-8213-3398-4 1. Appropriate technology-Economic aspects-Case studies. 2. Sustainable development-Case studies. 3. Industrialization- Case studies. 4. Industrial development projects-Case studies. 5. Industrial development projects-Evaluation. 6. Industrial policy-Case studies. 7. Industrial policy-Evaluation. I. Lall, Sanjaya. 11. Title. III. Series. HC79.T4N27 1995 338.9-dc2O 95-33944 CIP Contents Foreword ix Prefacio x Preface xi Acknowledgments xii Abbreviations and acronyms xiii Executive summary 1 Resumen 13 R6sum6 analytique 27 1. The analytical framework 43 The nature of industrial technology development 43 Determinants of ITD and policy implications 45 Conclusions 51 2. Background to case studies 54 Introduction 54 Technological background 54 The economic setting in the sample countries 59 Conclusions: the technological "problem" 71 3. The technology projects 74 Introduction 74 Spain 75 Korea 77 Indonesia 80 Mexico 82 Hungary 86 India 89 Final evaluation 91 vii 4. Assessment, lessons learned, and recommendations 95 Introduction 95 Assessment 95 Lessons learned and recommendations 103 Project implications 105 Annex 107 Tables 1.1 Determinants of industrial technology development 52 2.1 Growth rates of manufacturing output and total exports 55 2.2 R&D expenditures of sample countries 56 2.3 Incentive structures in sample countries 62 2.4 Human capital in sample countries 70 3.1 Objectives of technology projects in sample 92 viii Foreword Technology plays a decisive role in how quickly Korea, Mexico, and Spain. Based on experience and successfully a country industrializes. with projects in contrasting economic settings, Enterprises need technical, managerial, and the study assesses the determinants of indus- organizational skills to set up a plant, use it effi- trial technology development and the suitabil- ciently, improve and expand it over time, and ity of government policies. develop new products and processes. Evaluation findings confirm the importance of Through its project lending, the World Bank incentives and of macroeconomic, trade, and has always sought to help borrowers select industrial policies. In particular, judicious sup- suitable and cost-effective technologies and to port by the public and private sectors is essen- operate industrial facilities efficiently. It was tial to stimulate research and innovation. not until the 1980s, however, that the Bank Overall, the study emphasizes that efforts to began to focus systematically on the role that build up capabilities for long-term industrial technological capability plays in economic development need to address incentives, tech- development, and to analyze and advise on nological capabilities, and the role of institu- the types of policies, incentives, and organiza- tions in a coherent way. tional arrangements that might best promote this capability. This study by the Bank's Operations Evaluation Department assesses how the Bank's lending Robert Picciotto for industrial technology has affected industry Director General in six countries: India, Indonesia, Hungary, Operations Evaluation ix Prefacio La tecnologia es un factor decisivo para la gria, India, Indonesia, Mexico y la Repuiblica rapidez y el exito de la industrializaci6n de de Corea. Basandose en la experiencia adqui- un pais. Al instalar, mejorar y ampliar una rida a trav6s de proyectos ejecutados en fabrica, y al desar:rollar nuevos productos y diferentes entornos econ6micos, el estudio procedimientos, las empresas deben contar examina los factores determinantes del pro- con la necesaria capacidad tecnica, administra- greso tecnol6gico industrial y la eficacia de tiva e institucional. las politicas gubernamentales. A traves del financiamiento para proyectos, el Las conclusiones de esta evaluaci6n confirman Banco Mundial ha procurado siempre colabo- la importancia de los incentivos y las politicas rar con los prestatarios en la selecci6n de tecno- macroecon6micas, comerciales e industriales. logias apropiadas y eficaces en funci6n de los El apoyo responsable de los sectores puiblico y costos y en el manejo eficiente de las instalacio- privado, sobre todo, es fundamental para esti- nes industriales. No obstante, hasta la d6cada mular la investigaci6n y la innovaci6n. En gene- de 1980 el Banco no habia examinado sistemati- ral, el estudio hace hincapie en que las medidas camente la importancia de la capacidad tecno- destinadas a fomentar la capacidad de desarro- l6gica como factor del desarrollo econ6mico ni llo industrial a largo plazo deben ocuparse, en analizado ni asesorado sobre las politicas, manera coherente, de los incentivos, la capaci- incentivos y disposiciones institucionales que dad tecnol6gica y la labor de las instituciones. podrian estimular mejor esta capacidad. En este estudio, realizado por el Departamento de Evaluaci6n de Operaciones del Banco, se evalua el efecto que han tenido los creditos Robert Picciotto del Banco para adquisici6n de tecnologia indus- Director General trial en la industria de seis paises: Espania, Hun- Evaluaci6n de Operaciones x Preface La technologie joue un role decisif dans la rapi- pagne, la Hongrie, l'Inde, l'Indonesie et le dite et la r6ussite de l'industrialisation d'un Mexique. L'etude, qui s'appuie sur les ensei- pays. Les entreprises ont besoin de comp& gnements tires de projets realises dans des con- tences techniques, gestionnelles et organisa- textes economiques differents, cherche A tionnelles pour etablir une unite de production, evaluer les elements qui determinent le deve- l'exploiter efficacement, l'ameliorer et l'agran- loppement technologique industriel et A esti- dir progressivement, et mettre au point de nou- mer l'adequation des politiques menees par les veaux produits et procedes. pouvoirs publics. A travers ses prets A l'investissement, la Les conclusions de l'evaluation confirment Banque mondiale a toujours cherche A aider l'importance des mecanismes d'incitation et les emprunteurs A choisir des technologies des politiques macroeonomique, commerciale appropriees, presentant un bon rapport et industrielle. L'6tude signale notamment couit-efficacite, et A exploiter leurs installations que le concours judicieux des secteurs public industrielles de maniere efficiente. I1 a toutefois et prive est indispensable pour stimuler la fallu attendre les annees 80 pour que la Banque recherche et l'innovation. Globalement, elle commence A se pencher systematiquement sur confirme la necessite d'adopter une d6marche le role des capacites technologiques dans le coherente pour traiter des mecanismes d'incita- developpement economique, et A faire des ana- tion, des capacites technologiques et du role des lyses et emettre des avis sur les politiques, les institutions lorsqu'on s'emploie A renforcer mecanismes d'incitation et les modes d'organi- les capacites pour le developpement sation susceptibles de promouvoir ces capacites industriel A long terme. dans les meilleures conditions. La presente 6tude, preparee par le D6partement de l'evaluation des operations, evalue 1' impact que les prets de la Banque en faveur du deve- Robert Picciotto loppement technologique industriel ont eu sur Directeur general le secteur industriel de six pays: la Coree, I'Es- Evaluation des operations xi Acknowledgments This study was prepared by Farrokh Najmabadi by Henry Ergas (Counsellor for Structural Poli- (task manager) and Professor Sanjaya Lall, cies, OECD) and Charles Weiss (former Science Oxford University (consultant). Administrative and Technology Advisor, World Bank), and dis- support was provided by Jasmine Mason- cussed with Bank staff at a workshop held on Anderson. Ahmad Ahsan contributed to the May 17, 1993. The comments received from bor- annex. Angie Gentile-Blackwell was the copy rowers, the regions, and other Bank staff have and production editor. The study was reviewed been taken into account. xii Abbreviations and acronyms BRITE/EURAM Basic Research in Industrial Technologies in Europe/ European Research in Advanced Materials CDTI Centro para el Desarrollo Tecnologico Industrial (Spain) CENAM Centro Nacional de Meteologia (Mexico) CMEA Council of Mutual Economic Assistance COCOM Coordinating Committee for Multilateral Exports CONACYT Consejo Nacional de Ciencia y Tecnologia (Mexico) EC European Community EEC European Economic Community ERP Effective rate of protection ESPIRIT European Strategic Programme for Research and Development in Advanced Information EUREKA European Project for Cooperation in Market Oriented R&D FDI Foreign direct investment FONEI Fondo de Equipamiento Industrial (Mexico) GDP Gross domestic product GNP Gross national product ICICI Industrial Credit and Investment Corporation of India INI Instituto Nacional de Industria (Spain) IRDE Industrial research, development, and engineering ITD Industrial technology development KIET Korea Institute of Economics and Technology KTDC Korea Technology Development Corporation KTIC Korea Technology Investment Corporation LPND Nonministerial government institute (Indonesia) NAFINSA Nacional Financiers SA (Mexico) NCL National Chemical Laboratory (India) NIC Newly industrialized country NIE Newly industrialized economy OECD Organization for Economic Cooperation and Development OED Operations Evaluation Department PE Public enterprise R&D Research and development xiii RD&E Research, development, and engineering SAR Staff appraisal report S&T Science and technology SECOFI Secretary of Commerce and Industrial Development (Mexico) SMEs Small- and medium-scale enterprises SMIs Small and medium industries SPP Mexican Secretariat of Planning and Budget TC Technological capability TDF Technology Development Fund (India) TFP Total factor productivity TI Technology import UNESCO United Nations Educational, Scientific and Cultural Organization VCF Venture capital fund xiv Executive summary Introduction receive systematic attention in the Bank. A comparative study of technology development The Bank has played an important role, through in four countries was undertaken. Technologi- its project lending, in enhancing borrowers' tech- cal issues were addressed in the industrial sec- nological capabilities. It has helped borrowers to tor studies of the larger newly industrialized select appropriate and cost-effective technolo- economies (NIEs). In addition to projects with gies and to efficiently operate industrial facili- strong technology components, a series of tech- ties. This process has often contributed to the nology development projects, again mostly for development of a capability on the part of bor- NIEs, was designed and approved. But such rowers for implementing similar projects. But efforts remained sparse and, despite the inclu- throughout the early days and until the 1970s, sion of technology development in the Bank's technological capability building remained inci- industrial lending, general awareness of the dental to the Bank's major lending activities. importance of developing technological capa- bility did not go beyond the Bank's staff directly By the mid-1970s, the Bank also began to take involved in the subject. account of the role of technology in industrial development. After the establishment of the office of Science and Technology Advisor, a num- Objectives of the study ber of studies were conducted for the promotion of scientific and technological capabilities in the The primary objective of this study is to assess developing countries. The Bank also looked at the impact that the Bank's lending for industrial the existing situation in a few developing coun- technology development has had on the indus- tries: one of the earliest reports was prepared for trial sector of the borrowing countries. In partic- Indonesia in 1972 ("Problems of Industrial Tech- ular, the study attempts to assess the Bank's view nology"). The Bank's first lending for industrial of the determinants of industrial technology technology development was approved in 1975 development and the policies that it recom- for Israel. This was a component of the Industrial mended. The study also addresses project Development Loan (1116-IS). The Bank's first achievements, the appropriateness of project complete project for industrial technology devel- objectives to the given circumstances, and the opment was launched in 1977 in Spain. factors that contributed to their success or failure. It was, however, during the 1980s that the issue This study focuses on industrial technology of industrial technology development began to development projects in six countries: Hungary, 1 India, Indonesia, Korea, Mexico, and Spain. improvement, design, engineering, develop- These are not the only countries in which ment, and innovation) within the technologies the Bank has undertaken technology develop- that the country utilizes. The process of techno- ment (or closely related) projects, but the choice logical deepening has various benefits and was intended to reflect different types of generates various externalities. It can lead to projects and different economic settings. India, more widespread diffusion of technology, Indonesia, and Korea represent Asian countries greater use of local inputs, more product at varying stages of industrialization and pur- differentiation, higher added value, and the suing different trade and industrial strategies. ability to respond more effectively to changes Mexico was chosen as a major Latin American in market conditions. country with a sizable and diverse industrial sector that has recently undergone sweeping The capabilities needed to deploy efficiently a liberalization. Spain was the location of the new manufacturing facility are generally not Bank's earlier efforts; its location and stage of present in most developing countries. Nor are development have evident points of interest. these capabilities easily transferred from Hungary is the only East European country to abroad as part of the sale of equipment, patents, have a technology loan from the Bank, and the or blueprints. There are "tacit" elements in the only country in that region that abolished cen- transfer of all but the simplest technologies that tral planning a long time ago. call for indigenous skill creation, learning, and the collection of new information, only parts of which occur as a passive process of learning by An analytical framework doing. The process requires conscious and sus- tained effort on the part of the manufacturer, Much of technological effort in developing and is costly and uncertain. Moreover, the suc- countries is directed at the acquisition of tech- cessful mastery of operational technology nological capabilities (TCs). TCs in industry are (know-how) may not automatically lead to the the skills-technical, managerial, and organiza- development of deeper technological capabili- tional-that are necessary for enterprises to set ties (know-why). A strategic decision generally up a plant, utilize it efficiently, improve and has to be made to invest in the more risky and expand it over time, and develop new products prolonged process of gaining the extra knowl- and processes. Industrial technology develop- edge and skills required. ment (ITD) refers to t'he growth of these techno- logical capabilities. ITD is a necessary and ITD is determined by the interplay of incen- integral part of efficient industrialization tives, capabilities, and institutions. The incentive at all levels of development. framework gives the "demand" for technological effort. Apart from the basic need to get into In most developing countries ITD means the production, incentives for technological effort ability to become more efficient and competi- arise from the macroeconomic environment tive in the use of imported technologies. In the and growth prospects, technological progress, least-developed countries ITD comprises the factor markets, the intellectual property regime, mastery of simple and well-diffused technolo- and domestic and foreign competition. Of gies, while in the NIEs it involves mastering these, competition (especially world competi- complex, scale- and skill-intensive technolo- tion) is generally the most potent stimulus to gies. Over time, ITD also involves "deepening" ITD. Where competition has been restricted, of TCs, that is, the undertaking of more com- as in highly protected trade regimes, liberaliza- plex and demanding tasks (adaptation, tion may be a necessary condition for the 2 development of competitive TCs. However, governments to ensure that the supply of because the process of capability development skills, finance, and information necessary for involves time, risk, and investment, there is a ITD is adequate. period during which the enterprise is less effi- cient than one that has already undergone the In particular, access to foreign technology learning process. Thus, in the period of infancy, is a critical determinant of ITD. Such access a cushion may be needed in order to promote provides one of the most economical ways of technological learning. gaining the initial input of a new technology If accompanied by skills, training, and other While infant industry protection can provide assistance, it also reduces the tasks that the the breathing space in which new entrants recipient has to do to master and keep up with can develop their capabilities, there are many the technology. Restricting such access can raise potential dangers in such interventions, arising the cost of ITD enormously, or can retard the from the risk of government failure. The recent process to the extent that local efforts cannot history of import-substituting industrialization substitute for foreign ones. There are, however, in developing countries is replete with inter- many ways to access foreign technologies, with ventions that were poorly designed and badly different effects on local ITD. The correct alloca- implemented. Protection can itself retard or dis- tion of resources between creating technology tort investments in ITD, especially if domestic at home and buying it abroad is a complex mat- competition is weak and the protection is ter, and overreliance on either may be costly or granted in a widespread and indiscriminate inefficient. Passive dependence on foreign tech- manner. To ensure that infant industries invest nology may lead to good operational capabili- in ITD, therefore, safeguards have to be insti- ties, but may not necessarily be the best way to tuted. The most effective safeguards are those deepen local capabilities. Foreign technology that introduce market competition at the should be an input into local efforts and not earliest possible time, such as immediate pro- entirely a substitute for it. After a certain level, motion of domestic competition, early entry dynamic and sustained industrial development into export markets, and time-bound programs always involves some deepening of domestic of protection. Successful ITD requires, on the capabilities to take on design, development, part of the government, a clear strategic objec- and innovative work. Otherwise the highest tive, administrative skills, flexibility, careful value-added segments of industry remain monitoring, and the correction or penalization out of reach. of poor performance. In the broadest sense, institutions provide the Capabilities and institutions determine the "rules of the game" within which enterprises "supply side" of ITD. While the final capability operate and enter into contracts in the markets building takes place inside the manufacturing for factors and products. This framework firms, firms have to depend on external sources should be transparent, stable, and predictable, for inputs that they cannot create easily. The and should not discriminate between industrial three major building blocks to which firms need actors according to origin, ownership, or size. recourse are skills of the appropriate kinds, Institutions in the narrower sense refer to the financing for physical and capability invest- organizations set up to support the functioning ment, and access to information and technology of the skill, capital, and information markets to feed into in-house efforts. Each of these that are relevant to ITD. The main ones are edu- has its own markets. Each may suffer from cation and training institutes, development market failures, and there may be a need for finance and venture-capital institutions, science 3 and technology institutions, and others that Korea built up a deep and diverse industrial support subcontracting, small-scale enter- structure by virtue of deliberate interventions prises, and information flows. Institution in the trade and industrial regime, guiding building is wideLy accepted as essential to the allocation of industrial investments in development in all its forms, and is a critical particular directions largely under the control part of the promotion of ITD. of national private firms. These firms imported technology mainly in the form of equipment and licenses, relying relatively little on direct The technology problem in foreign investments. This raised the technolog- the sample countries ical challenge for them significantly, especially because of the pressures on them to be export- The issues in industrial technology differed oriented very quickly after entering produc- enormously across the six sample countries. tion. As industries entered more complex There were a number of common problems that activities and approached the frontiers of all these countries faced because of the practi- their technologies, local R&D became cally universal nature of market failures in the imperative to keep abreast of world levels provision of finan,ce, skills, and information to of competitiveness. industrial firms investing in technological activity. However, the weight and incidence of The skill requirements of this effort in Korea the specific market failures differed. More were met by massive investments in higher importantly, the incentive frameworks within level technical education and by measures to which firms were investing in ITD varied induce firm-level training. Finance require- greatly, as did the "traditions" that countries ments were initially left to the existing financial had developed over time of investing in local intermediaries, supplemented by a number of innovative effort as opposed to buying more instruments to support R&D in approved difficult technologies from the advanced coun- projects by the chaebol (conglomerates). Smaller tries. These traditions, themselves the outcome innovators and other forms of technological of location, history, and past policy interven- effort were not addressed. The S&T infrastruc- tions, appear to exert an independent influence ture received a lot of financial and human on ITD, regardless of the impact of incentives resources, and seemed to succeed in establish- arising from the trade and industrial regimes. ing good linkages with industry. These mea- sures led to spectacular increases in private Spain's large and long-established industrial R&D and an attitude to undertake technologi- structure had improved its operational capabil- cal activities that enabled Korea to achieve its ities considerably over a period of gradual lib- main industrial ambitions. The main gaps that eralization and active policies to restructure existed were in remedying the financial market firms and raise linkages with the science and failures for smaller innovators and helping the technology (S&T) infrastructure. However, it research infrastructure to enter more areas of showed technological immaturity in its weak activity to promote the government's industrial research and development (R&D) performance strategy. These were the aims of the Bank's and its relatively (in the context of the European main efforts in the technology area. Community) poor showing in dynamic areas of manufacturing activity. This resulted from a Indonesia had a much simpler industrial weak technological tradition, which may have structure than the other countries in the sample, been compounded iby inadequate ITD financ- and so had correspondingly simple technologi- ing and insufficient infrastructure support. cal needs. It started with strong protection 4 and inward bias; this has been improved, design and development process, and the gaps but significant and haphazard protection still in the S&T infrastructure. exists and the pace of liberalization is unclear. Indonesian industry remains highly import- Hungary's ITD problems in the past decade dependent for components and equipment as were primarily related to the incentive frame- well as for technology and skills, and local firms work and the system of ownership, gover- invest practically nothing in engineering, nance, and trade. Despite its substantial and design, and development. However, some deep industrial base and long tradition of R&D, firms are showing increasing mastery of com- its hesitant and partial reforms had failed to uti- plex process industries as liberalization forces lize its technological activity and experience them to invest more in technological learning fully to make industry competitive in Western and operational efficiency. The skill base is markets. There were also other problems. The small, and the lack of an industrial and research base of high-level technical skills was weaker tradition exacerbates the low output of high- than in western European countries. The S&T level technical manpower. The only concerted infrastructure was comprehensive, but had technological effort comes from a few "strategic become outdated and underfunded. Neverthe- industries" that are entering high-technology less, some firMs retained an autonomous tech- activities unrelated to the bulk of private indus- nological tradition and capabilities. At that trial activity. The S&T infrastructure is weak time, the incentive, governance, and control and delinked, except for a part that serves the system was the basic constraint on ITD, with strategic industries. The financing of ITD is minor ones arising in the financial and infra- nonexistent. Thus, Indonesia's ITD problems structure support areas. cover a wide range, from incentives to skills, finance, information support, and linkage India developed its industrial base behind a set between S&T and industry. of interventions that had mixed effects, with the costs of inefficiency and technological lags Mexico combines a long history of import sub- apparently outweighing the benefits of deepen- stitution with a tradition of heavy reliance on ing. It pursued a strategy of technological self- imported technology. This strategy was quite reliance more assiduously than most other coun- successful in creating efficient process and auto- tries, and invested in a large S&T infrastructure. motive industries, but remained deficient in A broad base of technological capabilities was fostering equipment production. Few local developed, and there was significant growth of enterprises developed a tradition of design and R&D activity. However, the skill base for indus- development over time, and even public enter- try remained relatively small, and distortions in prises showed a strong preference for imported the incentive system meant that technological equipment and know-how. Local industrial learning did not lead to fully competitive pro- R&D is the lowest of any major industrializing duction or to innovative capabilities. The S&T country, and this remains true in a period of infrastructure was largely delinked from pro- rapid liberalization. The skill base is reasonably duction. Access to foreign technologies was good. There is large S&T infrastructure that has restricted. ITD finance was not well developed. suffered the usual lack of linkages with produc- The technological needs of small- and medium- tion. The financing of technology activity, sized firms were not addressed, while R&D by though addressed by policymakers, has been the large-scale private sector was inadequate. A weak. The basic problems of Mexican ITD have large and generally inefficient public sector been the reluctance of firms to invest in deepen- engaged in some research, but only a few public ing their own capabilities and entering the enterprises achieved competitive capabilities. 5 Thus, India's technological problems were wide- On capital-market failures, practically all ranging, covering all aspects of incentives, capa- the projects with the exception of Indonesia bilities, and institutions. emphasized the need for finance for technolog- ical activity. The Korea project had venture capital and other new technology financing The technology projects instruments as its exclusive focus. The Hungar- ian, Indian, Mexican, and Spanish projects The underlying objective of all the ITD projects had technology finance as a major focus, along was to strengthen the competitiveness and with efforts to remedy failures in information productivity of the industrial sector. This markets. The aims of the finance component was based on two general premises, articulated differed across countries. The Spain project was in most of the project documents. The first is to finance the import, development, and diffu- that some technological capabilities are essen- sion of selected technologies as part of a specific tial to achieving world levels of efficiency at strategy of changing the country's technology all levels of industrial development, but that culture. The Hungary project was primarily as the industrial structure grows more complex to provide loans for the import of up-to-date a developing country has to deepen its capabil- equipment and technologies from the West ities. In particular, it has to invest in design for process control and software. The India and development capabilities to absorb project was to finance local innovative efforts and build upon more advanced imported via venture capital as well as the import of technologies. The second is that there are technology, while the Mexico and Korea market failures in the acquisition of techno- projects were to finance both the absorption of logical capabilities, which have to be addressed foreign technology and the commercialization by policy instruments. of local technologies. The ITD projects showed a keen awareness of The strengthening of the information and the importance of the incentive framework for technical services network generally involved promoting the "demand" for technological two objectives: improving the capabilities of activity. Given the nature of the projects, they S&T institutions, and establishing closer link- did not address directly incentive issues related ages between them and industry. The strength- to macroeconomic, trade, and industrial poli- ening of institutions was a major objective in cies. However, in all the countries in which three of the projects (four if the skill develop- these projects were launched a certain degree of ment for the nonministerial government insti- liberalization was under way, and it was tutes in Indonesia is included). In India, the expected that this would promote the demand project fed into the government's broader for ITD. The projects therefore focused on mar- market-oriented reforms of the technology ket failures on the "supply side." infrastructure. In Mexico, the project linked investment in selected research institutes to As far as skill needs were concerned, only one their partial privatization. In Hungary, the country, Indonesia, was regarded as having the project included strengthening the metrology shortage of technical skills as the primary con- and quality control centers, and the augment- straint to technological activity. The others were ing of infrastructure provision of inputs into considered to have ample technical skills within R&D. The need to improve research institutes enterprises and institutions, though some train- and industry linkages was mentioned in most ing was envisaged in most other projects for projects, though in Hungary and Indonesia financial, appraisal, and management skills. they did not appear as immediate objectives. 6 An assessment ever, mean that in the process of industrial development choices may have to be constantly The need for ITD is clearly and forcefully stated made to enter certain more sophisticated and in nearly all the project documents. In general, complex areas of technology. Otherwise the it is argued that the need to make existing highest value-added segments of industry may industries competitive and to develop new remain out of reach. sources of comparative advantage in manufac- turing both need investments in technology On the determinants of ITD, there is a clear development. The perception is that technolog- awareness that the incentive framework has a crit- ical activity is a driving force in industrial ical impact on the extent and nature of TC development, productivity, and competitive- investments, and that the framework has to be ness in developing countries; it is a purposive conducive to industrial development as a activity that does not result automatically from whole. The Bank's decision to undertake ITD a passive learning process, and requires enter- projects, and their specific design, depends prises to invest in specific areas like training, strongly on its reading of the incentive regime information collection, engineering, design, in each country. This is entirely justified: long- and experimentation; it involves the interaction term investments in capability development between individual enterprises and an infra- and R&D are bound to be exceptionally sensi- structure of science and technology institutions tive to incentives arising from the macroeco- that provide certain services with "public nomic and competitive environment, which goods" characteristics; and there is a need to determine the "demand" for ITD. deepen technological capabilities with indus- trial development. While the precise incentive requirements of ITD are not discussed explicitly in the project docu- The project documents accept that operational ments, it is possible from their analysis and from capabilities may not be easy to acquire, and other Bank writing on industrialization to deci- may need policy support. At the same time, pher the Bank's view of the desirable incentive they suggest that technological deepening may framework for capability development. It is one not follow automatically from the development that meets the following four conditions: First, it of operational capabilities. They recognized provides a liberal trade regime, with consider- that the need for technological deepening able exposure over time to international compe- grows with industrial development. The lack of tition in all its forms (import as well as export advanced capabilities holds back, not just the competition). The case for protecting particular ability of local firms to diversify, diffuse tech- activities to promote ITD is generally more than nology, and reap the externalities that arise counterbalanced by the risk of government fail- from technological activity, but also their ability ure in exercising selectivity. Second, it provides to absorb more sophisticated technologies from full access to foreign technology and equipment abroad. R&D serves as much to keep up with in all its forms. Third, it promotes domestic com- technical progress as to generate innovations. petition fully, removing all artificial constraints In general, the technology projects' analysis of to entry and exit. Fourth, it emphasizes the role ITD needs is based on sound premises. This of the private sector. does not mean that technological deepening of this nature should be of immediate concern to This is based on the Bank's experience of indus- many developing countries or that the NIEs trial development in a range of countries pursu- need necessarily enter into R&D activities in all ing a variety of strategies. On both theoretical the most advanced technologies. It does, how- and practical grounds, the four criteria noted 7 below have much to recommend them. ITD is less to do with the promotion of infant indus- strongly driven by international competition. tries than with the restructuring of existing Technology imports are a necessary input into industries set up under distorted incentive local capability development, and attempts to frameworks. Here too the issues of promoting inflict technological self-reliance are generally technological learning surface, but in a different disastrous for healthy ITD. Selectivity does not guise. For economies with a number of indus- have a good record, and picking technological tries that have attained maturity (or near winners is especially difficult. Domestic compe- maturity) under protectionist trade regimes, tition is conducive to ITD and to efficiency and immediate liberalization is necessary to allow growth. Finally, the private sector is generally them to exploit their existing comparative more efficient and responsive to market signals advantages in world markets. However, for than the public. industries that are potentially competitive, there may be a case for phased programs of On the issue of the relationship between trade restructuring and relearning. The entry of new strategy and ITD, there remains a valid case for and complex activities may still need to be infant industry protection. New entrants to supported through appropriate trade policies. industry face extra costs because they have to The case for such trade policies to promote ITD undergo a technological learning process that appears to be underplayed in the technology has already been gone through elsewhere. The project documents. case for interventions rests on the existence of market failures in this learning process: exter- The Bank's industrial technology lending has nalities (skills and knowledge leak out to other had varying impacts in the sample countries. In firms); complementarities in ITD development Korea the three loans contributed to promoting across vertically related firms (learning in one R&D activities in small- and medium-scale firm affects the competitiveness of another, but enterprises that needed risk capital to sustain neither firm takes this into account in its own such activities. In India, too, the project is pro- investment decisions); firms themselves are ceeding well and has assisted the private-sector unaware of, or unable to predict properly, the industrial enterprises in acquiring technology benefits arising from ITD investments; or, from abroad, the innovators to have access to finally, firms are extremely risk averse and dis- venture-capital funds, and a number of count the future at a socially undesirable rate. research and development institutes to direct Experience shows, however, that the interven- their efforts towards the needs of industry. In tions are best located in a strongly export-ori- Spain, the project was, to a degree, instrumental ented regime that offsets the disincentive effects in encouraging and promoting efforts to of infant industry protection while providing develop new processes and products, and to the competition and information benefits of bring them to the point of commercialization, participating in world trade. The need for pro- though the entry into the European Economic tection, moreover, declines as ITD progresses. Community in 1986 and the exposure to the With the progress of technological learning, Community R&D activities has, in recent years, industries have to be exposed to import compe- really pushed the Spanish industry in the direc- tition to stimulate further ITD-but the expo- tion of increased efforts. sure should not be so sudden that the learning process itself is aborted. The impact of the Bank's lending in the other three countries is less encouraging. While the The immediate policy problem confronting Indonesia project achieved its limited objective the Bank and the developing world today are of enlarging the skill base by sending Indone- 8 sian graduates abroad for obtaining higher and poor or inadequate infrastructural support degrees, it is unlikely to enhance the technolog- can inhibit the flow of information and the ical capabilities of Indonesian industry in the undertaking of certain forms of technological broad sense. The Mexico project failed to effort and R&D. All measures to remedy these achieve its major objectives of promoting real inadequacies can be helpful to technological R&D activities in the private sector and the activity. However, their benefits may be nar- privatization of research institutes. It succeeded, rower than the projects originally envisaged. however, in bringing about the formulation of a They may result in improving operational new technology policy as a result of a study sup- capabilities rather than promoting more ported by the project. In Hungary, except for the demanding levels of technological activity. If the National Office of Measures (metrology), which habit to undertake R&D is weak, it is not clear that has used the Bank loan for the import of valu- concentrating on these supply side measures would able measuring instruments, many of the other suffice to stimulate deeper ITD. These issues beneficiaries are facing serious problems needed greater attention in some of the because their markets have changed radically. technology projects. The provision of technology financing was Moreover, there was insufficient attempt in one of the major objectives of Bank ITD projects some projects to tailor the design to the history (except in Indonesia) and aimed at removing and industrial traditions of the country. There one of the main constraints to technology was perhaps a belief that the underlying process development. The particular attention that of ITD was uniform across countries, and that the projects paid to the need of small- and all countries would adopt this process once the medium-sale enterprises (SMEs) was welcome incentive structure was liberalized and the in that these enterprises face greater financial capital- and information-market failures over- constraints than large enterprises. The pur- come. In general, the design of the projects was poses for which technology finance was pro- well suited to country conditions in India and vided included the development of local Korea. The Indonesia project suffered from seri- technologies as well as the absorption and ous flaws in the design, given the objective of adaptation of imported technologies. improving skills that would benefit the techno- logical capabilities of Indonesian industry in the The strengthening of infrastructure institutions broad sense. The Mexico project had an interest- and their links to industry was a legitimate con- ing design for the privatization of research cern of ITD projects. The projects adopted dif- institutes, but left some important questions ferent approaches to this end. Projects in India unanswered as to the implementation and util- and Mexico attempted to improve both the ity of creating this sort of linkage. The removal functioning of the R&D infrastructure as well as of financial constraints to ITD in the Mexican their linkage with industry. In Korea and Spain, and Spanish projects was correctly designed for too, the projects aimed at strengthening stimulating the kind of technological activity research institute-industry linkages, while the that already existed in those countries, but not Indonesian project had the training of research- for enabling a significant jump in ITD. ers for its institutes as the main objective. The Bank's objectives on the "supply side" Lessons learned and recommendations issues of factor market failures were generally sound. Clearly capital-market failures can affect Based on the experience from the industrial ITD, especially by medium-sized enterprises, technology projects in the sample countries the 9 following factors mnay be cited as those most direct investment can be an extremely effective instrumental in the outcome of the projects. method of transferring operational know-how ITD should form a part of a broader strategy of new technologies, and can have numerous for industrialization; otherwise its impact beneficial externalities. It may not, however, be may be diluted. There is need for an integrated the best way to promote technological deepen- approach in the preparation of ITD projects ing. In Korea, the preference for arm's length where incentives, technological capabilities, technology imports over direct investment and institutions are all discussed and addressed encouraged local enterprises to invest in their simultaneously. R&D capabilities, because it was comple- mented by a battery of policies encouraging The impact of a technology project on ITD industry to enter complex areas while forcing depends on the existence of a clearly defined them to face export competitions. and articulated technology strategy. The projects in Korea were effective because the The deepening of industrial technology capa- Korean government not only had a strong hand bility may also need interventions in trade and in directing the economic and especially the technology regimes that promote local research industrial development of Korea, it also formu- activity. Exposure to international competition lated a clear strategy for the technological and technology flows by itself may not-as wit- development. This was the case, to a lesser nessed in Mexico and Spain-be sufficient for extent, in many of the other countries, and the promotion of technological effort. The Bank where there was need the Bank insisted on a should examine its understanding of what technology policy study to be carried out. drives the process of technological develop- ment and the creation of an R&D culture, pay- Since the industrial technology projects usually ing particular attention to the effects of address issues of the factor market failures on imported technology inputs versus local tech- the "supply side," it should be reiterated that nology development. the incentive framework is a crucial determi- nant of ITD. In addition to a sound macroeco- Technological dynamism requires a heavy nomic setting, liberal trade, industrial, and involvement on the part of the private sector in technology policies play a decisive role in pro- technological activities. The role of public insti- moting ITD. Where the incentive regime is tutions in technology should decline over time highly distorted-as in Hungary at the time of to provide support for private technological the project's inception-even well designed activities. Very few countries have managed measures on the supply side do not lead to a this transition. In the case of Korea, this dynamic process of ITD. Industrial technology involved, in addition to clear trade, industrial, development projects should, therefore, not be and science and technology strategies, several implemented until the economic environment financial and fiscal measures to encourage pri- is conducive to their potential success. vate-sector R&D. Conversely, in Mexico formal technological activity was very low, and nearly Access to foreign technologies is critical to ITD, all of it was in public institutions. Given the and the Indian case study illustrates the nature of R&D activities, government policy damage that may result from widespread should encourage private R&D through incen- and severe restrictions on technology imports. tives including fiscal and other measures. However, the mode of technology import may affect the extent and nature of local capability Technological effort is necessary for efficient development. A heavy reliance on foreign industrialization at all levels. Though the 10 Bank's ITD projects have so far been mainly is desirable to entrust such activities to special- concentrated on NIEs, they should be started in ized financial institutions. less industrialized countries. In some develop- Successful financing of technological innova- ing countries, what may be initially required to tion in industry depends on the institutional promote competitiveness and efficiency are the make-up of the financial intermediary. Though improvement in skills and an efficient technol- the government's presence may be necessary ogy infrastructure (for standards, metrology, to get started, the intermediary should have quality assurance, and so on) before elaborate strong private-sector participation and support R&D facilities are created. as well as complete autonomy so that bureau- cratic interventions are avoided. The Indian Long-term trends in technology affect competi- and Korean experiences illustrate the advan- tiveness and technological response of each tages of privately managed institutions that are country. Although the Bank cannot specialize in responsive to market needs and have intimate all such technologies, it, nevertheless, needs to relationships with industry. Conversely, in have some idea of the critical areas of generic Mexico the first tier commercial banks had technologies on which developing countries very little inputs in the technology loans. may need guidance. This would give more meaning to its industrial technology develop- Successful technology and venture-capital ment lending activities. financing depends, to a very large extent, on the experience and quality of the staff of the institu- There is need for the dissemination of ITD liter- tions. Not only should the institution attract ature within the Bank and a serious discussion and retain qualified staff, it should continue to of the subject. ITD projects are currently carried improve their effectiveness through a variety of out by a few individuals in the Bank who under- training programs. stand the imperatives of technology develop- ment but often find it difficult to communicate Venture-capital and risk-sharing operations their concerns to others. This is all the more should be approached with great care because important because of the Bank's preoccupation the skills required to manage them are not with the supply response and competitiveness always readily available and take time to that is expected from trade and industrial policy develop. In the Indian project, the projections reform and industrial restructuring. made on the uptake of such financing was overoptimistic. Risk-sharing activities also require the availability of financial resources Project implications that permit prudent risk-taking. In setting up the financing of the intermediaries, there is In financing R&D by firms, the Bank should need for reasonable certainty as to the sources look for intermediaries that understand R&D, of finance, the commitments by the government have technical expertise, are knowledgeable in terms of assistance, and well designed about various industries, and are committed devolution program. and willing to take risks. The ownership of the project should, therefore, be vested in only In all the countries in the present study, R&D dynamic organizations that are willing to lead, institutions set up to deal with industrial tech- facilitate, and monitor progress in the interest of nologies have found it difficult to link up with efficiency. Normal financial intermediaries like manufacturing enterprises. The privatization of commercial banks are generally not equipped public research institutes faces various difficul- to deal with the needs of such financing, and it ties, as illustrated by the experience in Mexico 11 where enterprises were reluctant to take on the clearly recognized: (a) that only those research ownership and management of such institutes. institutes with the "service to industry" culture Since large firms normally have their own could be instrumental in strengthening the link- resources for R&D, priority should be given to age; and (b) that firms, especially SMEs, face financing R&D for SMEs. Financial incentives serious information and credibility gaps in subcon- to the private sector might help create linkages tracting research to institutes. This is partly a between SME and R&D institutes. problem of their inability to define clearly their own technological needs. It is partly due to a While it is important to have the private sector lack of knowledge on their part of the capabili- represented in the policymaking bodies of pub- ties of the institutes and a lack of trust on indus- lic R&D institutes, it is highly unlikely that the trial secrecy. These gaps can be filled best by private R&D institutions can be put in place subsidizing, at least at the start, the process of through the collective participation of private- linkage creation, while securing some financial sector firms without strong government sup- commitment on the part of the enterprises. port and financial assistance. The services of the Many of the ITD projects did recognize the need private-sector private institutions could be for this subsidization, and it took the form of brought in to facilitate the linkage between conditional loans, preferential interest rates, industry and R&D institutes. targeting selected activities, and so on. This approach was correct, though a systematic Tlhe best approach towards strengthening assessment of the form of support that works research linkages seems to be one where it is best is still lacking. 12 Resumen Introducci6n primer proyecto para el desarrollo de la tecnolo- gfa industrial se realiz6 en Espania en 1977. A trav6s de sus prestamos para proyectos, el Banco ha desempenado una importante Sin embargo, fue durante los anios ochenta funci6n para potenciar la capacidad tecnol6gica cuando el Banco comenz6 a prestar una de los prestatarios, lo que ha permitido a estos atenci6n sistemAtica al desarrollo de la tecnolo- escoger tecnologias apropiadas y eficaces en gia industrial. En esa epoca se llev6 a cabo un funci6n de los costos, y explotar de forma estudio comparativo del desarrollo tecnol6gico eficiente las instalaciones industriales. Con fre- en cuatro paises. Las cuestiones tecnol6gicas cuencia, este proceso ha contribuido a desarro- se abordaron en los estudios de los sectores liar la capacidad de los propios prestamistas industriales de las economIas de reciente indus- para poner en practica proyectos similares. Sin trializaci6n (ERI) mas grandes. Ademas de embargo, en los primeros tiempos y hasta la los proyectos que incluian importantes compo- decada de los anios setenta, el fortalecimiento de nentes tecnol6gicos, se elabor6 y aprob6 una la capacidad tecnol6gica era un elemento acce- serie de proyectos de desarrollo tecnol6gico, sorio en las principales operaciones de pres- destinados tambien en su mayoria a las ERI. tamo del Banco. No obstante, todos estos esfuerzos resultaron insuficientes y, pese a la inclusi6n del desarrollo A mediados de la decada de los setenta, el de la tecnologia en los prestamos industriales Banco comenz6 a tomar en consideraci6n tam- del Banco, puede decirse que s6lo los funciona- bi6n el papel de la tecnologia en el desarrollo rios de la instituci6n que participaban directa- industrial. Tras la creaci6n de la Oficina del Ase- mente en los proyectos eran plenamente sor, ciencia y tecnologia, se realizaron varios conscientes de la importancia del desarrollo de estudios para fomentar la capacidad cientifica y la capacidad tecnol6gica. tecnol6gica en los paises en desarrollo. El Banco tambien analiz6 la situaci6n de unos pocos pai- ses en desarrollo: uno de los primeros informes Objetivos del estudio fue el que se prepar6 sobre Indonesia en 1972, titulado "Problems of Industrial Technology". El objetivo principal del presente estudio es El primer prestamo del Banco para el desarrollo evaluar el impacto que han tenido en el sector de tecnologia industrial se aprob6 en 1975 a industrial de los paises prestatarios los pr&sta- favor de Israel, y fue un componente del Pres- mos para el desarrollo de la tecnologia indus- tamo para el Desarrollo Industrial (1116-IS). El trial otorgados por el Banco. Concretamente, 13 uno de los objetivos del estudio es evaluar tan las empresas para poner en marcha instala- la forma en que el Banco ha considerado los ciones, utilizarlas eficientemente, mejorarlas determinantes del desarrollo de la tecnologia y ampliarlas con el tiempo, y crear nuevos pro- industrial y las medidas de politica que ha reco- ductos y procesos. El desarrollo de la tecnologia mendado aplica.r. Tambien se analizan en el industrial (DTI) se refiere al perfeccionamiento estudio los exitos obtenidos en la ejecuci6n de de esa capacidad tecnol6gica. El DTI es un los proyectos, la idoneidad de los objetivos de componente necesario de toda politica eficiente dichos proyectos conforme a las circunstancias, de industrializaci6n, cualquiera que sea el nivel y los factores que contribuyeron al 6xito o al de desarrollo. fracaso de los mismos. En la mayoria de los paises en desarrollo, el DTI El estudio se cenrtra en los proyectos de desarro- se refiere a la capacidad para ser mas eficientes llo de la tecnolo,,ia industrial en seis paises: y competitivos en el uso de la tecnologia impor- Corea, Espania, 1-lungria, India, Indonesia y tada. En los paises menos adelantados, el DTI Mexico. Estos paises no son los unicos en los consiste en dominar tecnologias sencillas y de que el Banco ha emprendido proyectos de desa- amplia difusi6n, mientras que en las ERI con- rrollo tecnol6gico (y proyectos estrechamente lleva el dominio de tecnologias complejas, tec- relacionados), pero se han elegido estos seis nologias de escala y tecnologias que requieran paises precisamente como ejemplos de distintos un uso intensivo de conocimientos. Con el tipos de proyectos y diferentes situaciones eco- tiempo, el DTI entrafia tambien el "perfecciona- n6micas. Corea, India y Indonesia son paises miento" de la capacidad tecnol6gica, es decir, la asiaticos en diversas etapas de industrializaci6n realizaci6n de actividades mas complejas y difi- y con estrategias comerciales e industriales dis- ciles (adaptaci6n, mejora, disefio, ingenieria, tintas. Mexico se eligi6 por ser uno de los prin- desarrollo e innovaci6n) en el marco de las tec- cipales paises latinoamericanos con un sector nologias que utiliza el pais. Este proceso de per- industrial grande y diversificado que ha regis- feccionamiento aporta diversos beneficios y trado recientemente una liberalizaci6n genera- genera varias externalidades. Puede dar lugar a lizada. Espania fie el primer pais en que el una difusi6n mas amplia de la tecnologia, un Banco emprendi65 uno de los primeros proyec- uso mas intenso de los insumos locales, una tos en este campo: su situaci6n geografica y su mayor diferenciaci6n de los productos, un grado de desarrollo son caracteristicas especial- aumento del valor agregado y la capacidad mente interesantes. Hungria es el unico pais de para reaccionar en forma mas eficaz cuando Europa oriental qiue ha recibido un prestamo varien las condiciones del mercado. del Banco para el desarrollo de la tecnologia y el unico pais de la regi6n que aboli6 la planifica- La capacidad necesaria para poner en marcha ci6n centralizada hace mucho tiempo. con eficiencia una nueva planta manufacturera no suele darse en general en la mayorfa de los paises en desarrollo. Tampoco puede trans- Marco analitico ferirse facilmente desde el extranjero como si fuera un componente mas de las ventas de Gran parte del esfuerzo desplegado en los equipo, patentes o planos. En la transferencia paises en desarro:llo en materia de tecnologia se de todas las tecnologias, salvo las mas simples, orienta a la adquisici6n de capacidad tecnol6- hay elementos "tacitos" que requieren capacita- gica. En el sector industrial, este tipo de ci6n, aprendizaje y adquisici6n de nueva capacidad son los conocimientos -de caracter informaci6n en el propio pais; de todos estos t6cnico, gerencial y organizativo- que necesi- elementos, s6lo algunos se adquieren en un 14 proceso pasivo de aprendizaje sobre la marcha. pecto a la industrializaci6n basada en la El proceso exige un esfuerzo consciente y sustituci6n de las importaciones, esta repleta de constante por parte del fabricante y resulta intervenciones mal disefiadas y ejecutadas. La costoso e incierto. Ademas, el dominio com- protecci6n puede de por si retrasar o distorsio- pleto de la tecnologia operativa (el "saber nar las inversiones en DTI, sobre todo si la com- c6mo") no supone necesariamente el desarrollo petencia interna es deficiente y la protecci6n se automatico de conocimientos tecnol6gicos mas otorga de forma generalizada e indiscriminada. avanzados (el "saber por que'). En general, Por lo tanto, para que las industrias nacientes para invertir en un proceso mas arriesgado y inviertan en DTI hay que establecer ciertas sal- mas largo como el que conlleva la adquisici6n vaguardias. Las mas eficaces son las que intro- de los conocimientos te6ricos y practicos adi- ducen la competencia de mercado en la fase cionales necesarios, hay que adoptar una deci- mas temprana posible, como la inmediata pro- si6n estrategica. moci6n de la competencia interna, el pronto acceso a los mercados de exportaci6n y los pro- El DTI viene determinado por la interacci6n de gramas de protecci6n por tiempo limitado. Para incentivos, capacidad e instituciones. La estruc- que el DTI tenga exito se requiere por parte de tura de incentivos crea la "demanda" de esfuerzo las autoridades la fijaci6n de un objetivo estra- tecnol6gico. Aparte de la necesidad bfsica de t6gico claro, ademas de capacidad administra- iniciar la producci6n, los incentivos que estimu- tiva, flexibilidad, una politica de seguimiento lan el esfuerzo tecnol6gico tienen su origen en minucioso y la correcci6n o la penalizaci6n de el entorno macroecon6mico y en las perspecti- todo desempenio deficiente. vas de crecimiento, en el progreso tecnol6gico, los mercados de factores, el regimen de propie- La capacidad y las instituciones son factores que dad intelectual y la competencia nacional y determinan el "lado de la oferta" del DTI. Si extranjera. De todos ellos, la competencia (espe- bien el fortalecimiento definitivo de la capaci- cialmente la competencia mundial) suele ser el dad se produce dentro de las empresas manu- estimulo mas poderoso para el DTI. En los casos factureras, 6stas se ven obligadas a depender de en que se ha limitado la competencia, como recursos externos para obtener los insumos que ocurre en los regimenes comerciales muy prote- no pueden crear ffcilmente. Los tres pilares mas gidos, la liberalizaci6n puede ser una condici6n importantes a los que las empresas han de tener necesaria para el desarrollo de capacidad tecno- acceso son conocimientos apropiados, financia- 16gica competitiva. Sin embargo, como este pro- miento para inversi6n fisica y en perfecciona- ceso conlleva tiempo, riesgo e inversi6n, hay un miento, ademas de acceso a la informaci6n y a periodo en que la empresa es menos eficiente la tecnologia para estimular la capacitaci6n en que otra que haya superado ya el proceso de la empresa. Cada uno de estos pilares tiene sus aprendizaje. Asi pues, en la fase incipiente propios mercados, cada uno es susceptible de quiza sea necesario algun tipo de protecci6n sufrir fallos en los respectivos mercados; por para estimular el aprendizaje de la tecnologia. eso quiza sea necesario que las autoridades tomen las medidas necesarias para que la oferta Si bien la protecci6n de la industria naciente de conocimientos practicos, financiamiento e puede dar un respiro a las nuevas empresas informaci6n necesarios sea la adecuada. para que desarrollen su capacidad, este tipo de intervenciones entrafia tambien muchos peli- Concretamente, el acceso a la tecnologia extran- gros potenciales que tienen su origen en el jera es un determinante crucial del DTI. Dicho riesgo de un fracaso del gobierno. La experien- acceso constituye uno de los medios mas econ6- cia reciente de los paises en desarrollo, con res- micos para adquirir lo que puede aportar desde 115 el principio una nueva tecnologIa. Si se comple- financiero y capital de riesgo, las instituciones menta con conocimientos practicos, capacita- cientificas y tecnol6gicas y otros organismos ci6n y otro tipo de asistencia, facilita ademas al que respaldan la subcontrataci6n, la pequefia beneficiario el esfuerzo que tiene que desplegar empresa y los flujos de informaci6n. El fortale- para dominar la tecnologia y mantenerse al dia. cimiento institucional es una actividad que Limitar ese acceso puede elevar enormemente generalmente se considera esencial para el el costo del DTI o puede retrasar el proceso en desarrollo en todas sus formas y es un compo- la medida en que no existan insumos nacionales nente crucial para fomentar el DTI. que puedan sustituir a los extranjeros. No obs- tante, hay muchas formas de acceso a la tecno- logia extranjera, que producen efectos distintos El problema de la tecnologia en los en el DTI nacional. La correcta asignaci6n de los paises estudiados recursos entre el desarrollo de la tecnologia en el pais y su adquisici6n en el exterior es un tema La tecnologia industrial presenta aspectos muy dificil, y si se hace excesivo hincapie en una u diferentes en los seis paises estudiados. Todos otra opci6n, el proceso puede resultar costoso ellos tenian una serie de problemas comunes, o ineficiente. La dependencia pasiva de la tec- debido al caracter prActicamente universal de nologia extranjera puede servir para alcanzar las deficiencias del mercado con respecto a la un buen nivel cte conocimientos operativos, provisi6n de financiamiento, conocimientos pero no es necesariamente la mejor forma de tecnicos e informaci6n a las empresas industria- desarrollar la capacidad local. La tecnologia les que invierten en tecnologia. Sin embargo, extranjera debe ser un insumo que refuerce la la magnitud y la incidencia de las distintas defi- capacidad nacional y no algo que la reemplace ciencias variaban de unos paises a otros. Lo que totalmente. Una vez que se alcanza determi- es mas importante, la estructura de incentivos nado nivel, para que el desarrollo industrial en la que se enmarcaban las inversiones de las sea dinamico y sostenido, siempre es necesario empresas, tambien variaba mucho, al igual que ampliar la capacidad nacional, de suerte que las "tradiciones" que los paises habian desarro- puedan asumirse funciones de disefio, desarro- llado con el tiempo, en el sentido de invertir llo e innovaci6n. De lo contrario, los segmentos en innovaciones nacionales en vez de adquirir de la industria con valor agregado mAs alto tecnologIas mas complicadas de los paises quedan fuera del alcance. adelantados. Estas tradiciones, que tambien son resultado de la situaci6n geogrAfica y de En el sentido mas amplio, las instituciones pro- la historia, asi como de las intervenciones en porcionan las "reglas de juego", es decir un materia de politica econ6mica, parecen influir marco en el que las empresas operen y suscri- de forma independiente sobre el DTI, al margen ban contratos en los mercados de factores y de del impacto que puedan tener los incentivos del productos. Este marco debe ser transparente, regimen comercial e industrial. estable y previsible, y no debe ser discriminato- rio para ninguno de los agentes por raz6n de Espafia, con una estructura industrial grande origen, propiedad o magnitud. Las institucio- y s6lidamente establecida habfa mejorado con- nes, en el sentido mas estricto del terminc, son siderablemente su capacidad operativa durante los organismos establecidos para apoyar el fun- un periodo de progresiva liberalizaci6n y de cionamiento de los mercados de conocimientos, aplicaci6n de medidas activas para reestructu- capital e informaci6n, pertinentes a efectos del rar las empresas y reforzar los vinculos con DTI. Las mas irnportantes son las instituciones la infraestructura cientifica y tecnol6gica. de ensefianza y capacitaci6n, las de desarrollo Sin embargo, el pais tenia algunas carencias 16 tecnol6gicas que se manifestaron en areas como estructura cientifica y tecnol6gica recibi6 un la investigaci6n y el desarrollo y en los resulta- gran volumen de recursos financieros y huma- dos relativamente deficientes (en comparaci6n nos, y al parecer se logr6 establecer buenas rela- con otros paises de la Comunidad Europea) ciones con la industria. Todas estas medidas se de algunos aspectos dinAmicos de la industria tradujeron en un espectacular aumento de las manufacturera, como consecuencia de una tra- actividades de investigaci6n y desarrollo de dici6n tecnol6gica deficiente; ademas, la insufi- caracter privado y en una actitud muy positiva ciencia de financiamiento para actividades de para realizar actividades tecnol6gicas que per- DTI y la falta de infraestructura pueden haber mitieron al pais alcanzar sus principales objeti- agravado el problema. vos industriales. Las deficiencias mas notables se observaron en la correcci6n de las imperfec- Corea fue desarrollando una estructura indus- ciones del mercado financiero con respecto a los trial s6lida y diversificada a traves de interven- pequefnos innovadores y en la forma de ayudar ciones deliberadas en el regimen comercial e a que la infraestructura de investigaci6n partici- industrial, orientando la inversi6n industrial para en mas areas de actividad para fomentar la hacia actividades concretas, generalmente bajo estrategia industrial de las autoridades. Estos el control de empresas privadas nacionales. eran los principales objetivos que persigui6 el Estas empresas importaron tecnologia, sobre Banco en materia de tecnologia. todo en forma de equipo y licencias, depen- diendo relativamente poco de la inversi6n La estructura industrial de Indonesia era extranjera directa. En estas circunstancias, mucho mas sencilla que la de los demas paises tuvieron que hacer frente a un desafio tecnol6- estudiados y, por lo tanto, sus necesidades de gico mucho mayor, sobre todo por las presiones tecnologia eran tambien menores. La situaci6n que sufrieron para orientar rapidamente sus de partida fue de fuerte protecci6n con un sesgo actividades hacia la exportaci6n una vez ini- autarquico; pese a que se han producido mejo- ciado el proceso de producci6n. A medida que ras, el nivel de protecci6n sigue siendo elevado las industrias empezaron a desarrollar activida- y arbitrario, y el ritmo de la liberalizaci6n no des mas complejas y se aproximaban al limite estA claro. La industria de Indonesia sigue de su capacidad tecnol6gica, la investigaci6n y dependiendo mucho de las importaciones de el desarrollo a escala nacional se convirtieron en componentes y equipo, asi como de tecnologia un factor imprescindible para mantenerse al y conocimientos practicos, y las empresas nivel de la competencia mundial. nacionales no invierten practicamente nada en ingenieria, disefio y desarrollo, Sin embargo, En el caso de Corea, para satisfacer las exigen- algunas empresas estan demostrando un domi- cias en materia de conocimientos tecnicos se nio cada vez mayor de industrias con procesos invirti6 masivamente en educaci6n de nivel tec- complejos en la medida en que la liberalizaci6n nico superior y se tomaron medidas para les esta obligando a invertir mAs en aprendizaje fomentar la capacitaci6n dentro de las empresas. tecnol6gico y eficiencia operativa. La base de Las necesidades de financiamiento se dejaron en conocimientos practicos es pequefia, y la falta un principio en manos de los intermediarios de una tradici6n industrial y de investigaci6n financieros existentes, cuyos recursos se com- agrava el problema del bajo rendimiento de una plementaron con una serie de instrumentos de mano de obra tecnica de alto nivel. El iinico apoyo a la investigaci6n y el desarrollo en pro- esfuerzo concertado en el campo de la tecnolo- yectos aprobados por el chaebol. No se consider6 gia proviene de unas pocas "industrias estrate- la situaci6n de los pequefios innovadores ni gicas" que estan realizando actividades de alta otras formas de desarrollo tecnol6gico. La infra- tecnologia independientes del grueso de la acti- 17 vidad industrial privada. La infraestructura reformas, vacilantes y parciales, no han servido cientifica y tecnol6gica es deficiente y poco para aprovechar al maximo la actividad y la coordinada, salvo un sector que atiende a las experiencia tecnol6gicas del pais a fin de hacer industrias estrat6gicas. No hay financiamiento su industria mas competitiva en los mercados para el DTI; por consiguiente, el pais sufre toda occidentales. Tambien hay que sefialar otros una serie de problemas a este respecto, proble- problemas: la base de conocimientos tecnicos mas que afectan tanto a los incentivos como a de alto nivel no era tan s6lida como en los pal- los conocimientos practicos, el financiamiento, ses de Europa occidental; la infraestructura la informaci6n y las relaciones de la infraestruc- cientifica y tecnol6gica era muy completa, pero tura cientifica y tecnol6gica con la industria. se habia quedado obsoleta y carecia de respaldo financiero. No obstante, algunas empresas con- Mexico combina una larga trayectoria de susti- servaron una tradici6n y una capacidad tecno- tuci6n de las importaciones con una tradici6n 16gicas aut6nomas. Al mismo tiempo, el de fuerte dependencia de la tecnologia impor- sistema de incentivos, gobierno y control cons- tada. Esta estrategia tuvo mucho exito en la tituia la limitaci6n basica del DTI, ademas de industria automotriz y en las industrias de pro- algunas otras de menor importancia en materia cesamiento, pero no bast6 para estimular la pro- de respaldo financiero e infraestructura. ducci6n de equipo. Pocas empresas nacionales forjaron una tradici6n de disefno y desarrollo a India desarroll6 su base industrial en el marco lo largo del tiempo, e incluso las empresas de una serie de intervenciones que tuvieron puiblicas manifestaron una acusada preferencia resultados desiguales; en este sentido, los por el equipo y la tecnologia de importaci6n. costos de la ineficiencia y los desfases tecnol6gi- Los niveles de investigaci6n y desarrollo indus- cos sobrepasaron al parecer las ventajas del triales son los mas bajos de todos los grandes desarrollo. El pafs aplic6 una estrategia de paises en vias de industrializaci6n, incluso en autosuficiencia tecnol6gica con mas perseve- un periodo de rapida liberalizaci6n. La base de rancia que la mayoria de los dema's paises, e conocimientos practicos es razonablemente invirti6 en una gran infraestructura cientifica y s6lida. Existe ademas una amplia infraestruc- tecnol6gica. Se cre6 una base diversificada de tura cientffica y tecnol6gica que ha padecido la conocimientos tecnol6gicos y se produjo un sig- habitual falta de conexi6n con la producci6n. El nificativo aumento de las actividades de inves- financiamiento de la actividad tecnol6gica, aun- tigaci6n y desarrollo. Sin embargo, la base de que ha sido abordado por las autoridades conocimientos practicos en la industria sigui6 encargadas de formular la politica econ6mica, siendo relativamente pequefna y las distorsio- ha sido escaso. Los problemas basicos del DTI nes del sistema de incentivos significaron que el en el caso de Mxico han sido la renuencia de aprendizaje tecnol6gico no sirvi6 para que la las empresas a invertir para ampliar su propia producci6n fuese totalmente competitiva, ni capacidad e incorporarse al proceso de disenio y para desarrollar la capacidad de innovaci6n. La desarrollo, y las deficiencias en la infraestruc- infraestructura cientifica y tecnol6gica estaba tura cientifica y tecnol6gica. desvinculada en gran medida de la producci6n; el acceso a las tecnologias extranjeras estaba En Hungria, los problemas de DTI en los diez limitado; el financiamiento del DTI no estaba ultimos afios guardaron relaci6n basicamente suficientemente desarrollado. Tampoco se con el sistema de incentivos y con el sistema de estaba dando cobertura a las necesidades de la propiedad, gobierno y comercio exterior. Pese a pequefia y mediana empresa, en tanto que las la s6lida y desarrollada base industrial y a la actividades de investigaci6n y desarrollo del larga tradici6n de investigaci6n y desarrollo, las sector privado de gran escala eran insuficientes. 18 El sector publico, de grandes dimensiones y en En lo que respecta a las necesidades de conoci- general ineficiente, particip6 algo en la investi- mientos, puede decirse que s6lo en un pais, gaci6n, pero s6lo unas pocas empresas publicas Indonesia, la principal limitaci6n de la activi- adquirieron un nivel competitivo de capacidad. dad tecnol6gica tenia su origen en la falta de En resumen, los problemas tecnol6gicos del conocimientos tecnicos. En los demas paIses se pais eran muy variados y afectaban a todos los consider6 que los conocimientos tecnicos de las aspectos del sistema de incentivos, a la capaci- empresas e instituciones eran suficientes, aun- dad y a las instituciones. que en la mayorIa de los demas proyectos se contempl6 la posibilidad de ofrecer capacita- ci6n para desarrollar los conocimientos finan- Los proyectos de tecnologia cieros, gerenciales y de evaluaci6n. El objetivo basico de todos los proyectos Con respecto a las imperfecciones de los merca- de DTI era reforzar la competencia y la produc- dos de capital, practicamente todos los proyec- tividad del sector industrial basandose en tos, salvo el de Indonesia, hacian hincapie en la dos premisas generales enunciadas en la necesidad de financiamiento para la actividad mayoria de los documentos relativos con los tecnol6gica. En el caso de Corea, la atenci6n se proyectos. La primera es que para alcanzar enfoc6 exclusivamente en el capital de riesgo y niveles de eficiencia internacionales en todos en otros nuevos instrumentos de financiaci6n los aspectos del desarrollo industrial, se nece- de la tecnologia. En los proyectos desarrollados sita cierta capacidad tecnol6gica, pero que a en Espania, Hungria, India y Mexico, el financia- medida que la estructura industrial se hace mAs miento de la tecnologia era uno de los principa- compleja, los paises en desarrollo tienen que les objetivos, junto con algunas medidas para ampliar esa capacidad. Concretamente, tienen corregir las imperfecciones de los mercados de que invertir en disefno y desarrollo para asimi- informaci6n. Los objetivos que perseguia el lar tecnologias de importaci6n mas adelantadas componente de financiamiento eran distintos y cimentar en ellas los conocimientos. La en cada pais. En Espana, se trataba de financiar segunda es que, al adquirir capacidad tecnol6- la importaci6n, el desarrollo y la difusi6n de gica se producen imperfecciones en los merca- determinadas tecnologias como parte de una dos, que deben resolverse utilizando estrategia concreta para modificar la cultura instrumentos de politica. tecnol6gica del pais. En Hungria, el proyecto tenia por objeto sobre todo proporcionar presta- En los proyectos de DTI se tenia muy presente mos para la importaci6n de Occidente de la importancia de la estructura de incentivos equipos y tecnologias modernos para el control para estimular la "demanda" de actividades de procesos industriales y programas de infor- tecnol6gicas. Los proyectos, habida cuenta de matica. En India, el proyecto tenia por objeto su caracter, no abordan directamente la cues- financiar la innovaci6n local por medio de ti6n de los incentivos relacionados con las poli- capital de riesgo e importaci6n de tecnologia, ticas macroecon6micas, comerciales e mientras que en Mexico y Corea el objetivo industriales. Sin embargo, en todos los paises de los proyectos era financiar la asimilaci6n de en los que se pusieron en marcha este tipo de tecnologia extranjera y la comercializaci6n proyectos, ya existia cierto grado de liberaliza- de las tecnologias locales. ci6n, y se estimaba que asi se fomentaria la demanda de DTI. Por lo tanto, los proyectos se En general, para fortalecer la red de informa- centraron en las imperfecciones del mercado ci6n y servicios tecnicos habia que alcanzar dos por "el lado de la oferta". objetivos: mejorar la capacidad de las institucio- 19 nes cientificas y tecnol6gicas, y estrechar los caracteristicas de "bien publico", y es necesario vinculos entre estas instituciones y la industria. perfeccionar la capacidad tecnol6gica con desa- El fortalecimienEto institucional fue uno de los rrollo industrial. objetivos principales en tres de los proyectos (cuatro, si se inc:luye el perfeccionamiento de En los documentos relativos a los proyectos se los conocimientos de las instituciones publicas acepta que la capacidad operativa puede no ser no ministeriales de Indonesia). En India, el pro- facil de adquirir y que quiza necesite el res- yecto se enmarco en un programa mas amplio paldo de ciertas medidas de politica. Al mismo elaborado por las autoridades para reformar la tiempo, se indica que el desarrollo de la capaci- infraestructura tecnol6gica conforme a criterios dad operativa no necesariamente se traduce de de mercado. En el proyecto de M6xico, se vin- forma automatica en un perfeccionamiento tec- cul6 la inversi6n en algunos centros de investi- nol6gico. Se reconoce que la necesidad de per- gaci6n con la privatizaci6n parcial de los feccionamiento tecnol6gico aumenta con el mismos. En Hungria, se fortalecieron los cen- desarrollo industrial. La falta de conocimientos tros de metrolog[a y control de calidad, y se avanzados retrasa no s6lo la capacidad de las aument6 la prov'isi6n de insumos de infraes- empresas locales para diversificarse, difundir tructura para investigaci6n y desarrollo. La la tecnologia y aprovechar las externalidades necesidad de fortalecer los centros de investiga- que produce la actividad tecnol6gica, sino tam- ci6n y las relaciones con la industria se men- bien su capacidad para asimilar tecnologia de cion6 en la mayoria de los proyectos, aunque en vanguardia procedente del extranjero. La inves- el caso de Hungria e Indonesia no figuraron tigaci6n y el desarrollo sirven tanto para mante- como objetivos irnmediatos. nerse al dia de los progresos tecnicos como para generar innovaciones. En general, el analisis de las necesidades de DTI en los proyectos de tec- Evaluaci6n nologia se basa en premisas s6lidas. Esto no sig- nifica que muchos paises en desarrollo deban En casi todos los documentos relativos a los preocuparse por un perfeccionamiento tecnol6- proyectos se hace claramente hincapie en la gico de esta naturaleza, ni que las ERI tengan necesidad de DTI. En general, se argumenta que participar necesariamente en actividades que para aumentar la competitividad de las de investigaci6n y desarrollo en todas las tecno- industrias y desarrollar nuevas ventajas compa- logias mas avanzadas. Lo que si significa, sin rativas en la industria manufacturera es necesa- embargo, es que en el proceso de desarrollo rio invertir en investigaci6n y desarrollo. Se industrial hay que estar decidiendo constante- considera que la actividad tecnol6gica es una mente si se participa o no en campos mas sofis- fuerza impulsora del desarrollo industrial, la ticados y complejos de la tecnologia. De lo productividad y La competitividad en los paises contrario, los segmentos de la industria con en desarrollo; es una actividad intencional que mayor valor agregado pueden quedar fuera no se genera automaticamente en un proceso del alcance. pasivo de aprendizaje y que requiere que las empresas invierta:n en temas especificos como En cuanto a los determinantes del DTI, la capacitaci6n, la recopilaci6n de informaci6n, estA muy claro que la estructura de incentivos la ingenieria, el disefio y la experimentaci6n, repercute de forma crucial en el alcance y la una actividad que entrafia la interacci6n de naturaleza de las inversiones en capacidad tec- las empresas a escala individual y de una nol6gica, y que dicha estructura ha de fomentar infraestructura de instituciones cientificas y el desarrollo industrial en su conjunto. La deci- tecnol6gicas que presten ciertos servicios con si6n del Banco de emprender proyectos de DTI, 20 y su disefno especifico, depende mucho de la ganar. La competencia interna favorece el DTI, interpretaci6n del regimen de incentivos de asi como la eficiencia y el crecimiento. Por cada pais, lo cual esta totalmente justificado: las uIltimo, el sector privado en general es mas efi- inversiones a largo plazo en perfeccionamiento ciente y reacciona mejor a las sefiales del mer- de la capacidad e investigaci6n y desarrollo son cado que el sector puiblico. extraordinariamente sensibles a los incentivos del entorno macroecon6mico y competitivo, Con respecto a la relaci6n entre la estrategia que determinan la "demanda" de DTI. comercial y el DTI, sigue siendo valido proteger las industrias incipientes. Las empresas que par- Si bien los incentivos concretos que requiere el ticipan por primera vez en un sector incurren en DTI no se examinan explicitamente en los docu- costos extraordinarios porque tienen que pasar mentos relativos a los proyectos, analizando por un proceso de aprendizaje tecnol6gico que dichos documentos y otros estudios del Banco otras empresas ya han superado. La convenien- sobre industrializaci6n es posible descifrar que cia de las intervenciones se basa en que existen estructura de incentivos considera conveniente imperfecciones del mercado en este proceso de la instituci6n para desarrollar la capacidad. Esta aprendizaje: externalidades (filtraci6n de cono- estructura debe satisfacer cuatro condiciones: cimientos practicos y te6ricos a otras empresas), primera, facilitar un regimen comercial liberal, complementariedades en el desarrollo del DTI con un alto grado de apertura a lo largo del entre empresas con una estructura vertical de tiempo a la competencia externa en todas sus relaciones (el aprendizaje en una empresa afecta formas (con respecto tanto a la importaci6n a la competitividad de otra, pero ninguna de las como a la exportaci6n). El riesgo de que las dos lo tiene en cuenta en sus propias decisiones autoridades no adopten un enfoque selectivo de inversi6n); las propias empresas no son cons- contrarresta con creces las ventajas de proteger cientes de las ventajas que reporta la inversi6n ciertas actividades para fomentar el DTI. en DTI, o no pueden preverlas adecuadamente; Segunda, brindar un acceso total a la tecnologia por ultimo, puede ocurrir que las empresas sean y al equipo extranjeros en todas sus formas. Ter- sumamente reacias a asumir riesgos e hipote- cera, estimular al maximo la competencia quen el futuro a un costo social indeseable. La interna eliminando todos los obstaculos artifi- experiencia ha demostrado, sin embargo, que ciales que limitan la entrada y salida. Cuarta, las intervenciones son mas eficaces en un re'gi- hacer hincapie en el papel del sector privado. men muy orientado a la exportaci6n que compense los efectos negativos de desincentivo que pro- Todo esto se basa en la experiencia del Banco en duce la protecci6n de la industria naciente, man- materia de desarrollo industrial en una serie de teniendo al mismo tiempo las ventajas que, en paises que aplican toda una gama de estrate- materia de competencia e informaci6n, conlleva gias. Por motivos te6ricos y practicos, las cuatro la participaci6n en el comercio internacional. condiciones mencionadas son muy recomenda- Ademas, a medida que avanza el DTI, la protec- bles. La competencia internacional impulsa con ci6n se hace menos necesaria. Con el avance del fuerza el DTI. Las importaciones de tecnologia aprendizaje tecnol6gico, las industrias tienen son un insumo necesario para el desarrollo de la que abrirse a la competencia de las importacio- capacidad local, y todos los intentos por impo- nes para estimular aun mas el DTI, pero la aper- ner un nivel de autonomia tecnol6gica suelen tura no debe ser tan brusca que haga fracasar el ser desastrosos para el sano desarrollo del DTI. propio proceso de aprendizaje. La adopci6n de un enfoque selectivo no ha pro- ducido buenos resultados y, en el terreno de la El problema mas inmediato en materia de poli- tecnologia, es muy dificil prever quien va a ticas que enfrentan hoy dia el Banco y los paises 21 en desarrollo no es tanto la promoci6n de las esfuerzo que ha realizado la industria espaniola industrias nacientes como la reestructuraci6n en los ultimos afnos. de las ya existentes, creadas en un marco de incentivos distorsionado. Tambien en este El impacto de los prestamos del Banco en los caso surgen problemas relativos a la promoci6n otros tres paises es menos alentador. Si bien en del aprendizaje tecnol6gico, pero de manera Indonesia se alcanz6 el objetivo limitado de distinta. En las economias con algunas indus- ampliar la base de conocimientos enviando a trias que han alcanzado ya su madurez (o estan titulados universitarios al extranjero para a punto de hacerlo) bajo un regimen comercial ampliar sus estudios, es improbable que el pro- proteccionista, la liberalizaci6n inmediata es yecto aumente la capacidad tecnol6gica de la necesaria para que puedan explotar las ventajas industria nacional en general. En el caso de comparativas que ya tienen en los mercados Mexico, no se logr6 alcanzar los principales mundiales. Sin embargo, en el caso de las objetivos: fomentar las autenticas actividades industrias que podrian ser competitivas, estaria de investigaci6n y desarrollo del sector privado justificada la adopci6n de programas graduales y privatizar los centros de investigaci6n. Si se de reestructuraci6n y readiestramiento. Quiza logr6, sin embargo, formular una nueva politica haya que seguir apoyando con las medidas tecnol6gica como resultado de un estudio reali- comerciales adecuadas la incorporaci6n de zado en el marco del proyecto. En Hungria, actividades nuevas y complejas. No parece salvo la Oficina Nacional de Medidas (metrolo- que en los documentos relativos a los proyectos gia) que ha utilizado el prestamo del Banco se haya dado la importancia que merece a la para la importaci6n de valiosos instrumentos posibilidad de aplicar este tipo de politicas de medici6n, muchos de los demas beneficia- comerciales para fomentar el DTI. rios sufren graves problemas porque sus merca- dos han cambiado radicalmente. Los prestamos otorgados por el Banco para el desarrollo de la tecnologia industrial tuvieron Uno de los principales objetivos del Banco repercusiones diversas en los paises estudiados. en materia de DTI era otorgar financiamiento En Corea, los tres prestamos contribuyeron a para tecnologia (salvo en el caso de Indonesia), estimular la investigaci6n y el desarrollo en procurando eliminar una de las principales empresas pequenxas y medianas que necesita- limitaciones al desarrollo tecnol6gico. La ban capital de riesgo para mantener esas activi- especial importancia que en los proyectos se dades. Tambien en India, el proyecto va por prestaba a las necesidades de la pequena y buen camino y ha brindado asistencia a las mediana empresa fue algo positivo, ya que empresas industriales del sector privado para dichas empresas sufren restricciones financie- adquirir tecnologia del extranjero, y ha permi- ras mas severas que las empresas grandes. El tido a los innovadores tener acceso a capital de financiamiento en materia de tecnologia se riesgo, y a algunos centros de investigaci6n y otorg6 para desarrollar la tecnologfa local y asi- desarrollo encauzar sus esfuerzos hacia las milar y adaptar la tecnologia importada. necesidades de la industria. En Espafna, el pro- yecto fue hasta cierto punto decisivo para esti- En los proyectos de DTI se consider6 que el for- mular y fomentar el desarrollo de nuevos talecimiento de las instituciones de infraestruc- procesos y productos, y llevarlos al punto de tura y de sus vinculos con la industria era un comercializaci6n, aunque la incorporaci6n a la objetivo legitimo. Para alcanzar dicho objetivo, CEE en 1986 y el contacto con las actividades de se adoptaron diversas estrategias en los proyec- investigaci6n y desarrollo de la Comunidad es tos. En India y Mexico, en los proyectos se pro- lo que realmente ha impulsado el mayor cur6 mejorar tanto el funcionamiento de la 22 infraestructura de investigaci6n y desarrollo hubo graves fallas en el disefio, dado que el como sus vinculos con la industria. En Corea y objetivo establecido era mejorar los conoci- EspaAia, los proyectos tambien se orientaron a mientos prfcticos que habrian potenciado la fortalecer los vinculos entre los centros de capacidad tecnol6gica de la industria del pafs investigaci6n y la industria, mientras que en en terminos generales. El proyecto de Mexico Indonesia, el proyecto estableci6 como princi- tenia un buen diseino para la privatizaci6n de pal objetivo la capacitaci6n de los investigado- los centros de investigaci6n, pero dejaba sin res- res para los centros del pafs. puesta cuestiones importantes con respecto a la implantaci6n y la utilidad de crear este tipo de En general, los objetivos del Banco con respecto vinculo. La eliminaci6n de las limitaciones a las imperfecciones de los mercados de facto- financieras para el DTI en los proyectos de res, vistas desde "el lado de la oferta", eran Espafia y Mexico se disefio acertadamente para acertados. Estf claro que las imperfecciones del estimular el tipo de actividad tecnol6gica que mercado de capitales pueden afectar al DTI, ya existia en esos paises, pero no para dar un sobre todo en el caso de las empresas medianas, impulso significativo al DTI. y si el respaldo en materia de infraestructura es deficiente o inadecuado, pueden verse limita- dos el flujo de informaci6n, y determinados Ense-nanzas y recomendaciones proyectos tecnol6gicos, asi como las activida- des de investigaci6n y desarrollo. Todas las La experiencia acumulada en la ejecuci6n de los medidas que se adopten para corregir estas proyectos de tecnologia industrial en los paises deficiencias pueden contribuir a la actividad estudiados permite destacar los siguientes fac- tecnol6gica. Sin embargo, los beneficios que se tores como los mfs fundamentales para lograr obtengan pueden ser menores que los contem- los objetivos previstos. plados originalmente en los proyectos. Mis que fomentar actividades tecnol6gicas de mayor El DTI debe enmarcarse en una estrategia de nivel, estas medidas pueden mejorar la capaci- industrializaci6n mfs amplia; de lo contrario su dad operativa. Si no hay costumbre de realizar acti- impacto puede ser menor. Al formular los pro- vidades de investigaci6n y desarrollo, aun estd por yectos de DTI, debe adoptarse un enfoque inte- verse si concentrar la atenci6n en este tipo de medi- grado en el que se aborden y estudien al mismo das por el "lado de la oferta" bastaria para estimular tiempo los incentivos, la capacidad tecnol6gica el perfeccionamiento del DTI. En algunos de los y las instituciones. proyectos de tecnologia no se prest6 suficiente atenci6n a estas cuestiones. El impacto de un proyecto de tecnologia sobre el DTI depende de que se defina y for- Ademas, en algunos proyectos no se hizo lo mule claramente una estrategia tecnol6gica. suficiente por adaptar el disefio a la historia y Los proyectos de Corea fueron eficaces porque las tradiciones industriales del pais. Se creia las autoridades no s6lo dirigieron con firmeza quizas que el proceso basico de DTI era uni- el desarrollo econ6mico, y sobre todo el desa- forme en todos los paises, y que todos ellos rrollo industrial, sino porque ademfs formula- adoptarian este proceso una vez liberalizada la ron una estrategia inequivoca con respecto al estructura de incentivos y corregidas las imper- desarrollo tecnol6gico. Es lo que ha sucedido fecciones de los mercados de capitales y de tambien, aunque en menor medida, en muchos informaci6n. En Corea y India, en general, se de los otros paises y, en caso necesario, el Banco adapt6 bien el diseiio de los programas a las ha insistido en que se realicen estudios de la condiciones del pais. En el caso de Indonesia politica tecnol6gica. 23 Como en los proyectos de tecnologia industrial tigaci6n local. De por sf, la apertura a la compe- generalmente se aborda el tema de las imperfec- tencia y la tecnologia internacionales quizas no ciones de los mercados de factores desde "el sean suficientes -como ocurri6 en Espania y lado de la oferta", debe hacerse hincapie en que Mexico- para fomentar la actividad tecnol6- la estructura de incentivos es un determinante gica. El Banco debe evaluar los factores que, crucial del DTI. Ademas de un marco macroeco- a su juicio, impulsan el proceso de desarrollo n6mico propicio, una poiftica comercial, indus- tecnol6gico y la creaci6n de una cultura de trial y tecnol6gica de caracter liberal investigaci6n y desarrollo, prestando particular desempeha un papel decisivo a la hora de atenci6n a los efectos derivados de la importa- fomentar el DTI. Cuando el regimen de incenti- ci6n de insumos tecnol6gicos, por oposici6n vos esta muy distorsionado -como en el caso al desarrollo de la tecnologfa local. de Hungria al iniciarse el proyecto- por muy bien disefiadas qae est6n las medidas por el El dinamismo tecnol6gico exige una intensa lado de la oferta no se produce un proceso dina- participaci6n del sector privado en las activida- mico de DTI. Por lo tanto, los proyectos de desa- des tecnol6gicas. La funci6n que desempefhan rrollo de tecnologia industrial no deben las instituciones puiblicas en la tecnologia debe ponerse en marclia hasta que el entorno econ6- disminuir con el tiempo para brindar respaldo mico sea propicio para que tengan exito. a las actividades tecnol6gicas del sector pri- vado. Muy pocos paises han superado con El acceso a la tecriologfa extranjera es funda- exito esta transici6n. En el caso de Corea, esto mental para el DTI, y el caso de India es un buen supuso, ademas de una estrategia clara con res- ejemplo de los dafios que puede ocasionar pecto al comercio, la industria y la ciencia y la la imposici6n generalizada de severas restric- tecnologia, la adopci6n de diversas medidas ciones a las importaciones de tecnologia. Sin financieras y fiscales para estimular la investi- embargo, la forma en que se importe la tecnolo- gaci6n y el desarrollo en el sector privado. Sin gia puede afectar al alcance y a la naturaleza embargo, en Mexico, la actividad econ6mica del desarrollo de la capacidad local. Una fuerte formal era muy escasa y casi toda se concen- dependencia de lIa inversi6n extranjera directa traba en las instituciones publicas. En vista de la puede ser un med.io sumamente eficaz para naturaleza de las actividades de investigaci6n y transferir el conocimiento operativo de nuevas desarrollo, las autoridades deben adoptar una tecnologias, y puEde producir una serie de politica encaminada a estimular estas activida- externalidades positivas. Sin embargo, quiza no des en el sector privado ofreciendo incentivos, sea la mejor forma de fomentar el perfecciona- incluidas medidas fiscales y de otro tipo. miento tecnol6gico. En Corea, la preferencia de las importaciones de tecnologia de facil alcance, Para que la industrializaci6n sea eficiente a por oposici6n a la inversi6n directa, estimul6 a todos los niveles hay que desplegar un esfuerzo las empresas locales a invertir en investigaci6n tecnol6gico. Aunque hasta la fecha los proyec- y desarrollo, porque esta actividad se comple- tos de DTI del Banco se han concentrado princi- ment6 con una serie de medidas que alentaron palmente en las ERI, deberfan ponerse en a la industria a adentrarse en campos mas com- marcha tambien en paises menos industrializa- plejos, y al mismo tiempo la obligaron a hacer dos. En algunos paises en desarrollo, lo que qui- frente a la competencia de las exportaciones. zas se necesite al principio para fomentar la competitividad y la eficiencia sea mejorar los Para perfeccionar la tecnologia industrial qui- conocimientos practicos y contar con una efi- zAs sea necesario in tervenir en los regfmenes ciente infraestructura tecnol6gica (en materia comercial y tecnol6gico que fomentan la inves- de normas, metrologia, control de calidad, 24 etcetera) antes de crear centros de investigaci6n El 6xito del financiamiento de la innovaci6n y desarrollo mas avanzados. tecnol6gica en la industria depende de la com- posici6n institucional de los intermediarios Las tendencias a largo plazo de la tecnologia financieros. Aunque en un principio puede ser afectan a la competitividad y a las medidas tec- necesaria la intervenci6n de las autoridades, el nol6gicas que adopte cada pais. Aunque el intermediario debe contar con una participa- Banco no puede especializarse en todas estas tec- ci6n y un respaldo s6lidos del sector privado, y nologias, debe estar al corriente de los aspectos con una total autonomia para evitar interferen- cruciales de tecnologias genericas en las que los cias burocraticas. La experiencia de Corea y paises en desarrollo puedan necesitar orienta- India es un buen ejemplo de la conveniencia de ci6n. De esta manera, las actividades crediticias contar con instituciones de gesti6n privada, que de la instituci6n con respecto al desarrollo de la sean sensibles a las necesidades del mercado y tecnologia industrial tendrian mayor sentido. tengan relaciones con la industria. Sin embargo, en Mexico, los bancos comerciales de primer Es necesario difundir en el Banco documenta- nivel tuvieron muy poca participaci6n en los ci6n sobre DTI y analizar el tema en profundi- prestamos para tecnologfa. dad. Actualmente, los pocos funcionarios que se dedican a los proyectos de DTI en el Banco El exito del financiamiento de la tecnologia y entienden la impor-tancia que reviste el desarro- del capital de riesgo depende en gran medida llo tecnol6gico, pero a veces les resulta dificil de la experiencia y la calidad de los funciona- comunicar sus ideas. Todo esto cobra ain mas rios de las instituciones. Estas no s6lo deben importancia, habida cuenta de lo importante atraer y retener personal calificado, sino tam- que es para el Banco la reacci6n de la oferta y bien seguir aumentando su eficacia a trav6s de la competitividad que se prev6 tengan las refor- toda una serie de programas de capacitaci6n. mas de la politica comercial e industrial y de la reestructuraci6n de la industria. Las operaciones de capital de riesgo y de riesgo compartido deben realizarse con gran pruden- cia, porque no siempre se puede contar con los Repercusiones en los proyectos conocimientos necesarios para ejecutarlas, y cuando existen se tarda en desarrollarlos. En el Al financiar la investigaci6n y el desarrollo de proyecto de India, las proyecciones con res- las empresas, el Banco debe buscar intermedia- pecto a este financiamiento fueron excesiva- rios que comprendan en qu6 consisten estas mente optimistas. Las actividades de riesgo actividades, que tengan pericia tecnica, que compartido exigen ademas contar con recursos conozcan los diversos sectores industriales y financieros que permitan una prudente asun- que esten comprometidos y dispuestos a asu- ci6n del riesgo. Al organizar el financiamiento mir riesgos. Por lo tanto, el proyecto s6lo debe de los intermediarios, es necesario contar con estar en manos de organismos dinamicos con algun grado de certeza con respecto a las fuen- voluntad de liderazgo y que esten dispuestos a tes de financiamiento y los compromisos del facilitar y supervisar la marcha del mismo en gobierno en materia de asistencia, y con un aras de la eficiencia. En general, los intermedia- programa de rembolsos bien concebido. rios financieros tradicionales, como los bancos comerciales, no estan en condiciones de satisfa- En todos los paises que abarca el presente cer esas necesidades de financiamiento y, por lo estudio, a las instituciones de investigaci6n y tanto, es preferible encomendar estas activida- desarrollo creadas para estudiar la tecnologia des a instituciones financieras especializadas. industrial les ha resultado dificil establecer con- 25 tactos con empresas manufactureras. La privati- Todo parece indicar que el mejor enfoque para zaci6n de los centros puiblicos de investigaci6n reforzar los vinculos con respecto a la investiga- plantea varias dificultades, como lo demuestra ci6n deberia basarse en las siguientes considera- el caso de Mexico, donde las empresas se mos- ciones: (a) s6lo los centros de investigaci6n con traron reacias a adquirirlos y administrarlos. una tradici6n de "servicio a la industria" pue- Dado que las grandes empresas cuentan nor- den ser esenciales para fortalecer los vinculos; malmente con recursos propios para financiar la (b) las industrias, sobre todo la pequefia y investigaci6n y el desarrollo, se debe dar priori- mediana empresa, padecen graves faltas de infor- dad a la pequefia y mediana empresa en el maci6n y credibilidad con respecto a la subcontra- financiamiento de estas actividades. Ofrecer taci6n de la investigaci6n a los centros. Esto se incentivos financieros al sector privado podria debe en parte a que no han podido definir con ser un medio id6neo para establecer vinculos claridad sus necesidades en materia de tecnolo- entre la pequefia y mediana empresa y los cen- gia y, en parte, al hecho de que desconocen la tros de investigaci6n y desarrollo. capacidad de los centros y desconfian de que se respete el "secreto industrial". La mejor forma Si bien es import:ante que el sector privado este de resolver estas deficiencias es subvencio- representado en los 6rganos directivos de los nando, al menos en parte, el proceso de creaci6n centros de investigaci6n y desarrollo, es muy de vinculos y logrando que las empresas se improbable que la participaci6n colectiva de las comprometan a aportar recursos financieros. empresas del sector privado baste para poner De hecho, en muchos de los proyectos de DTI se en marcha centros privados de investigaci6n y reconoci6 la necesidad de otorgar estas subven- desarrollo, a merios que las autoridades los apo- ciones, que adoptaron la forma de prestamos en yen firmemente y les brinden asistencia finan- condiciones concesionarias, tasas de interes pre- ciera. Ademas, se podria recurrir a los servicios ferenciales, selecci6n de actividades concretas, de las instituciones del sector privado para faci- etcetera. Este enfoque ha sido acertado, aunque litar los vinculos entre la industria y los centros todavia no se ha evaluado sistematicamente que de investigaci6n y desarrollo. forma de respaldo es la mas eficiente. 26 Resume analytique Introduction qui, en 1977, a fait l'objet du premier projet entierement consacr6 au developpement tech- A travers les projets qu'elle a financ6s, la nologique de l'industrie. Banque a largement contribue au renforcement des capacites technologiques dans les pays Il a toutefois fallu attendre les annees 80 pour emprunteurs. Elle a aide les emprunteurs a que la question du developpement technolo- choisir des technologies appropriees, presen- gique de l'industrie soit systematiquement tant un bon rapport cofit-efficacite, et a exploi- prise en compte au sein de la Banque. Quatre ter leurs installations industrielles de maniere pays ont alors fait l'objet d'une etude compara- efficiente. Souvent, grace a cet appui, les tive et la question du developpement technolo- emprunteurs ont r6ussi a se doter des moyens gique a ete integree aux 6tudes sur le secteur de necessaires pour mettre en oeuvre des projets l'industrie dans les nouvelles economies indus- similaires. Mais au depart, et jusqu'aux annees trielles (NEI). D'importantes composantes 70, le renforcement des capacites technolo- technologiques ont ete incorporees a certaines giques n'a joue qu'un r6le accessoire dans les op6rations et toute une serie de projets exclusi- grandes operations de pret de la Banque. vement axes sur le developpement technolo- gique, la encore essentiellement dans des NEI, A partir du milieu des annees 70, la Banque a ont e prepares et approuv6s. Mais les efforts aussi commence a tenir compte de la place de la de ce genre sont restes limites et, en depit de la technologie dans le developpement industriel. prise en compte du d6veloppement technologi- Apres la creation du poste de Conseiller pour la que dans les operations de pret de la Banque science et la technologie, un certain nombre touchant le secteur industriel, peu nombreux d'etudes ont et menees en vue du renforce- sont ceux qui, en dehors du personnel de la ment des moyens scientifiques et techniques Banque directement concerne, avaient verita- dans les pays en developpement. La Banque a blement conscience de l'importance du deve- 6tudie la situation de quelques-uns de ces pays loppement des capacites technologiques. et l'un des tout premiers de ces rapports visait l'Indonesie (<< Problems of Industrial Techno- logy >>, 1972). Sa premi&e operation de pret Objectifs de 1'etude pour le developpement technologique indus- triel a ete approuvee en 1975 en faveur d'Israel La pr6sente etude a pour principal objectif et s'inscrivait dans le cadre d'un pret de deve- d'evaluer l'impact que les prets de la Banque en loppement industriel (1116-IS). C'est l'Espagne faveur du developpement technologique 27 industriel ont eu sur le secteur industriel des technologiques, c'est-A-dire de toutes les pays emprunteurs. Elle essaie notamment competences - techniques, gestionnelles et d'apprecier les 616ments qui, du point de vue organisationnelles - dont les entreprises ont de la Banque, determinent le developpement besoin pour etablir une unit6 de production, technologique industriel et les politiques l'exploiter efficacement, l'ameliorer et l'agrandir qu'elles a recommandees. Elle analyse aussi les progressivement, et mettre au point de nou- resultats obtenus, l'adequation des objectifs veaux produits et proc6des. Le d6veloppement recherches compte tenu des circonstances, et technologique industriel consiste a renforcer ces les facteurs ayant contribue a la reussite ou capacites technologiques et fait partie int6grante A l'echec des projets. de tout processus d'industrialisation efficace, quel que soit le stade de developpement. L'etude porte essentiellement sur les projets d'aide au developpement technologique indus- Dans la plupart des pays en developpement, triel (projets DTI) r6alises dans six pays: la le d6veloppement technologique industriel est Coree, I'Espagne, La Hongrie, l'Inde, l'Indonesie synonyme d'une efficience et d'une comp6titi- et le Mexique. Ces pays ne sont pas les seuls vite accrues au niveau de l'utilisation de tech- dans lesquels la Banque a financ6 des projets nologies importees. Pour les moins avances ayant trait au developpement technologique d'entre eux, il implique la maitrise de tech- (ou s'y rapportant e'troitement), mais ils ont et niques simples, largement diffusees et, dans les choisis parce qu'ils refletent differents types de NEI, il suppose la maitrise de techniques com- projets et differentes situations economiques. plexes, A forte intensite d'echelle et de compe- La Coree, l'Inde et l'Indonesie sont des pays tences. A terme, il necessite 6galement un d'Asie n'ayant pas tous atteint le meme stade approfondissement des capacites technolo- de developpement industriel et poursuivant giques, c'est-A-dire le passage a des taches des strategies differentes en matiere d'indus- plus complexes et plus exigeantes (adaptation, trialisation et d'6changes commerciaux. Le amelioration, conception, ingenierie, develop- Mexique a ete choisi parce que c'est un grand pement et innovation) A l'interieur des techno- pays d'Amerique latine, dote d'un secteur logies utilisees par le pays. Ce processus industriel important et diversifi6 qui a recem- d'approfondissement technologique procure ment fait l'objet d'un profond mouvement de divers avantages et g6nere differents types liberalisation. L'Espagne est l'un des premiers d'externalit6s. II peut entrainer une plus large pays sur lesquels la Banque a fait porter ses diffusion de la technologie, un recours accru efforts; sa situation g6ographique et son stade aux facteurs de production locaux, une plus de developpement en font A l'evidence un grande differenciation des produits, un accrois- cas int6ressant A etudier. La Hongrie est le sement de la valeur ajoutee, et une meilleure seul pays d'Europe de l'Est a avoir requ de la capacit6 de reaction aux 6volutions du marche. Banque un pret pour le financement du deve- loppement technologique, et le seul de la region La plupart du temps, les pays en d6veloppe- A avoir depuis longtemps renonce A la planifica- ment n'ont pas les capacites techniques neces- tion centralis6e. saires pour etablir efficacement de nouvelles installations de production, et ces capacites ne peuvent pas simplement etre importees de Cadre d'analyse l'etranger dans le cadre de l'acquisition de bre- vets, d'equipements ou de plans-types. Sauf L'essentiel de l'effort technologique des pays en pour les technologies les plus simples, tout developpement vise l'acquisition de capacites transfert suppose de mani&e implicite qu'il y 28 ait, sur place, developpement des competences, Si un systeme de protection des industries nais- apprentissage et rassemblement d'informations santes peut fournir aux nouveaux venus le bal- nouvelles; or, cela ne peut qu'en partie seule- Ion d'oxygene dont ils ont besoin pour se ment avoir lieu A travers un processus passif developper, les interventions de ce genre com- d'apprentissage par l'experience. I1 faut un portent de nombreux dangers, lis au risque effort conscient et soutenu de la part de l'entre- de defaillances des pouvoirs publics. L'histoire preneur, et cet effort est couiteux et risque. De recente des pays en developpement qui ont plus, une bonne maitrise des techniques opera- cherche A s'industrialiser par le remplacement tionnelles (savoir comment) ne conduit pas des importations donne de nombreux exemples automatiquement A l'acquisition de capacites d'interventions mal concues et mal gerees. Un techniques plus complexes (savoir pourquoi). systeme de protection peut en lui meme retar- I1 faut generalement prendre la d6cision der les investissements dans le developpement strategique d'investir dans l'elargissement et technologique industriel ou les orienter dans l'approfondissement des competences et des une mauvaise direction, en particulier lorsque connaissances, processus qui comporte davan- la concurrence interieure est tres limitee et tage de risques et prend plus de temps. que les mesures de protection visent sans differenciation de multiples beneficiaires. II Le developpement technologique industriel convient donc d'instituer des sauvegardes pour est fonction du jeu crois6 des incitations, des s'assurer que les industries naissantes investi- capacites et des institutions. Le re'gime des incita- ront effectivement dans le developpement tech- tions determine la << demande >> d'effort techno- nologique. Les mesures les plus efficaces A cet logique. Mis A part le besoin de produire, qui est 6gard consistent a laisser le plus t6t possible fondamental, les incitations A fournir un effort jouer la concurrence du marche, par exemple dans le domaine technique dependent du con- par la promotion immediate de la concurrence texte macroeconomique et des perspectives interieure, l'orientation rapide de la production de croissance, de la situation sur les marches vers 1'exportation et I'application de program- de facteurs, du systeme de protection de la mes de protection limites dans le temps. La propriete intellectuelle, et de la concurrence r6ussite du developpement technologique tant nationale qu'etrangere. De tous ces 6le- industriel necessite, de la part des pouvoirs ments, c'est generalement la concurrence publics, la fixation d'objectifs strat6giques pre- (notamment A l'echelle mondiale) qui est le cis, des competences administratives, de la sou- stimulant le plus puissant. Lorsque la concur- plesse, un suivi attentif, et la correction ou la rence est restreinte, comme c'est le cas dans sanction des mauvais r6sultats. les systemes d'echanges hautement proteges, la liberalisation peut etre une condition neces- Du c6te de l'offre, les principaux determinants saire pour le developpement de capacites tech- du developpement technologique de l'industrie niques competitives. Toutefois, comme le sont les capacites et les institutions. Si le renforce- developpement des capacites est un processus ment des capacites releve en derniere analyse lent, risque et couiteux, l'entreprise qui s'y sou- des entreprises elles-memes, celles-ci doivent met est pendant un certain temps moins effi- pouvoir trouver A 1'exterieur les facteurs de ciente que celle qui a dejA termine cette phase production qu'elles peuvent difficilement d'apprentissage. Par consequent, afin de pro- g6nerer elles-memes. Trois grands types de res- mouvoir I'apprentissage de nouvelles techno- sources leur sont indispensables: des comp& logies, il peut etre necessaire d'assurer une cer- tences adaptees aux besoins, des moyens taine protection aux entreprises qui financiers pour leurs investissements phy- s'engagent sur cette voie. siques et humains, et des sources d'information 29 et de technologie pour nourrir leurs propres Au sens large, les institutions fixent les << regles efforts. Elles ont chacune leur propre marche, du jeu >> applicables a l'exploitation des entre- qui n'est pas a l'abri de defaillances. Les pou- prises et a leurs transactions sur les marches voirs publics peuvent donc etre amenes a pren- des facteurs ou des produits. Ce cadre doit dre des mesures pour assurer la disponibilite etre transparent, stable et previsible, et il ne doit des competences, mnoyens financiers et informa- pas 6tablir de discriminations fondees sur l'ori- tions n6cessaires aii d6veloppement technolo- gine, la structure du capital ou la taille des gique des entreprises. entreprises. Par institutions au sens strict, il faut entendre les organisations mises en place pour L'acces a la technologie etrangere en particulier appuyer le fonctionnement des differents joue un r6le crucial pour le developpement marches qui jouent un r6le dans le developpe- technologique. C'est l'une des solutions les plus ment technologique industriel, A savoir le mar- 6conomiques pour acquerir une nouvelle tech- che de la main-d'oeuvre, le march6 des capitaux nologie. Si l'importation d'une technologie et le marche de l'information. Parmi les princi- etrangere s'accompagne d'un apport de compe- pales, on peut citer les etablissements d'ensei- tences, de formation ou d'autres types d'assis- gnement et de formation, les institutions de tance, l'acquereur aura moins a faire pour financement du developpement et les societes maitriser cette technologie et suivre son evolu- de capital-risque, les instituts scientifiques et tion. Le fait de limiter cet acces peut rendre techniques et autres organismes ayant pour le d6veloppement technologique industriel mission d'appuyer la sous-traitance, les petites considerablement plus couiteux, ou le retarder entreprises et la diffusion de l'information. I1 est dans la mesure oiu les efforts entrepris locale- largement admis que le renforcement des insti- ment ne sauraient se substituer A ceux accom- tutions est essentiel pour le d6veloppement plis A l'6tranger. I1 y a toutefois de nombreux sous toutes ses formes, et qu'il joue un r6le moyens d'acceder aux technologies etrangeres, crucial dans la promotion du developpement avec des resultats differents du point de vue du technologique industriel. developpement technologique local. La reparti- tion des ressources entre le developpement technologique interne et l'acquisition de tech- Le probleme de la technologie nologies etrangeres est difficile A etablir, et le dans les pays etudies fait de privilegier l'un ou l'autre des termes de l'equation peut se rvi6ler cofiteux ou inefficace. Le probleme de la technologie ne se posait pas Une dependance passive A l'6gard de l'etranger du tout dans les memes termes dans les six pays peut certes deboucher sur de bonnes capacites etudies. Ils etaient certes confrontes a un certain operationnelles, mais ce n'est pas forcement le nombre de problemes communs, en raison du meilleur moyen de renforcer les capacites lo- caractere pratiquement universel des d6faillan- cales. L'importation de technologies etrangeres ces du marche, qu'il s'agisse des capitaux, de doit venir s'ajouter aux efforts deploy6s au la main-d'oeuvre qualifiee ou de l'information niveau local, mais non les remplacer complete- dont ont besoin les entreprises pour leurs inves- ment. A partir d'un certain stade, le developpe- tissements technologiques. Toutefois, ces ment industriel, pour etre dynamique et defaillances n'avaient pas partout la meme durable, implique toujours un renforcement ampleur, ni le meme impact. Et, plus important, des capacit6s locales en matiere de conception, les incitations A investir dans la technologie de developpement et d'innovation. Sinon, les variaient fortement d'un pays a l'autre, tout segments de l'industrie ayant la plus haute comme 6taient tres differentes les << traditions >> valeur ajoutee demeutrent inaccessibles. etablies au fil du temps, poussant tel pays A 30 investir dans l'innovation locale et tel autre a nologie, le developpement d'activites locales de acquerir des techniques plus compliquees dans R & D etait devenu imperatif pour le maintien les pays plus avances. Ces traditions, elles de leur competitivite a l'echelle mondiale. memes fruits de la situation geographique, de l'histoire et des politiques anterieures du pays, Pour se doter des competences requises pour semblent exercer une influence sur le develop- cet effort, la Coree avait investi massivement pement technologique industriel, quel que soit dans l'enseignement technique superieur et par ailleurs l'impact des incitations resultant de pris des mesures en faveur de la formation en la politique commerciale et industrielle. entreprise. La mobilisation des ressources necessaires avait d'abord ete laissee aux inter- L'Espagne, dotee depuis longtemps d'une mediaires financiers en place, avec en comple- importante structure industrielle, avait beau- ment un certain nombre d'instruments destines coup amelior6 ses capacit6s op6rationnelles a soutenir la R & D dans le cadre des projets sous l'effet d'une liberalisation progressive approuves par le chaebol, mais rien pour les et de politiques encourageant activement innovations de moindre envergure et autres la restructuration des entreprises et le resserre- formes d'effort technologique. L'infrastructure ment des liens avec l'infrastructure techno- scientifique et technologique avait recu d'im- logique et industrielle. Toutefois, ses pietres portantes ressources financieres et humaines, et performances en matiere de recherche- semblait avoir r6ussi a etablir de bonnes rela- developpement (R & D), et sa presence tions avec l'industrie. Toutes ces mesures relativement discrete (par rapport au reste de s'etaient traduites par un developpement spec- la Communaute europeenne) dans les secteurs taculaire de la R & D dans le secteur prive et par dynamiques de l'industrie manufacturiere une plus grande ouverture a la technologie, ce temoignaient d'une immaturite technologique, qui avait permis a la Coree de realiser ses prin- situation due a l'absence de traditions technolo- cipales ambitions industrielles. Les principaux giques bien etablies et sans doute aussi a l'ina- problemes restant a regler avaient trait aux dequation du financement du developpement d6faillances des march6s financiers a l'egard technologique industriel et a l'insuffisance de des petits projets d'innovation et a l'aide a l'infrastructure de soutien. apporter a l'infrastructure de recherche pour 6largir son champ d'activite a l'appui de la stra- La Coree s'6tait dotee d'une structure indus- tegie industrielle du gouvernement. C'est sur la trielle solide et diversifiee par des interventions solution de ces problemes que la Banque avait deliberees au niveau des regimes commerciaux axe son aide au developpement technologique. et industriels, et en orientant les investisse- ments vers des secteurs bien precis largement L'Indon6sie avait une structure industrielle contr6l6s par des entreprises nationales privees. beaucoup plus simple que celle des autres Pour acquerir de nouvelles technologies, ces pays etudies et, par consequent, ses besoins soci6tes avaient surtout recours a l'achat technologiques etaient eux-memes simples. Au d'6quipements et de licences d'exploitation, et depart, l'industrie indon6sienne etait fortement relativement peu a l'investissement direct proteg6e et tournee vers le marche interieur; la 6tranger. Elles avaient donc un defi encore plus situation s'est amelioree, mais d'importants important a relever sur le plan technologique, dispositifs de protection restent en place ca et la, notamment parce qu'elles devaient tres vite et le rythme de la lib6ralisation n'est pas clair. devenir exportatrices. Lorsque les industries L'industrie indonesienne demeure hautement coreennes avaient aborde des activites plus tributaire d'importations pour ses composants complexes et approche les limites de leur tech- et materiels, comme pour la technologie et les :31 competences, et les firmes locales n'investissent d'une vaste infrastructure scientifique et tech- pratiquement pas cdans les domaines de l'inge- nique, mais qui, comme c'est souvent le cas, nierie, de la conception et du developpement. souffre de l'absence de liens avec la production. Toutefois, certaines entreprises, pouss6es par la Bien que les pouvoirs publics se soient penches lib6ralisation a investir davantage dans l'ap- sur la question, le financement des activites prentissage de technologies et l'efficience op& technologiques est reste insuffisant. Au Mexi- rationnelle, maitrisent de mieux en mieux des que, les problemes de developpement technolo- processus complexes. La base de competences gique tiennent essentiellement a la reticence des est etroite, et l'absence de tradition industrielle entreprises a investir pour renforcer leurs pro- et en mati&e de recherche ne fait qu'accentuer pres capacites et se charger elles-memes d'acti- les difficultes posees par la faiblesse des effec- vites de R & D, ainsi qu'aux lacunes de tifs de techniciens de haut niveau. Le seul effort l'infrastructure scientifique et technique. concerte en faveur de la technologie est le fait d'un petit nombre d'industries << strategiques >> Les difficultes du developpement technolo- operant dans des domaines de pointe sans gique industriel en Hongrie au cours des dix aucun rapport avec le gros de l'activite de demieres annees ont et essentiellement liees au l'industrie privee. A l'exception des elements systeme d'incitation, au regime de propriete et servant les industries strategiques, l'infrastruc- au mode de direction des entreprises, et a la ture scientifique et technologique est peu deve- politique commerciale. Bien qu'ayant une solide loppee et coupee de la reahite industrielle. Le base industrielle et une longue tradition de financement du developpement technologique R & D, le pays, pour n'avoir applique que des industriel est inexistant. Le probleme du DTI reformes timides et partielles, n'avait pu tirer en Indonesie recouvre donc de multiples pleinement parti de son potentiel et de son expe- aspects: mesures d' incitation, mecanismes rience technologiques pour rendre son industrie de financement, acces a l'information et liens comp6titive sur les marches occidentaux. I1 y entre l'industrie et l'infrastructure scientifique avait aussi d'autres problemes. La base de com- et technique. petences techniques de haut niveau etait plus faible que dans les pays d'Europe de l'Ouest. Le Mexique allie une longue histoire de substi- L'infrastructure scientifique et technique etait tution aux importations a une tradition de forte tres importante, mais elle etait depassee et man- dependance a l'egard de technologies impor- quait de ressources financieres. Certaines entre- tees. Cette strategie a donne de bons r6sultats prises neanmoins avaient su maintenir une en ce sens qu'elle a permis de cr6er des indus- tradition technologique et les capacites corres- tries de transformation et une industrie auto- pondantes. A l'6poque, les contraintes au deve- mobile efficientes; el le a en revanche et6 peu loppement technologique industriel tenaient efficace pour ce qui est de la production de surtout au systeme d'incitation et au mode de biens d'equipement. Peu d'entreprises mexi- direction et de controle et, dans une moindre caines se sont dotees de capacit6s de conception mesure, a l'inadequation des moyens financiers et de developpement, et les entreprises publi- et de l'infrastructure de soutien. ques elles-memes preferent nettement importer materiels et savoir-faire. De tous les grands L'Inde avait developpe sa base industrielle a pays en voie d'industrialisation, le Mexique est travers une serie d'interventions dont les effets celui oui la R & D indlustrielle est la plus faible, avaient ete mitiges, le couit des inefficiences et et cela reste vrai actuellement en d6pit de la des retards technologiques paraissant sup& rapide liberalisation de l'economie. La base de rieur aux avantages de la diversification. Elle competences est asse,z bonne. Le pays dispose avait poursuivi avec plus de determination que 32 la plupart des autres pays une strategie d'auto- ces capacites doivent etre d'autant plus deve- nomie technologique, et investi dans la mise en loppees et diversifi6es que la structure indus- place d'une vaste infrastructure scientifique et trielle devient complexe. Cela implique technique. Elle s'etait dotee d'une large gamme notamment que les pays en developpement de capacites technologiques avec une nette doivent investir pour se doter de capacites de croissance des activites de R & D. Toutefois, la R & D afin de pouvoir assimiler et tirer le base de competences utilisables dans l'industrie meilleur parti de technologies importees plus restait relativement limitee et, du fait des distor- perfectionnees. Deuxiemement, certaines sions du systeme d'incitation, l'apprentissage mesures doivent etre prises pour remedier de nouvelles technologies n'avait pas d6bouche aux defaillances du marche qui entravent le sur des productions reellement competitives ni renforcement des capacites technologiques. sur des innovations. L'infrastructure scienti- fique et technique etait largement deconnectee Les projets DTI temoignent d'une prise de cons- de la production. L'acces aux technologies cience aigue de l'importance du role du regime etrangeres etait restreint et le financement du des incitations pour encourager la << demande >> developpement technologique industriel de technologie. Vu la nature de ces projets, la encore peu developpe. Les besoins technolo- question des incitations relevant des politiques giques des petites et moyennes entreprises macroeconomique, commerciale et industrielle (PME) n'etaient pas pris en compte, et les activi- n'y etait pas directement abord6e. On peut tes de R & D des grosses entreprises priv6es noter toutefois que tous les pays concernes etaient inadequates. Les entreprises publiques, avaient amorce une certaine liberalisation et on nombreuses et generalement inefficientes, pouvait donc supposer que cela contribuerait a effectuaient certes quelques recherches, mais un stimuler la demande de technologie. Aussi ces petit nombre seulement 6taient parvenues a projets avaient-ils pour theme central les etre competitives. Les problemes technolo- defaillances du marche < du c6te de l'offre >>. giques de l'Inde recouvraient donc de tres nombreux aspects et concernaient aussi bien Pour ce qui est des competences, le manque les mecanismes d'incitation que les capacites de personnel qualifie n'avait et considere et les institutions. comme un obstacle majeur au developpement technologique que pour l'Indonesie. Pour les autres pays, les competences techniques des Les projets d'aide au developpement entreprises et des institutions avaient ete jugees technologique amplement suffisantes, mais la plupart des projets pr6voyaient cependant une formation Tous les projets d'aide au developpement en matiere de finance, d'evaluation et technologique de l'industrie (projets DTI) de gestion. avaient pour objectif fondamental le renforce- ment de la competitivite et de la productivite Concernant les defaillances du marche finan- du secteur industriel et reposaient sur deux cier, pratiquement tous les projets, a l'exception grandes hypotheses, que mentionnent la de celui pour l'Indonesie, ont mis l'accent sur la plupart des documents relatifs a ces projets. necessite de financer l'activite technologique. Premierement, quel que soit le niveau d'indus- Le projet coreen portait exclusivement sur la trialisation, la disponibilit6 de certaines capaci- fourniture de capital-risque et l'introduction tes technologiques est toujours indispensable d'autres instruments nouveaux pour le finance- pour atteindre un degre d'efficience compara- ment de l'activit6 technologique. Les projets ble a celui observe a l'echelle mondiale, mais mis en oeuvre en Espagne, en Hongrie, en Inde 33 et au Mexique avaient pour theme principal le Evaluation financement du d6veloppement technologique et comportaient aussi des mesures pour reme- La plupart des documents relatifs aux projets dier aux defaillances des marches de l'informa- DTI affirment clairement la n6cessite de pro- tion. Les buts de la composante financiere ont mouvoir le developpement des technologies varie suivant les pays. En Espagne, il s'agissait industrielles. D'une maniere generale, ils font de financer l'importation, le developpement et valoir que, pour rendre les industries existantes la diffusion de certaines technologies dans le competitives comme pour creer de nouvelles cadre d'une strategie de modification de la cul- sources d'avantages comparatifs dans le secteur ture technologique du pays. Le projet hongrois manufacturier, il est indispensable d'investir consistait essentiellement A accorder des prets dans le developpement technologique. Le pro- pour l'achat a l'Ouest de logiciels et de mat& gres technique y est presente comme un 61e- riels et technologies modernes pour le contrBle ment moteur du developpement industriel, de des processus industriels. En Inde, le but etait la productivite et de la competitivit6 dans les de financer l'importation de technologies et pays en developpement; il doit etre activement l'effort d'innovation local au moyen de capital- recherche car il ne resultera pas automatique- risque, tandis qu'au Mexique et en Coree, il ment d'un processus passif d'apprentissage et il s'agissait de financer aussi bien l'assimilation exige des entreprises un effort d'investissement de technologies etrangeres que la commerciali- dans plusieurs domaines comme la formation, sation de technologies locales. la collecte d'informations, I'ingenierie, les 6tudes techniques, et l'exp6rimentation; il sup- Le renforcement des reseaux d'information et pose une interaction entre les entreprises et des de services techniques repondait gneiralement institutions scientifiques et technologiques A deux objectifs: ameliorer les capacites des ins- capables de leur fournir certains services rele- titutions scientifiques et techniques et etablir vant des << biens publics ,,, et il exige enfin une des liens plus etroits entre ces institutions et diversification et un renforcement constants l'industrie. Dans trois projets (quatre si l'on y des capacites technologiques parallelement ajoute la composante developpement des com- au developpement de l'industrie. p6tences au sein des organismes publics non affilies A des ministeres en Indonesie), le renfor- Ces documents reconnaissent les difficultes que cement des institutions representait un objectif peut poser la creation de capacit6s operation- majeur. En Inde, le projet de la Banque est venu nelles et l'eventuelle necessite d'un appui des appuyer les reformes engagees par le gouver- pouvoirs publics. Ils rappellent en outre que la nement pour donner une orientation plus com- mise en place de capacites operationnelles ne merciale a l'infrastructure technologique. Au debouche pas automatiquement sur un renfor- Mexique, les investissements du projet dans cement des capacites technologiques. Plus l'in- certains instituts de recherche ont et li6s A une dustrie se developpe et plus ce renforcement est privatisation partielle des ces organismes. En indispensable. L'absence de capacites technolo- Hongrie, le projet pri.voyait le renforcement des giques de haut niveau compromet non seule- centres de metrologie et de contr6le de la qua- ment l'aptitude des entreprises locales A se lite, ainsi que des infrastructures d'appui A la diversifier, a diffuser leurs techniques et A tirer R & D. La necessite de resserrer les liens entre la parti des externalites de l'activite technolo- iecherche et l'industrie a ete prise en compte gique, mais aussi leur aptitude A assimiler dans la plupart des projets, mais ne semble pas des techniques plus avancees importees de avoir figure parmi les objectifs immediats pour l'etranger. La R & D sert autant A se tenir a la Hongrie et l'Indonesie. jour des progres techniques qu'A produire des 34l innovations. En general, l'analyse des besoins comme des exportations). Les bonnes raisons de DTI figurant dans les documents des projets que l'on peut avoir de proteger certaines activi- etudies ici repose sur de solides arguments. tes pour encourager le d6veloppement techno- Cela ne veut pas dire que tous les pays en d6ve- logique de l'industrie sont en general tres loppement se doivent d'entreprendre immedia- largement compensees par le risque de voir les tement pareil effort de renforcement de leurs choix operes par les pouvoirs publics se solder capacites technologiques, ni que les NEI doi- par des echecs. II faut aussi que les entreprises vent necessairement engager des activites de aient pleinement acces aux technologies et aux R & D pour toutes les techniques de pointe. materiels etrangers sous toutes leurs formes. En Cela signifie toutefois qu'il y a des choix a faire troisieme lieu, le systeme d'incitations doit tout au long du processus d'industrialisation et encourager resolument la concurrence interne, que, faute d'entreprendre le travail necessaire en 6liminant toutes les barrieres artificielles a pour se doter de certaines technologies plus l'entree comme a la sortie. I1 doit enfin encoura- avancees ou complexes, le pays risquerait de ne ger le secteur prive a jouer le r6le qui est le sien. pouvoir acceder aux activites industrielles offrant la plus forte valeur ajoutee. Cette definition est fondee sur les lecons tir6es par la Banque du developpement de l'industrie Pour ce qui est des elements determinants du dans de multiples pays ayant adopt6 des strate- DTI, il est clairement reconnu que le systeIne gies differentes. Pour des raisons d'ordre theo- d'incitations a un impact decisif sur l'ampleur et rique aussi bien que pratique, les quatre criteres la nature des investissements technologiques et susmentionnees sont tout a fait justifies. Le que ce systeme doit etre de nature a encourager developpement technologique de l'industrie le developpement de l'industrie dans son est fortement stimule par la concurrence inter- ensemble. La decision de la Banque de financer nationale. L'importation de technologies est un projet DTI, et la structure donnee a ce projet, indispensable au developpement des capacites dependent pour une tres large part de son ana- locales et les politiques d'autarcie technolo- lyse du regime d'incitations du pays considere. gique se revelent en general desastreuses. Cette approche est parfaitement justifiee dans La selectivite n'a guere ete couronn6e de succes la mesure oii le succes d'investissements a long et choisir les technologies gagnantes est une terme dans le renforcement des capacites et de tAche particulierement difficile. La concurrence la R & D depend tres fortement des incitations interne tend a encourager le progres technolo- creees par l'environnement macroeconomique gique, l'efficacite et la croissance. Enfin, le et concurrentiel, celles-ci devant determiner la secteur prive est, en regle generale, plus efficace de DTI. et plus sensible aux signaux du marche que le secteur public. Bien que la nature precise des incitations re- quises n'y soit pas explicitee, les documents des S'agissant des rapports entre strategie commer- projets DTI et d'autres etudes de la Banque sur ciale et developpement technologique, de so- les questions d'industrialisation permettent de lides arguments continuent a militer en faveur 3e faire une idee des vues de la Banque quant au de la protection des industries naissantes. Les systeme d'incitations le plus propice au deve- createurs d'industries nouvelles font forcement loppement des capacites. Ce regime doit satis- face a des coufts supplementaires parce qu'ils faire a quatre conditions. Il faut d'abord que le doivent acquerir des competences techniques regime commercial soit liberal et de plus en que d'autres ont deja maitrisees. Les arguments plus ouvert a la concurrence internationale sous en faveur d'interventions des pouvoirs publics toutes ses formes (au plan des importations tiennent aux defaillances du marche qui peu- 35 vent affecter ce processus d'apprentissage, qu'il nistes, une liberalisation imm6diate s'impose s'agisse d'externaLites (fuites de connaissances pour leur permettre de tirer parti de leurs avan- et competences au profit d'autres entreprises), tages comparatifs actuels sur les marches mon- de la complementarit6 des efforts de develop- diaux. Cependant, pour les industries pement technologique entre entreprises liees susceptibles d'etre competitives, il peut y avoir verticalement (l'acquisition de connaissances interet A prevoir des programmes progressifs par une entreprise affecte la competitivite d'une de restructuration et de reapprentissage. L'in- autre entreprise, sans qu'aucune des deux en troduction d'activites nouvelles et complexes tienne compte darLs ses decisions d'investisse- peut encore avoir besoin d'etre encouragee par ment), de la meconnaissance par les entreprises des mesures appropriees de politique commer- des avantages d'investissements dans le deve- ciale. Les documents etablis A l'appui des pro- loppement techno:Logique ou de leur incapacite jets DTI ne semblent pas avoir insiste A les predire convenablement, ou encore de la suffisamment sur l'utilit6 de pareilles mesures repugnance extreme des entreprises A prendre pour encourager le developpement technologi- des risques et de l'utilisation de taux d'actuali- que industriel. sation qui penalisent la collectivite. L'expe- rience montre toutefois que les interventions Les prets de la Banque au titre de projets DTI auront d'autant plus de chances d'etre utiles ont eu des effets differents dans les pays de qu'elles s'inscrivernt dans le cadre d'un regime l'echantillon. Les trois prets accordes A la Coree fortement oriente vers l'exportation qui compense ont contribue a encourager la R & D dans les les effets demobilisateurs de la protection des petites et moyennes entreprises qui avaient industries naissantes, tout en assurant a l'eco- besoin de capital-risque pour engager de telles nomie les avantages, au plan de la concurrence activit6s. En Inde, le projet se poursuit de et de 1' information, d'une participation aux maniere satisfaisante; il a aide des entreprises echanges mondiaux. En outre, le besoin de pro- industrielles du secteur prive a acquerir des tection diminue parallelement au developpe- technologies A l'etranger, procure aux innova- ment technologique de l'industrie. A mesure teurs une source de capital-risque et engage que progressent leurs competences technolo- un certain nombre de centres de R & D A orien- giques, les industries doivent ere expos6es A la ter leur activite en fonction des besoins de concurrence d'importations pour les inciter a l'industrie. En Espagne, le projet a contribue poursuivre leur developpement technologique, a encourager et A faciliter la recherche et la A condition toutefois que cette ouverture ne soit commercialisation de nouveaux proc6des et pas si brusque et soudaine qu'elle stoppe le pro- produits, mais c'est en fait l'adhesion de cessus d'apprentissage. l'Espagne a la CEE en 1986, et son ouverture aux activites de R & D de la Communaute, A 1'heure actuelle, pour la Banque comme pour qui ont veritablement incite l'industrie les pays en developpement, le probleme imm6- espagnole A intensifier ses efforts. diat est non pas tant d'encourager les industries naissantes que de restructurer les industries L'impact des prets de la Banque dans les trois cre6es sous un regime d'incitations fausse. LA autres pays est moins encourageant. Si le projet aussi se pose la question du developpement realise en Indonesie a atteint l'objectif limite technologique et des moyens propres a le favo- d'elargir le reservoir de competences dont dis- riser, mais sous une forme diff6rente. Dans le posait le pays en permettant A des dipl6mes de cas des economies dotees d'un certain nombre poursuivre leur formation A l'etranger, il y a peu d'industries arrivees A maturite (ou presque) A de chances qu'il en resulte un renforcement l'abri de regimes co:mmerciaux protection- general des capacites technologiques de 36 l'industrie indonesienne. Le projet mexicain n'a march6 financier peuvent affecter le developpe- pas atteint ses objectifs majeurs, a savoir encou- ment technologique de l'industrie, notamment rager la mise en place de veritables activites de pour les entreprises de taille moyenne, et R & D dans le secteur prive et la privatisation qu'une infrastructure mediocre offrant un des etablissements de recherche. II est a l'ori- appui insuffisant aux entreprises peut entraver gine toutefois, grace a l'etude financee dans le la circulation de l'information et la mise en cadre du projet, de la definition d'une nouvelle route de certaines formes d'activite technolo- politique technologique. En Hongrie, abstrac- gique et de recherche-d6veloppement. Toutes tion faite de l'Office national de m6trologie qui mesures visant a rem6dier a ces insuffisances a utilise le pret de la Banque pour importer de peuvent favoriser l'activite technologique. precieux instruments de mesure, nombre des Leurs avantages peuvent toutefois etre plus autres beneficiaires se heurtent a de graves limites qu'on ne le pensait lors du lancement problemes du fait de la transformation des projets. Ces mesures peuvent avoir pour radicale de leurs marches. effet d'am6liorer les capacites op6rationnelles plus que de rehausser le niveau de l'effort tech- La fourniture de ressources financieres, afin nologique. II n'est pas certain qu'en l'absence d'une d'e1iminer l'un des principaux obstacles au forte tradition de recherche-d6veloppement, il suffise developpement technologique, etait l'un des de mesures d'action sur l'offre pour donner une plus principaux objectifs des projets DTI de la forte impulsion au developpement technologique. Banque, sauf en Indonesie. Ces projets ont a Cet aspect du probleme n'a pas fait l'objet d'une juste titre prete une attention particuliere aux attention suffisante lors de Vleaboration de cer- besoins des petites et moyennes entreprises, tains des projets DTI. celles-ci etant confrontees a de plus grandes dif- ficultes financieres que les grosses societes. Les Dans certains cas, en outre, on n'a pas suffisam- fonds des prets de la Banque sont allees a la ment tenu compte, pour la conception du pro- mise au point de techniques locales de meme jet, de l'histoire et des traditions industrielles qu'a 1'assimilation et a l'adaptation de techno- du pays. Peut-etre avait-t-on pense que le pro- logies importees. cessus qui sous-tend le d6veloppement techno- logique est le meme partout et que tous les pays Les projets DTI visaient aussi, et a juste titre, s'engageraient sur cette voie des lors qu'on le renforcement des institutions d'appui et de aurait liberalise le regime des incitations et eli- leurs liens avec l'industrie, en faisant appel a mine les problemes poses par les defaillances des solutions differentes selon le pays. En Inde des marches financiers et les insuffisances de et au Mexique, on a cherche a ameliorer aussi l'acces a l'information. La conception des pro- bien le fonctionnement de l'infrastructure de jets etait en general bien adaptee a la situation R & D que ses liens avec l'industrie. En Corke du pays dans le cas de la Cor6e et l'Inde. En et en Espagne egalement, les projets ont vise a Indonesie, le projet a pati de serieuses erreurs renforcer les liens entre la recherche et l'indus- de conception, si l'on considere que l'objectif trie tandis qu'en Indon6sie, la formation de etait d'ameliorer les competences de telle chercheurs pour les instituts du pays 6tait le maniere que s'en trouvent renforcees les capaci- principal objectif. tes technologiques de l'industrie indonesienne dans son ensemble. Le projet mexicain compor- Les objectifs que la Banque s'etait fixes pour tait un element interessant de privatisation des remedier << du c6te de l'offre >> aux defaillances 6tablissements de recherche, mais avait laisse du marche des facteurs, etaient generalement en suspens d'importantes questions touchant la valables. II est evident que les defaillances du mise en oeuvre et l'utilite des liens que lVon vou- 37 lait creer. Dans le cas des projets espagnol et du systeme d'incitations. Pour encourager le mexicain, les mesures prevues pour lever developpement technologique de l'industrie, les obstacles financiers au developpement il faut non seulement un bon cadre macroeco- technologique de ].'industrie se sont revel6es nomique, mais aussi des politiques commer- adequates pour stimuler les types d'activite ciales, industrielles et technologiques liberales. technologique existant d6jA, mais insuffisantes Lorsque le regime des incitations est profonde- pour susciter de veritables avanc6es. ment fausse, comme c'etait le cas en Hongrie lors du debut du projet, meme des mesures bien concues d'action sur l'offre ne peuvent donner Leqons de 1'experience et l'impulsion voulue. II convient par consequent recommandations de ne mettre en oeuvre de projets DTI que lorsque l'environnement economique est de D'apres l'experience des projets DTI realises nature A en permettre le succes. dans les pays ayant fait l'objet de la presente etude, les elements qui determinent les resul- La possibilite d'avoir acces A des technologies tats d'un projet paraissent etre les suivants: etrangeres est indispensable au d6veloppement technologique de l'industrie, et le cas de l'Inde L'effort de develop pement technologique doit montre bien les effets nocifs de graves restric- s'ins6rer dans le plus large contexte d'une stra- tions A l'importation de technologies. Cepen- tegie d'industrialisation, sinon son impact ris- dant, le mode de transfert des technologies que d'etre limite. La preparation des projets etrangeres peut influer sur l'ampleur et la DTI doit reposer sur une approche integree nature du developpement des capacites natio- pour que soient simultanement traitees toutes nales. Faire largement appel A des investisse- les questions relatives aux incitations, aux capa- ments etrangers directs peut etre un moyen cites technologiques et aux institutions. extremement efficace de transferer les connais- sances necessaires a l'exploitation de technolo- L'impact d'un projet DTI sur le developpement gies 6trangeres, et cela peut avoir nombre technologique de l'industrie depend de l'exis- d'effets externes benefiques. Cependant, tence d'une strategie clairement definie et cette approche n'est pas forcement le meilleur dument coordonn&e. L'efflcacit6 des projets rea- moyen de renforcer les capacites technolo- lises en Cor6e tient non seulement A la part giques du pays. En Coree, la pr6f6rence donn6e importante prise par le gouvernement dans A l'acquisition des technologies dans le cadre l'orientation de l'economie et en particulier d'operations commerciales plut6t qu'A l'inves- dans le developpement industriel du pays, tissement direct a encourage les entreprises mais aussi au fait qua'il avait su formuler une locales A investir dans le renforcement de strategie explicite de developpement technolo- leurs capacites de R & D parce qu'a l'appui gique. Cela a ete le cas, a un moindre degre, de cette approche, les pouvoirs publics avaient dans nombre des autres pays et, le cas echeant, pris tout un ensemble de mesures pour inciter la Banque a insiste pour que l'on effectue une l'industrie A s'engager dans des domaines com- etude en vue de la definition d'une politique plexes tout en les forcant a se faire concurrence technologique. sur les marches d'exportation. Etant donne que les projets DTI cherchent habi- Pour renforcer les capacites technologiques de tuellement A remedier aux defaillances des mar- l'industrie, il peut falloir agir aussi sur le regime ches des facteurs en agissant sur << l'offre >>, on des echanges commerciaux et technologiques ne saurait trop insister sur l'importance cruciale de matiere a encourager la recherche locale. 38 L'ouverture du pays A la concurrence interna- m6trologie, de garantie de qualite, et cetera) tionale et aux technologies etrangeres peut ne avant de passer A la cr6ation de capacites com- pas suffire en elle-meme, comme en temoigne le plexes de recherche-developpement. cas de l'Espagne et du Mexique, pour engager les entreprises sur la voie d'am6liorations tech- Les tendances a long terme de la technologie nologiques. I1 serait bon que la Banque appro- influent sur la competitivite et sur l'effort tech- fondisse son analyse des el6ments moteurs de nologique de chaque pays. Bien que la Banque l'6volution technologique et des facteurs qui ne puisse se specialiser dans tous les domaines, sous-tendent la cr6ation d'une culture de elle se doit d'avoir une idee des elements criti- recherche-developpement, en s'attachant plus ques pour lesquels les pays en developpement particulierement A comparer les effets de l'im- pourraient avoir besoin de ses conseils. Cela lui portation de technologies A ceux d'activit6s permettrait d'ameliorer la pertinence de ses locales de recherche. op6rations de pret A l'appui du developpement technologique industriel. I1 n'est de v6ritable essor technologique que lorsque le secteur prive participe activement A Par la diffusion d'informations et l'ouverture de l'effort. Les institutions publiques devraient debats approfondis, la Banque devrait sensibili- progressivement se desengager et se donner ser son personnel A la question du developpe- pour mission de soutenir les activites technolo- ment technologique de l'industrie. Ses projets giques du secteur prive. Les pays sont tres peu DTI sont actuellement le fait d'un petit nombre nombreux A avoir opere cette conversion. La de specialistes qui connaissent bien les tenants Coree l'a fait en alliant l'adoption de strategies et les aboutissants du developpement technolo- claires dans le domaine du commerce, de l'in- gique, mais qui eprouvent souvent des difficul- dustrie, de la science et de la technologie A la tes A partager ce savoir avec les autres membres prise de mesures financieres et budg6taires du personnel. Cet effort d'information et de pour encourager la R & D privee. Au Mexique, communication est rendu d'autant plus impor- en revanche, l'activite technologique etait extre- tant par l'int&ret que porte la Banque A la reac- mement r6duite et relevait presque exclusive- tion de loffre et A la competitivite parmi les ment d'institutions publiques. Etant donne la objectifs de ses operations de restructuration nature des activites de R & D, les pouvoirs industrielle et de reforme des politiques com- publics devraient encourager le secteur prive A merciales et industrielles. s'en charger par la mise en place d'incitations financieres et autres. Implications des projets Un effort dans le domaine technologique est indispensable A une industrialisation effi- Lorsque ses prets doivent aider les entre- cace, et ce A tous les niveaux. Les projets de prises A engager des activites de recherche- DTI ont jusqu'ici principalement concerne les developpement, la Banque devrait chercher des nouvelles economies industrielles, mais les intermediaires qui connaissent bien ce domaine pays moins industrialises devraient aussi faire d'activite et disposent de l'expertise necessaire, I'objet de pareilles operations. Dans certains qui aient I'exp6rience de divers secteurs indus- pays en developpement, il faudra peut-etre triels, et qui soient resolus A faire le necessaire commencer, pour promouvoir la competitivite pour aboutir et prets A prendre des risques. La et l'efficacite, par ameliorer les competences responsabilite des projets ne devrait donc etre techniques et par mettre en place une infras- confiee qu'a des organisations dynamiques dis- tructure efficace (en matiere de normes, de pos6es A guider, faciliter et suivre les progres 39 dans un souci d'efficacite. Les intermediaires mediaires, il convient d'etre raisonnablement financiers usuels, comme les banques commer- certain des sources de financement, des engage- ciales, ne sont generalement pas equipes pour ments pris par les pouvoirs publics en matiere faire face aux exigences de ce type de finance- d'assistance, et de l'existence d'un programme ment et il est souhaitable de faire appel a des bien concu de redistribution. 6tablissements financiers specialises. Dans tous les pays couverts par la presente Le succes du financement de l'innovation etude, les institutions de R & D chargees des technologique dans l'industrie depend de la technologies industrielles ont eprouve des diffi- structure institutionnelle de l'intermediaire cultes a etablir des liens avec les entreprises financier. Bien que la presence des pouvoirs manufacturieres. La privatisation des instituts publics soit parfois necessaire au depart, l'inter- publics de recherche se heurte a diverses diffi- mediaire choisi doit ben6ficier d'une forte parti- cultes, comme le montre l'exp6rience du cipation et d'un vigoureux soutien du secteur Mexique oiu les entreprises se sont montrees prive, ainsi que d'une entiere autonomie pour peu disposees a prendre en charge la propriete 6viter toutes interferences bureaucratiques. et la gestion de ces instituts. Etant donne que les L'experience de la Coree et de l'Inde illustre grosses entreprises ont habituellement leurs les avantages que presentent des institutions propres ressources de R & D, il conviendrait de gerees par le secteu:r prive, sensibles aux donner la priorite au financement de ce type de besoins du marche et ayant des rapports etroits services pour les petites et moyennes entre- avec l'industrie. Au Mexique, en revanche, les prises. La fourniture d'incitations financieres au banques commerciales de premier rang n'ont secteur prive pourrait faciliter la creation de guere participe aux prets d'aide au developpe- liens entre les petites et moyennes entreprises et ment technologique. les centres de recherche-developpement. La reussite du financement de l'innovation S'il est important que le secteur prive soit repre- technologique et de la fourniture de capital- sente dans les organes de decision des centres risque est fonction, dans une tres large mesure, publics de R & D, il est hautement improbable de l'experience et de la qualite du personnel des que l'on puisse mettre en place des etablisse- institutions concernees. L'institution charg6e de ments prives de R & D grace a une participation l'operation doit etre capable non seulement collective des entreprises privees sans un solide d'attirer et de conserver un personnel qualifie, soutien et une assistance financiere des pouvoirs mais aussi d'ameliorer constamment son effica- publics. On pourrait faire appel aux services cite par divers programmes de formation. d'institutions privees pour faciliter la creation de liens entre l'industrie et les centres de R & D. Les formules impliquant la fourniture de capi- tal-risque et le partage des risques sont a utiliser La meilleure approche pour renforcer ces liens avec la plus grande prudence parce que les semble etre de reconnaitre clairement: (a) que competences qu'exige leur gestion sont chose seuls les etablissements de recherche qui, par assez rare et ne s'acquierent qu'avec le temps. principe et par tradition, sont << au service de Dans le cas de l'Inde, l'acceptabilite de ce type l'entreprise >> peuvent apporter une aide utile; de financement avait et surestim6e. Les for- et (b) que les societes, et notamment les petites mules de partage des risques supposent aussi la et moyennes entreprises, hesiteront s6rieuse- disponibilite de ressources financieres telles ment par manque d'information et de confiance, a qu'il soit possible de prendre des risques cal- sous-traiter des travaux de recherche a de tels cules. Pour organiser le financement des inter- etablissements. Le probleme reside pour partie 40 dans leur incapacite a d6finir clairement leurs entreprises prennent certains engagements propres besoins technologiques. II tient en financiers. Nombre des projets DTI ont reconnu partie aussi a ce qu'elles connaissent mal les la n6cessit6 de pareilles subventions et ont fait possibilites offertes par ces etablissements et appel pour cela a diverses formules: prets con- redoutent la divulgation d'informations confi- ditionnels, taux d'interet pref6rentiels, ciblage dentielles. Le meilleur moyen d'6liminer ces d'activites determin6es, et cetera. Cette demar- contraintes est de favoriser 1'6tablissement de che etait tout a fait justifiee, mais il reste a deter- ces liens par le versement de subventions, a tout miner, par une evaluation systematique, la le moins au depart, tout en s'assurant que les forme de soutien la plus efficace. 41 1. The analytical framework The nature of industrial tiers of innovation. In most developing coun- technology development tries it means the ability to become more efficient and competitive in the technologies The importance of technological activity and they have imported across a range of manufac- innovation to industrial competitiveness is turing activity. There are, nevertheless, wide widely accepted in the context of developed variations in ITD needs within the developing industrial countries. It is less widely under- world. In the least-developed countries with stood that conscious technological effort is new and relatively shallow industrial struc- equally important for developing countries, tures, ITD comprises the mastery of simple and even though they are essentially importers of well-diffused technologies and some adaptation manufacturing technologies and not "innova- of imported technologies to local conditions. In tors" in the normal sense of the term.' Much of the more advanced newly-industrializing econ- this effort is directed at the acquisition of tech- omies (NIEs), ITD involves mastering complex, nological capabilities (TCs). TCs in industry scale- and skill-intensive technologies and may be defined as the skills-technical, mana- entering into more advanced technological gerial, and organizational-that are necessary areas of activity within each technology. for enterprises to set up a plant, utilize it effi- ciently, improve and expand it over time, and The process of successful industrial develop- develop new products and processes. They ment necessarily involves the deepening of tech- comprise a broad range of functions, from the nological capabilities over time. This is so for two routine ones needed for the factory shopfloor to reasons. First, industrial progress involves the the sophisticated ones needed for advanced entry into higher value-added activities. Any coun- research. Industrial technology development (ITD) try starting on industrialization begins with low refers to the growth of these technological capabili- technology, low wage activities such as final ties. ITD is a necessary and integral part of the assembly or the manufacture of simple items process of efficient industrial development, and like garments.2 As it develops, it takes on more many of the factors that affect the latter also difficult activities that require greater skills and determine the former. know-how to operate. This requires the exten- sion of capabilities across new, more difficult The appropriate content of ITD varies by the industrial activities. Second, it involves under- level of development. In advanced industrial taking more complex and demanding technological countries it may mean the ability to enter high- tasks within the technologies that the country is technology industries or to push back the fron- using. It has to move, in other words, from sim- 43 ple assembly or final touch manufacturing to deepening of local design and development the undertaking of more adaptation, improve- capabilities as an objective of industrial policy. ment, design, development, and finally innova- Their experience suggests, however, that tion.3 This requires progressively greater there is no single optimal path of technological understanding of the principles underlying development. There are many viable strategic manufacturing technologies. choices in the level of dependence a country has on foreign as opposed to domestic sources of This process of deepening technological knowledge-the national "make-or-buy" decision capabilities has various benefits. The ability to in technology-depending on the size and adapt, improve, and develop technologies resources of the country, its strategic objectives locally can generate various externalities. It can in industry, and the success of its government in lead to more widespread diffusion of technol- implementing such objectives.5 ogy, greater use of local inputs, more product differentiation, and the ability to respond more While the need for ITD clearly grows with the effectively to changes in market conditions. The level of industrial complexity, it should not be externalities can be greater if the activities in assumed that progress up the technological lad- which capabilities are developed are them- der is simple and automatic. Even the first selves more dynamic, in terms of their pace of stages of mastering existing technologies are technical change and their linkages with the not easy. The capabilities needed to deploy effi- rest of the industrial sector. The recent literature ciently a new manufacturing facility (or a new on "new growth theories" suggests that one of process, or even a significantly larger scale of the factors behind economic success has been operations) are generally not present in most the ability of some countries to specialize in developing countries. Nor are these capabilities industries with greater learning potential and easily transferred from abroad as part of the external benefits.4 sale of equipment or patents and blueprints. There are "tacit" elements in the transfer of all Many of these benefits and externalities are but the simplest technologies that call for indig- reduced if a country remains wholly or largely enous skill creation, learning, and the collection dependent on imported technologies (that is, it of new information, only part of which occurs transforms the industrial structure by engaging as a passive process of learning by doing. The in more complex manufacturing activities with- process requires conscious and sustained effort out greatly deepening local technological con- on the part of the manufacturer.6 Thus, different tent). The case for technological deepening is enterprises may end up with different levels of not a case for tecmnological "self reliance" that mastery of the same technology depending on was fashionable in some countries in the early the extent and effectiveness of their invest- days of development planning. Clearly, all ments in capability acquisition. countries, even the most technologically advanced, depend on foreign technological Though technological learning within a inputs in order to specialize efficiently. It is, firm builds upon its existing base of TCs, the instead, a case for moving up the skill and course of ITD is not entirely predictable. The knowledge ladder in technical activity. It is the pace and direction of technological develop- effort to capture some of the rewards and spill- ment are determined by the efforts made by overs that innovative ability generates. each firm, the efficiency of those efforts, and the technological strategy it adopts. It is impor- Most developing countries with large industrial tant to note that successful mastery of operational sectors, especially the dynamic NIEs, regard the technology may not automatically lead to the 44 development of deeper TCs. There may be a dis- try the appropriate way to promote ITD may be crete jump in the level of effort and resources the assembly/manufacture of bicycles or sim- needed to move from the efficient operation of ple agricultural tools, while in an NIE like a technology to the ability to substantially mod- Korea it may encompass advanced electronics ify it or develop new products and processes: in or fiber optics. the literature this is sometimes referred to as the distinction between "know-how" and "know- At the firm level, investment in ITD faces the why." Know-how is the set of capabilities risks and uncertainties that affect all forms of needed to manage a given technology on the investment. It is, therefore, strongly influenced shopfloor, know-why the understanding of the by the macroeconomic environment and the underlying technical and engineering princi- state of relevant factor and product markets. ples. Know-how does not automatically lead to Each of these is affected by government policies. know-why in most industrial technologies-a This may be just as (or perhaps more) important strategic decision has to be made to invest in the as policies to raise investment in physical facili- more risky and prolonged process of gaining ties, or to achieve efficient resource allocation in the extra knowledge and skills required (often a static sense. These determinants of ITD are dis- by means of formal research and development). cussed at greater length in the following section. While the process of ITD essentially involves efforts at the level of manufacturing enter- Determinants of ITD and prises, these efforts do not occur in isolation. policy implications Each enterprise invests in its capability devel- opment in an intricate web of linkages of informa- The determinants of ITD may be divided into tion, skill, and product exchange with the three groups: the incentive framework (which outside world. This world includes other man- determines the "demand" side of capability ufacturers, service firms, consultants, as well as building); capabilities (defined here as the "sup- a variety of institutions dealing with finance, ply" of the three necessary elements of ITD- skills, and technology support. Efficient ITD human capital,finance, and information); and insti- involves that the intensity and ease of inter- tutions. The lines between them may not be very change improve as each of these actors becomes distinct, and the factors may interact with each more specialized in its own area of competence. other in complex ways. Nevertheless, it is ana- The strength of these linkages, and the level of lytically useful to separate them conceptually to development and dynamism of linked enter- have a simple framework for evaluating poli- prises and institutions, are all critical to ITD cies on ITD. It must be noted, however, that it is within individual firms. The efficient function- the interactions of these factors more than their ing of factor markets and the growth of inter- individual impact that determine a country's firm linkages is thus a vital determinant of tech- industrial performance. nological progress. The incentive framework The nature of tlhe technology7 is of great impor- tance to the process and requirements of ITD. The set of market and nonmarket incentives Each technology has differing demands of skill, facing the firm determine the "demand" for know-how, scale, and institutional and inter- technological effort. The most fundamental firm linkages for its efficient utilization, and incentive for a firm to develop its technological these differences are crucial to the analysis of capabilities arises initially from the need to get ITD strategy. Thus, in a least-developed coun- into production. This is true regardless of the 45 nature of the trade and industrial regime, as Domestic competition is often held back by long as the firm wants to succeed commercially barriers to entry by investment licensing, and has the managerial autonomy to invest in entry controls by size, ownership requirements, ITD. However, the extent to which it invests in restraints on firm growth or diversification, and its capabilities to become internationally com- so on. Though there is a need for regulation to petitive, and the extent to which it sustains its ensure competitive market behavior and obser- efforts to adapt to changing conditions and vance of the legal rules of the game, the array of diversify or deepen its base of capabilities, restrictions actually imposed in many countries depends on incentives arising from the external often serves to distort the pattern of industrial environment and government policies. activity and generate rents for enterprises that can manipulate the system to their advantage. The macroeconomic environment and growth pros- Domestic competition by itself may not, how- pects for major rmarkets, domestic or foreign, are ever, be able to stimulate fully competitive ITD clearly strong influences on decisions to invest if it takes place in isolation from foreign compe- in ITD. Ceteris paribus, a stable, predictable, and tition. Highly protected industries in develop- high-growth environment is far more condu- ing countries tend to lag technologically even if cive to ITD investments than any other. As with there is domestic competition, because the aver- any long-term investment, low rates of infla- age level of technical efficiency within domestic tion, interest rates that reflect the opportunity industry can be low and use of new technolo- cost of capital, and realistic exchange rates, are gies may lag behind world levels. the prerequisites; of healthy and economically sound ITD activity. Exposure to world competition is thus a more powerful incentive to ITD in developing coun- The rate of technological progress internationally tries. This may take three forms: competition in also affects the optimal pace and content of ITD. domestic markets from imports, competition in No modern manufacturing technology is static, export markets, or both together. If technologi- and no developing country can afford to ignore cal capabilities were acquired and deepened world technological trends if it wishes to stay costlessly and rapidly, there would be little rea- internationally competitive. The rate of techni- son to intervene in either form of competition, cal change is very different across activities, or to distinguish between them. However, and the incentives thrown out for ITD effort because the process of capability development vary accordingly.8 In all cases, however, takes time and investment, there is a period indigenous technological effort is critical to during which the enterprise is less efficient than coping with technical progress. one that has already undergone the learning process.10 This period of "infancy" becomes The most important incentives to ITD arise important for policy especially in the context of from competition, both domestic and foreign. competition from developed countries, which Competitive markets provide the most potent have much greater experience of industrializa- stimulus to investments in capability acquisi- tion and much better functioning factor mar- tion, and correct market signals guide firms in kets and institutions."' In developing countries investing to the right extent, and in the right this may lead to a preference for export market forms, in ITD. Thus, artificial restraints to com- competition over import competition, the former petition can hold back ITD investments, or can allowing for a margin of protection in the lead firms to develop the wrong kinds of capa- domestic market that acts as a cushion for the bilities.9 Many developing countries impose learning period while providing an effective such restraints. stimulus to ITD. 46 The risk of underinvestment in ITD applies to (see below). The deepening of local capabilities both the gaining of technological mastery and to was promoted by encouraging private-sector technological deepening. However, the policy R&D by a variety of measures (including early measures needed to induce manufacturing entry into export markets), fostering the produc- firms to invest in these two forms of ITD may be tion of increasingly sophisticated capital goods quite different. Know-how development needs (while continuing to import extensively other a shorter learning period than know-why equipment, especially for export activities), development. It is less risky, and can rely on investing in public-sector R&D institutions that continuing inputs of foreign technology for all had strong links with domestic industry, and the complex design and other tasks. The devel- controlling the entry of foreign investors to min- opment of deeper know-why capabilities needs imize the dependence of local enterprises on more time, involves more uncertainty, and "ready made" technologies. requires that foreign knowledge be used as an input into local research and development The negative aspects of protection also need to (R&D) efforts rather than a replacement for be stressed. While infant industry protection them.12 The kind of infant industry protection can provide the "breathing space" in which needed may therefore be different, depending new entrants can develop their capabilities, on whether the objective is to promote opera- there are many potential dangers in such inter- tional ITD or research capabilities. The latter ventions. Protection can itself retard or distort needs, apart from the normal learning period, the process of investing in ITD, especially if the stimulation of a different strategic attitude to domestic competition is weak and the protec- investments in indigenous R&D relative to import- tion is granted in a widespread and indiscrimi- ing technology. It may thus call for specific inter- nate manner. To ensure that infant industries ventions directed at R&D and technology invest in ITD, therefore, safeguards have to be imports, to shift the industrial drive towards instituted. The most effective safeguards are technological deepening. The deepening of ITD those that introduce market competition at the also seems to call for special measures to pro- earliest possible time, such as immediate pro- mote the local capital-goods industry, since this motion of domestic competition, early entry industry can act as an important vehicle for into export markets, and time-bound programs "embodying" technical progress (even minor of protection (with the level of protection adaptations), interacting with user industries to declining over time) as industries mature and utilize their learning in the design of new become competitive. Successful ITD requires a equipment, and for disseminating this learning clear strategic objective, administrative skills, to different user industries.13 flexibility, careful monitoring, and the correc- tion or penalization of poor performance. The experience of the larger East Asian NIEs suggests, however, that carefully designed inter- These policies are difficult to design and imple- ventions can produce high rates of industrial and ment effectively. The informational and skill technological development.14 In the case of Korea, requirements are large, and there is a constant technologically the most dynamic of the NIEs, danger of hijacking of policies by rent-seeking strong export orientation combined with infant agents or by those who stand to lose from expo- industry protection, granted to a relatively few sure to world competition. Trade interventions activities at a time, provided a powerful and to promote infant industries run particularly effective spur to ITD.15 Equally important, trade large risks of government failure. Much of the interventions were carefully monitored and recent history of import-substituting industrial- supported by local capability building measures ization in developing countries is replete with 47 interventions that were poorly designed and Capabilities: human capital, finance, badly implemented, and so held back competi- and information tive ITD. Where badly done, trade interventions can impose heavy and prolonged costs on a Given the "demand" for ITD from the incentive developing economy. Reversing their damage framework, the supply response of the industrial can itself be a painful and difficult process. sector depends on its access to some basic build- ing blocks. While the final capability building Other incentives to ITD arise from factor mar- takes place inside the manufacturing firms, firms kets. Changes in relative factor prices and avail- have to depend on external sources for inputs ability can lead to considerable technological that they cannot create easily. The three major activity. It is important for policy purposes that building blocks to which firms need recourse are these changes reflect true economic values to the skills of the appropriate kinds, financing for enterprises concerned. Artificial input scarcities physical and capability investment, and access (as are often the case in inward-oriented econo- to information and technology to feed into in- mies) can distort ITD by forcing firms to develop house efforts. Each of these has its own markets. costly substitutes, often of low quality, that Each may suffer from market failures. That such retard international competitiveness. Inflexibili- market failures exist is borne out by the fact that ties and uncertainties in labor markets can also all developed industrial countries have, over a retard or distort the pattern of investment and long period of time, invested in setting up spe- capability building, as can imperfections in cap- cific mechanisms and institutions to provide for ital markets. Access to information, technology, education, training, technology finance, science and technical support services provide incen- infrastructure, and research institutions. tives to ITD development; these are markets taken up below in the discussion of capabilities. The significance of skills for the success of ITD is evident. Basic worker skills (literacy and Finally, the regime for contracts and intellectual numeracy) are necessary for almost all forms property rights sets the legal stage for ITD. of industrial development. As industry moves Intellectual property legislation covers patents, into more complex products, specific types of trademarks, copyrights, and trade secrets. higher technical (and other) skills become Without adequate protection for these types of essential to efficient operation. Even "simple" intellectual property, incentives for firms to cre- industries like garments or footwear need some ate new technologies or to transfer proprietary high-level skills to operate at world standards technologies from abroad may be greatly of cost and quality. More difficult industries, reduced. Many developing countries have especially those involving engineering activity, rather weak protection for intellectual property, have greater demands of advanced skills. Some or are lax in enforcing the protection that does modern technologies even call for close interac- exist. Many are not party to international patent tion between science and engineering man- conventions. This may affect their access to for- power. Since many of these skills are specific to eign technologies. More importantly for ITD, the technology being deployed (that is, a textile a weak intellectual property protection system engineer cannot design chemical plant or auto- may deter local innovation as the process of mobiles), it is not only the total quantity (and industrialization. deepens. In contrast, a strong quality) of technical skills produced that is rele- system can enhance the attractiveness of the vant but also their composition and relevance. country for foreign investors, and allow local firms and institutions to enter into joint techno- Industrial enterprises can create a significant logical activities with foreign counterparts. amount of human capital with their own 48 efforts, formal or informal. However, they need the financirng gap may grow more serious. ITD a base of educated manpower to work with, will increasingly take the form of long-term and and this base can only be provided by the risky investments in new technologies that the national education system. The education financial system may not be willing or able to "market" needs considerable policy interven- provide for. Capital-market failures are widely tion to ensure that adequate quantities of man- recognized in developing countries, but this power, with the appropriate ranges of skills of particular type of failure is accepted also in the right quality, are produced to enable indus- developed countries. try to operate and grow efficiently. Industrial success in the NIEs has been closely linked to Firm-level ITD has to draw heavily on informa- their investments in education, especially tech- tion from other sources. This includes the nical education and vocational training.16 Of import of capital goods and licensed technolo- equal importance have been the science and gies from the advanced countries, advice and technology policies and their continued efforts services from consultants or equipment suppli- to remove the pervasive managerial and man- ers, information from component and equip- power shortages. The training provided by the ment suppliers, competitors, and a range of firms themselves is also an important determi- inputs from the technology infrastructure nant of ITD, and also suffers from the risk of (extension services, standards, metrology, basic market failure. The amount of employee train- research, contract R&D, and so on). Since a very ing provided depends on the firms' awareness substantial part of the technological informa- of the benefits to be derived from investments tion for most industrial activity in developing in training, and the possibility of recouping the countries comes from overseas, access to for- returns from those investments. If firms do not eign technology is a critical determinant of ITD. realize the gains to be had from training, or if Such access provides one of the most economi- there is a significant risk that trained manpower cal ways of gaining the initial input of a new will leave the firm, the private returns to train- technology. If accompanied by skills, training, ing will fall short of the social returns, and firms and other assistance, it also reduces the tasks will underinvest in training. that the recipient has to do to master and keep up with the technology. Restricting such access The ability of the capital market to finance can raise the cost of ITD enormously, or can investments in ITD is another crucial element. retard the process to the extent that local efforts At low levels of industrialization, when firms cannot substitute for foreign ones. are small and specialized in easy technologies with low capital requirements and limited pos- The correct allocation of resources between cre- sibilities of improvements, the absence of a cap- ating technology at home and buying it abroad ital market with the capacity to finance ITD in is a complex matter and overreliance on either new areas may not be a major handicap. The maybe costly or inefficient. Passive dependence normal financing of working capital will cover on foreign technology may lead to good opera- technology development activities that are not tional capabilities, but in striving to move to the separated into formal research and develop- best practice operational frontier, countries may ment. Even at this level, however, there is a risk need to develop and deepen their own adaptive that such financing will not meet needs for capabilities including design and engineering training and other needs that are not strictly based on imported technologies. In this, foreign working capital needs, and for which small technology should be an input into local efforts firms may not be able to offer collateral. As and not entirely a substitute for it. Different industrial development proceeds, moreover, countries strike different balances between 49 imported technologies and domestic technolog- infrastructure of science and technology institu- ical effort, depending on their size, location, tions. The promotion of inter-firm and inter- strategies, resources, and so on (this is brought industry linkages is a critical component of out clearly in the country case studies). What- technological development. Specialization and ever the choice made between foreign and local subcontracting tend to grow naturally over the technologies, after a certain level dynamic and course of industrial development. In most sustained industrial development always developing economies, however, the growth is involves some further deepening of domestic slow and may need to be encouraged. In partic- capabilities in irrnovative activities.17 This does ular, large enterprises that start with imported not mean that technological deepening of this technologies tend to get "ready made" linkages nature should be of immediate concern to many with suppliers overseas, and tend not to invest developing countries or that the NIEs need nec- in building up local sources because of the costs essarily enter into R&D activities in all the most of searching and transferring skills and know- advanced technologies. It does, however, mean how to small local firms. There are thus market that in the process of industrial development failures in linkage creation that need corrective choices may have to be constantly made to enter policies to increase the efficiency of potential certain more sophisticated and complex areas of local suppliers.18 technology. Otherwise the highest value-added segments of indiustry may remain out of reach. Institutions The import of foreign technologies itself In the broadest sense, institutions provide requires information and negotiating skills. the "rules of the game" within which enter- Many developing countries seek to improve prises operate and enter into contracts in the their bargaining positions in international tech- markets for factors and products. The lack of an nology markets by intervening heavily in for- appropriate contractual environment can hold eign direct investment (FDI) and licensing. This back ITD because it can raise transactions costs has generally tu:rned out to be counterproduc- and the riskiness of long-term investments tive. Heavy interventions in technology imports (which necessarily require long-term commit- have tended to reduce the quality of technology ments). It is now increasingly accepted that inflows and lead to technological obsolescence. the private sector has a key role to play in The most successful countries like Korea, and industrial development. In order to realize Japan before it, have allowed massive imports the potential of the private sector it is impera- of technology, often at very high prices, but tive to set up and enforce an appropriate legal helped importers by providing information (on framework that recognizes private property alternative technologies, sources, and prices) and contracts, and to remove regulatory imped- that individual firms would find too costly to iments to efficient economic activity.'9 This collect on their own. At the same time, they framework should be transparent, stable, have invested in local absorptive and innova- and predictable, and should not discriminate tion capabilities so that imports of technology between industrial actors according to origin, complemented rather than substituted for ownership, or size. indigenous ITD. Thus, setting an appropriate framework for the imports of technology is a For present purposes, institutions in the nar- very important part of ITD policies. rower sense refer to the organizations set up to support the functioning of the skill, capital, Local information support for ITD comes partly and information markets that are relevant to from other enterprises and partly from the ITD. The main ones are education and training 50 institutes, development-finance and venture- have been able to harness them to raise produc- capital institutions, science and technology tive efficiency in industrial enterprises. This institutions, and others that support subcon- does not mean that the institutions are unneces- tracting, small-scale enterprises, and informa- sary for ITD. They are vital to meeting certain tion flows. Institution building is widely needs, and their utility grows with the level of accepted as essential to development in all its industrial complexity, but policies must be forms. In the context of ITD also, the strength- designed to link them intimately to the ening of deficient markets requires "market needs of manufacturing enterprises. friendly" interventions to set up the appropri- ate institutions. Conclusions Linkages with the science and technology (S&T) infrastructure raises different sets of In conclusion, the process of ITD should be issues. Thus S&T infrastructure is generally in seen as the outcome of a complex interaction the public domain because of the "public between incentives, capabilities, and institu- goods" characteristics of many of its products tions. Policies to promote ITD have, therefore, (that is, private suppliers would not be able to to systematically address each of these sets of appropriate the benefits sufficiently to make it factors. Just focusing on one may lead to lop- profitable to supply them). The relevance of this sided development. A conducive incentive infrastructure to ITD varies with the stage of structure can summon forth healthy ITD only to industrialization. In early stages, simple testing, the extent that the skill, information, and insti- quality assurance, and extension and informa- tutional base permits, while highly developed tion services are the most important needs. Sim- educational and technology structures may ply informing enterprises of the need to invest not lead to technological dynamism if the in capability development, and showing them incentive structure is distorted or if infant how to go about it, may be a critical function at learning is not fostered. this level. In later stages, standards, metrology, applied and basic research, and coordination of ITD policies can try to improve the incentive or information become predominant as firms capabilities environment for firms to invest in grow and mature sufficiently to internalize developing their technologies. They can also act many technological functions. However, even directly on the firms to encourage them to in mature industrial economies there is a great undertake more in-house technological and need for information on technology, especially training efforts. Thus, many governments offer by small- and medium-scale enterprises fiscal incentives to R&D and training by indus- (SMEs). Many developed countries have tech- trial firms. They sometimes help firms to nology information services for SMEs, with restructure themselves to move from loss-mak- Japan having perhaps the most extensive and ing, obsolete technologies to new, profitable supportive government network of services.20 technologies. Some governments, most notably the Korean, deliberately foster the growth of In developing countries, the greatest problem large conglomerate firms that can extract maxi- with the science and technology infrastructure mum benefits from economies of scale and (apart from the shortage of human resources scope, and also internalize deficient capital to operate it efficiently) has been its lack of markets. However, this type of highly selective effective linkages with the productive sector. intervention can also be very costly if it goes Most developing countries have set up net- wrong. As noted earlier, most governments lack works of technology institutions, but few the analytical and administrative capacities, 51 TABLE i.i: DETERMINAN4TS OF INDUSTRIAL TECHNOLOGY DEVELOPMENT Demand side Supply-side capabilities and institutions Insti;tutional Capability Supportfrom Enterprise Incentives setting requirements outside level efforts Institutions Macroeconomic Rules of Skills Technology In-house Educational conditions the game Capital imports training Technical and vocational Trade regime Reguilatory Information Foreign Internally Science and technology Industrial policy frarrmework direct generated infrastructure, standards, investment funds metrology, R&D, testing and Factor prices Other In-house R&D quality control, technology availability testructuring extension services, engineering Fiscal incentives information Restructuring and design, small-scale enterprise for ITD support, among others Liberal regime Financial institutions Intellectual Venture capital property rights Management institutes and productivity councils Others as well as the political strength, to undertake J. Dahlman, B. Ross-Larson, and L. E. Westphal, "Managing such policies efficiently. The granting of more Technological Development: Lessons from Newly Industrializ- functonal that s, les fir-specfic) ncentves, ing Countries," World Development, 1987, pp. 759-775; J. M. Katz f unctional (that is, less firm-specific) incentives, (ed.), Technology Generation in Latin American Manufacturing, Lon- on R&D or training, may be less prone to error don: Macmillan, 1987; J. Enos, The Creation of Technological Capa- or abuse. bilities in Developing Countries, London: Pinter, 1992; S. Lall, "Technological Capabilities and Industrialization," World Devel- These various determinants of ITD, including opment, 1992, pp. 165-86; H. Pack and L. E. Westphal, "Industrial Strategy and Technological Change; Theory versus Reality," Jour- firm-level policies, are shown in schematic form nal of Development Economics, 1986, pp. 87-128. in Table 1 .1. The table provides a checklist to 2. This is established statistically by H. B. Chenery and associ- classify, describe, and evaluate technology ates, Industrialization and Growth, New York: Oxford University projects. Not each project is expected to cover Press, 1986. every aspect of ITD policy: this would be nei- 3. See Michael Porter, The Competitive Advantage of Nations, New ther possible nor desirable. However, projects York: Free Press, 1990. may be assessed as to whether they showed may be assessedLtowhethertheyshow4. See, for instance, A. Young, "Learning by Doing and the Dy- adequate understanding of the process of ITD namic Effects of International Trade," Quarterly Journal of Eco- and of the priorities in any given country. Given nomics, 1991, pp. 369-406. their particular objectives, moreover, it can be 5. See Sanjaya Lall, "Explaining Industrial Success in the Devel- assessed if they were consistent with other fac- oping World," in V. N. Balasubramanyam and S. Lail (eds.), Cur- ets of ITD, and if they were formulated to rent Issues in Development Economics, London: Macmillan, 1991. achieve their stated objectives. 6. For a longer exposition and references to related work done in the Bank and elsewhere, see the Operations Evaluation Depart- ment (OED), World Bank Support for Industrialization in Korea, In- Notes dia, and Indonesia, World Bank, 1992. 7. The nature of the technology may be defined as its complexity, 1. There is now a large literature on technological development minimum scale requirements, skill needs, speed of change, prod- in developing countries. For some important contributions see C. uct design characteristics, process engineering needs, nature of 52 supplier and subcontracting linkages, and the need for research Princeton University Press, 1962; and Pack and Westphal, 1986, backup and testing facilities. op. cit.); or (d) there may be exceptional risk aversion among new entrants to the industrial scene that leads them to discount the 8. In some activities, the import of equipment combined with future at a higher rate than society does, and again leads to un- some local design and absorption effort may suffice, while in oth- derinvestment in long-term capability acquisition. ers considerable licensing and local research and development may be necessary. Similarly, in some industries, low wages and 12. On the learning period for developing know-why capabili- the use of somewhat older technologies may allow the country to ties in complex engineering industries in Korea, see S. Jacobsson, preserve its competitiveness; in others, the utilization state-of- "The Length of the Learning Period: Evidence from the Korean the-art technologies may be essential. Engineering Industry," World Development, 1993, pp. 407-420. 9. Empirical work on capability building suggests, for instance, 13. This argument is made in the context of the industrial devel- that highly inward-oriented regimes tend to induce firms to de- opment of the US by Nathan Rosenberg, Perspectives on Technolo- velop skills to use local materials and to "stretch" the use of gy, Cambridge: Cambridge University Press, 1986. equipment rather than to raise quality, lower material use, or 14. See OED, 1992, op. cit. and S. Lall, 1991, op. cit. lower costs. Similarly, restraints on entry and exit are conducive to technological sloth and poor manufacturing practice. 15. See L. E. Westphal, "Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience," Journal of 10. In the words of John Stuart Mill: "It cannot be expected that Economic Perspectives, 1990, Vol. 4, no. 3, pp. 41-59. individuals should, at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burden of carry- 16. See the World Development Report 1991, Washington, DC: ing on until the producers have been educated up to the level of World Bank. those with whom the processes are traditional. A protecting duty, 17. Even those newly industrializing economies, such as Sin- continued for a reasonable time, might sometimes be the least in- gapore, that based their industrial development on foreign direct convenient mode in which the nation can tax itself for the sup- investment and the concomitant technology transfer now believe port of such an experiment." Principles ofPolitical Economy (1848). that the deepening of technological capability is both necessary 11. The case for infant industry protection is well known and has and dependent on their own investment in those activities (see important implications for developing countries. There may be "The Strategic Economic Plan, Towards a Developed Nation," four types of market failures that adversely affect enterprise de- Ministry of Trade and Industry, Singapore, 1991). cisions to invest in capability development: (a) there may be cap- 18. The problems of linkage creation are much more severe in ital-market failures that deter enterprises from investing in risky most centrally planned economies, like Hungary in the present activities or in technological deepening; (b) the enterpnrses may study, where the evolution of the industrial structure has been not have the information to predict (even roughly) the course of distorted and production is dominated by large, highly vertically learning, and in early stages of industrialization, the learning integrated public enterprises. process itself has to be learned [see J. E. Stiglitz, "Learning to Learn, Localized and Technological Progress," in P. Dasgupta 19. See D. Khatkhate, The Regulatory Impediments to the Private In- and P. Stoneman (eds.), Economic Policy and Technological Develop- dustrial Sector Development in Asia, World Bank Discussion Paper ment, Cambridge: Cambridge University Press, 19871.; (c) there No. 177,1992. may be externalities in the learning process (see K. J. Arrow, 20. See the Office of Technology Assessment Making Things "Economic Welfare and the Allocation of Resources for Innova- Better: Competing in Manufacturing, Washington, DC: tion," in The Rate and Direction of Innovative Activity, Princeton: US Senate, 1990. 53 2. Background to case studies Introduction This chapter starts by describing briefly the level of technological development in these This chapter describes the economic and tech- countries. It then outlines the determinants of nological background of the six sample coun- ITD in each; and it concludes with a synthesis of tries covered in this study: Hungary, India, the "technological challenges" facing the sam- Indonesia, Korea, Mexico, and Spain. These are ple countries-the challenges that the Bank's not the only countries in which the World Bank projects were trying to meet. has undertaken technology development (or closely related) projects, but the choice was made to reflect different types of projects and Technological background different economic settings. The choice of India, Indonesia, and Korea was based on the same It is difficult to rank technologically countries reasons as their inclusion in the OED study of at different levels of development, with differ- the Bank's approach to industrialization in the ent sizes and resources, in an unambiguous NIEs (1991)-different Asian countries at differ- manner. Nevertheless, the sample countries' ent stages of industrialization and pursuing dif- technological development can be viewed ferent trade and industrial strategies. Mexico and assessed on a combination of industrial was chosen as a m:iajor Latin American country growth and deepening, competitiveness with a sizable and diverse industrial sector that of their enterprises, development of local has recently undergone a sweeping liberaliza- capabilities to assimilate and build upon tion program. Spain was the location of the new industrial technologies, and the ability Bank's first complete industrial technology to enter into design and development of development project (there was an industrial industrial products. technology component in the Industrial Devel- opment Loan approved in 1975 for Israel, Afew tables are presented at the start to "set the Loan 1116-IS); its Ilocation and stage of develop- scene" on technology. The first deals with rates ment have evident points of interest. Finally, of growth of manufacturing output and exports Hungary is the only Central and East European for the sample countries. These are shown for country to have a technology loan from the 1965-80 and 1980-90 in Table 2.1, with data Bank. It is, in addition, the only country in that taken from the World Bank's World Development region that abolished central planning a long Report 1992. This shows the spectacular perfor- time (some two decades) ago. Given its long mance of Korea, with Indonesia (from a much established and heavy industrial sector, its lower base) not far behind. India has a poor experience is unique in the present context. initial performance but a reasonable record 54 TABLE 2.I: GROWTH RATES OF MANUFACTURING OUTPUT AND TOTAL EXPORTS (average percent per annum) Manufacturing Total exports 1965-80 1980-90 1965-80 1980-9( Spaina 5.9 0.4 12.4 7.4 Korea 18.7 12.7 27.2 12.8 Indonesia 12 12.5 9.6 2.8 Mexico 7.4 1.4 7.7 3.4 Hungaryb 6.4 -0.5 .. 5.5 India 4.5 7.1 3 6.5 a. Period 2,1980-88 only, from the World Bank's World Development Report 1990. b. Manufacturing growth rates not available. Data are for industrial production. in the 1980s, with the opposite true of the of long standing. Although the country is now other countries. too rich to be counted as a developing country, its industrial sector has some features that are The next table concerns R&D performance. similar to some other countries in the sample. Table 2.2 presents data on R&D in the sample Spain also went through an inward-oriented countries for the most recent year for which phase with a large role entrusted to the public figures are available. The figures are broken sector to lead its industry into heavy activities down into R&D by source of finance (govern- and to catalyze local R&D. However, Spain ment and productive enterprises, with "other" started from a much higher industrial base than not shown). It is not possible to get comparable most developing countries and always main- data on industrial R&D, so R&D financed by tained close technical and trading links with productive enterprises serves as the nearest neighboring European countries. It grew rap- approximation. idly in this phase, before gradually integrating its economy into western Europe and becoming It appears that Hungary leads the sample a full member of the European Economic Com- in terms of research effort, both in total and in munity (EEC) in 1986. Its rate of growth was, the proportion financed by productive enter- nevertheless, modest by NIE standards prises. Of the others, Korea is the largest throughout the period, with barely positive investor in R&D, with its lead particularly figures over the 1980s. Its heavy industry had marked in research financed by enterprises. pockets of technological excellence, but also Indonesia and Mexico have very little or no large patches of obsolescence and inefficiency. R&D financed by enterprises; India is very Spanish industry was weak in machinery man- low; and Spain has some enterprise financed ufacture and had an established tradition of R&D, but low for a country of its income and depending on imported equipment and tech- industrialization levels. These figures have nology from more advanced European neigh- to be understood in the context of other features bors. The structure of industry still has a of these economies, and they are taken in relatively high weight for light consumer goods turn below. (food, textiles, and garments account for 28 per- cent of total industrial production), while capi- Spain has the largest industrial sector in the tal goods (excluding transport equipment) sample, and its industrial sector is diverse and account for only 10 percent. 55 TABLE 2.2: R&D EXPENDITURES OF SAMPLE COUNTRIES (most recent year) Spain Korea Indonesia Mexico Hungary India Total R&D (% of GDP) 0.9 2.1 0.3 0.3 2.7 1.0 R&D financed by productive 40 82 [1-5] 10 77 12 enterprises (% of total R&D) R&D financed by govermnent 55 18 [over 90] 90 21 88 (%of total R&DI R&D financed by produc:ive 0.36 1.7 0.0 0.03 2.1 0.1 enterprises (% of GDP) Notes: Figures in square brackets are estimates. According to sources from the United Nations Educational, Scientific and Cultural Organization (UNESCO), only 1 percent of R&D in Mexico is financed by productive enterprises. Sources in Mexico estimate the figure to be around 10 per- cent; this is the figure used here. Sources: UNESCO, Statistical Yearbook 1990, and various country sources. The gradual exposure to the full forces of absorptive and the volumes were low (see world competition allowed Spanish industry to below). R&D activity was highly concentrated, upgrade itself over the past two decades, though and much of industry remained outside its some of its indus:ries are still protected by the ambit. Thus, Spanish industry displayed a EEC's common external tariff against competi- mixture of well-developed capabilities in oper- tion from the Far East. Its export performance ation and assimilation, especially in relatively has been respectable (total exports grew by mature industries, but weak capabilities in 12.4 percent per annum during 1965-80 and by innovation and entry into high-technology 7.4 percent during 1980-90), showing broad- activities. The government viewed this situa- based competitiveness, but most of the growth tion with concern because of its implications has been in medium-to-low-technology activi- for long-term growth and dynamic compara- ties. In comparison to other European Commu- tive advantage. nity(EC) countries, Spain has been losing ground in advanced industries with high income elastic- Korea is one of the most successful industrializ- ities of demand. NTevertheless, Spanish industry ers in the developing world. Starting from a has shown the capacity to absorb and utilize small manufacturing base in the 1950s, it was effectively a range of imported technologies for able to mount an industrial strategy that led to other industries, and to maintain a competitive sustained and high rates of output growth over edge despite rising wages. several decades. This growth was marked by a constant deepening and diversification of the These capabilities have gone together with industrial structure, in terms both of raising the marked deficiencies on the innovative front. local content of intermediate and capital-goods Industry had limited capabilities for local inputs and of moving into heavier industries. design, engineering, and product development. Manufacturing moved steadily from simple The traditional dependence of Spanish industry labor-intensive activities into basic intermedi- on imported technologies was reinforced rather ates, then into capital goods and durables, and than reversed by its liberalization. The main within these into more skill- and technology- exception to this trend was the group of pub- intensive products. This structural transforma- licly owned enterprises in strategic industries. tion of industry gave Korea a base of industry Spanish private industry did increase its invest- that is probably unparalleled in the developing ments in R&D, but its purpose was mainly world for range, sophistication, and depth. 56 Moreover, this was accomplished in a relatively There has been impressive growth in manufac- short period of time. tured exports since the launching of a program of reform in 1985. Much of this has been due While a number of developing countries have to resource-intensive activities and the reloca- managed to build heavy industry, none has tion of labor-intensive assembly activities from been able to combine this process with the level developed countries and the NIEs. However, of competitiveness that Korea achieved. It there has also been growth in exports of other started with relatively efficient export-oriented manufactures, some in complex and heavy light manufacturing, then entered more com- process industries (steel, fertilizers, chemicals, plex activities aimed at domestic markets. cement, paper) and a significant proportion Given the learning periods involved in master- of it in locally owned enterprises. This suggests ing the technologies and achieving fairly high that certain process activities are maturing levels of domestic content, these new activities by developing the skills and know-how to were brought to world levels of efficiency in rel- operate near world levels of efficiency. The atively short periods. By the latter part of the development is still localized, and large parts 1980s, Korea had entered several activities of a of the industrial sector, especially in engineer- level of sophistication and competitiveness that ing goods, continue to be backward and could match many advanced industrial coun- high cost. There is practically no investment tries. These activities displayed considerable in R&D by industry, and the level of industrial local mastery of the technology, since they were technological activity and innovativeness is largely under the control of local enterprises distinctly lower than the other countries and personnel. They were based on systematic in this sample. technological effort to understand and build upon the technologies. Over time, these efforts Mexico has, like India, a long history of inward- evolved into high levels of formal research and looking industrialization. Combined with good development, with impressive results in terms natural resources and a respectable base of of the successful design of "frontier" products human capital, it has built up a large and diver- of great complexity. sified industrial sector that enjoyed healthy (but not spectacular) rates of growth until the 1980s. Indonesia does not have a long industrial his- In that decade it suffered from a debt crisis and tory. Its manufacturing base, despite healthy related recession and adjustment. From the rates of growth since the 1960s, is still relatively mid-1980s it launched a drastic change in its small, and much of it is concentrated in tradi- trade and industrial regime, and is experienc- tional, low-productivity activities. It completed ing a revival in growth rates. In its import- the first stages on import substitution in the substituting period it developed a range of early 80s, and made some progress into heavier heavy industry, particularly in the process process and engineering industries. However, industries and automobiles. Rather like Spain, the main success in broadening the industrial its industrial equipment manufacturing and structure has been in resource-based process- advanced electronics sectors remained rela- ing, much of it aimed for exports; the engineer- tively weak, and the industrial deepening ing sector (in particular capital goods) remains process was highly reliant on foreign equip- weak, with high dependence on imported com- ment, design, and technology; Mexico was the ponents and almost no local engineering, largest relative importer of technology among design, and development capability. Reliance the large industrializing countries. There was on foreign technology and skills is pervasive in also a strong foreign presence in most advanced all modern industry. sectors of industry, though there existed a 57 number of strong local conglomerate groups Mutual Economic Assistance (CMEA). The rate with considerable industrial experience of growth slackened over time (and turned neg- and capabilities, ative in the 1980s) as a consequence of macro- economic problems, growing difficulties in the Mexican industry did not, despite its traditional CMEA, and the inherent competitive weak- inward orientation, suffer the distortions and nesses engendered by the mode of ownership, isolation that India did. The level of protection competition, specialization, and technical in Mexico was considerably lower, and indus- effort. Despite having a diverse and deep trial interventions far less. The strong foreign industrial structure, the capabilities that Hun- presence, continuous large inflows of foreign gary possessed were skewed, narrow, and technology, and its location next to a highly geared to its own particular market situation. industrialized economy kept it from developing There were pockets of dynamism and efficiency, similar technological lags and high-cost produc- and some of the older enterprises managed to tion, though they served to reduce the need to sustain their research tradition. But on the invest in local capabilities in research and devel- whole the industrial sector, overwhelmingly in opment. Many o.f its import-substituting indus- state ownership, suffered from growing techno- tries matured over time, and after liberalization logical lags. Managerial and marketing skills led its export thrust (heavy industry accounted were relatively underdeveloped, and soft bud- for 88 percent of Mexico's increase in manufac- gets led to considerable slack and inefficiency in tured exports over 1980-89). Thus, these indus- a protected environment. tries accumulated considerable operational capabilities, which coexisted with a lack of tech- There were, however, areas in which Hungarian nological deepening in terms of local design and industry was competitive in Western markets. development. Mexico has one of the poorest About half its exports were sold to the West in industrial R&D performances among the major the late 1980s, some (like buses, trucks, and industrializing countries, which particularly pharmaceuticals) in fairly demanding activities affected capital-goods manufacture and high- and based on considerable local R&D. The grad- technology activities. Unlike India and Korea, ual reforms that were launched in 1968 allowed its industrial strategy aimed at import substitut- greater managerial autonomy over time, and ing for production but not for technology: the in the mid-1980s enterprises were able to trade result was reasonable operational capabilities in directly and import technology and equipment. some areas and poor capabilities in others. Unlike other CMEA countries, Hungarian enter- prises could invest in in-house R&D rather than Hungary is unique in this group of countries. Its depend on ministerial research institutes for all socialist background combined with its long their technological needs. These factors gave experience of gradual and hesitant reform them some flexibility and exposure to the West, within the socialist framework make it very and permitted a certain capability development. unusual even in its region. Hungarian industry However, the distorted incentive structure and was highly developed at the end of the second rigidities in factor markets ultimately over- world war, and was well integrated into the whelmed these advantages, so that Hungarian trade network of western Europe. A number of industry was relatively undynamic, largely enterprises had an. established tradition of inno- uncompetitive, and technologically backward vative R&D. With the communist takeover, in many new high-technology activities. industrial growth initially accelerated and the structure deepened along the areas of special- India started its industrial drive in the 1950s with ization assigned to Hungary by the Council of a large, diverse, and long-established industrial 58 base. Given the large size of the domestic mar- nologies. There was notable growth in R&D ket, the existence of a thriving entrepreneurial activity, but much of it was in the public labora- class, good infrastructure, and a reasonable tories and did not contribute to industrial inno- presence in world markets (after the second vation. Thus, a range of deeper industrial world war, India was the largest exporter of capabilities did develop, but they did not lead manufactures in the developing world), there to broad-based competitiveness in manufactur- were high hopes for India's industrial develop- ing or to industrial dynamism. ment. The first phase of growth was respectable, but after the mid-1960s there was a marked In summary, therefore, there is a very mixed deceleration. There was significant improve- picture for the technological capabilities of the ment in the 1980s, followed by a relapse at the countries in this sample. Korea is probably the end of the decade. Over the period as a whole, clear leader on most counts, with the highest India's industrial performance was relatively rates of growth and the largest and most tech- weak, well below plan targets and with constant nologically advanced exports. But the others shortages and bottlenecks. Nevertheless, over have some areas of strength and some weak- the period the sector was considerably deep- nesses. India has a diverse set of capabilities but ened and diversified. There was a high degree of huge inefficiencies. Indonesia has a shallow and vertical integration, and the deliberate pursuit young industrial sector with improving opera- of self-reliance gave India a very broad manu- tional skills. Furthermore, Indonesia is almost facturing and engineering base, predominantly completely dependent on foreign technology owned by nationals, capable of meeting a large with little domestic technological efforts. proportion of its industrial needs. Mexico has a fairly diverse sector with good operational capabilities in process industries, The general competitiveness of Indian industry but is extremely dependent on foreign technol- apparently declined as industrialization pro- ogy for a country of its level of industrial devel- ceeded. While some of the new industries did opment; its industry is consequently very weak achieve reasonable levels of efficiency, many in design and development capabilities. Spain did not. Imported technologies were often mas- has the largest industrial sector in the group, tered, but in a static sense and rarely improved. but with gaps in high technology and equip- Costs of production were usually high, quality ment industries and weak local innovation. It poor, and productivity extremely low. Most shows far less dynamism than Korea. Hungary industries lagged increasingly behind interna- has an artificially deep industrial sector with tional "best practice" in process technologies large areas of lagging technology and skills, and product designs. Combined with a trade but it also has the longest industrial experience regime that discouraged exports, India's manu- and some very innovative firms. The following factured export performance was abysmal in sections analyze the determinants of these comparison to other developing economies patterns of capabilities. with significant industrial sectors. There were signs of growing technological capabilities in several industries, but these capabilities were The economic setting in the often diverted into "making do" and diversify- sample countries ing into protected (or permitted) activities rather than achieving competitiveness. Even Macroeconomic policies potential competitiveness was not properly exploited in world markets, though India The incentive framework for technology devel- became a fairly large exporter of industrial tech- opment encompasses a range of influences. 59 Among these, macroeconomic policies are among early 1970s. During the 1980s, Indonesia the most important. As far as the case study went through a period of macroeconomic countries are concerned, Spain achieved a long stress primarily because of falling oil prices. period of sustained economic growth of more After an early attempt to ride out the first shock than 6 percent per annum between 1961 and by drawing down its foreign assets, the govern- 1974. This was assisted by export-oriented ment launched a major adjustment program economic policies and supported by rapidly in 1983, which was intensified in 1986. It took rising foreign exchange inflows from tourism, decisive action to restrain domestic demand workers' remittances, and foreign private and mobilize additional resources, at the same investment. During this period the share of time undertaking policies to develop the nonoil manufacturing in gross national product (GNP) sectors of the economy. In recent years its rose from 30 percent to 39 percent. Sharply macroeconomic policy has been a model of increased petroleum prices in 1973-74 and effective management in the face of adverse the recession in other OECD (Organization external circumstances. for Economic Cooperation and Development) countries caused a :reversal in Spanish economic Mexico has a tradition of sound macroeconomic conditions as the balance of payments deterio- management. However, it began to experience rated in 1974 and 1975. After borrowing heavily difficulties in the 1970s when government from foreign capita,l markets to sustain invest- expenditures expanded rapidly, financed ment, Spain eventually opted for an official increasingly by inflation tax and foreign bor- devaluation of its currency, leaving it to float rowing. As inflation rose the real exchange rate from February 1976. The GNP growth had come started to appreciate. The discovery of new oil to a virtual standstill by the beginning of 1976. reserves alleviated the pressure for stabiliza- tion, but by 1982 falling oil prices, rising world Korea maintained a predictable and largely interest rates, and massive capital flight led to well-managed regime. It mobilized high rates the debt crisis. The first response was an of savings and investments, promoted exports, impressive fiscal adjustment effort (which con- and motivated its private enterprises to invest verted the budget deficit of 7 percent of gross in technological development. Except for one domestic product in 1982 to a surplus of 5 per- period during the Ilte 1970s, the foreign cent in 1984) and a massive devaluation. The exchange regime was well-managed and ori- collapse of oil prices in 1985-86 led to a second ented to rapid export growth. A number of fac- crisis and adjustment response. This involved tors led to macroeconomic instability and a a further substantial devaluation, which gener- stabilization program was launched in 1979, ated inflationary pressures, leading to a further which succeeded in restoring macro balance by tightening of fiscal and monetary policy, a wage imposing strict financial discipline, exchange freeze, and a freezing of the nominal exchange rate devaluation, w.age restraint, and invest- rate against the dollar. This has been successful ment cutbacks. in reducing inflation, and, combined with a debt restructuring package, has brought down After a period of macroeconomic mismanage- real interest rates and attracted substantial for- ment in the 1960s, the new regime in Indonesia eign investment. pursued stable policies, accompanied by mas- sive public investments programs supported by A significant part of Hungary's economic prob- oil income. The government has insisted on bal- lems in the 1980s were due to weak macroeco- anced budgets and rmaintained an open capital nomic management. The economy performed account on its balance of payments since the relatively well until the mid-1970s, when it 60 started to run a large balance of payments Apart from macroeconomic policies, the deficit brought about by a series of external most important factors affecting ITD are the shocks. Its early response was to borrow rather nature of the trade regime, access to technology than adjust and external debt rose rapidly. In imports foreign direct investment, and the internal 1982 the government launched a stabilization competitive regime. The impact of these in the program supported by two International Mon- sample countries is displayed in summary etary Fund (IMF) standby arrangements. This form in Table 2.3. stabilization hit investment rather than con- sumption, and imports of capital goods from Trade regime the West were curtailed. Exports to convertible currency areas performed poorly and external The trade regime of the sample countries debt to these areas increased further. This phase varied from strongly export-oriented to highly of reform did not achieve structural improve- inward-looking, with Korea at one extreme and ments, and in 1985 a new process of stabiliza- India at the other. However, it is important to tion cum adjustment was initiated. Efforts were note that each of the countries intervened strongly made to curb the budget deficit, further reduce in trade to foster new industries, with different demand pressures, and tighten the financial degrees of selectivity, the efficacy of implementation control of enterprises. In 1987 these measures of strategies, and the introduction of offsetting mea- were supplemented by International Monetary sures to reduce the distortionary effects of protection. Fund and World Bank loans, and started to Thus, the incentives given for investments in yield positive results; however, the program capability acquisition differed greatly. faltered in 1989 as wage, monetary, and fiscal discipline was relaxed. Spain had a long-established industrial sector with close trading and technological ties to India experienced relatively moderate inflation western European countries before it launched despite substantial expansion of the money a period of import substitution under Franco. supply to finance budget deficits. It succeeded The extent of protection in this phase was rela- in raising its savings and investment rates, tively mild, and technological ties continued to despite low levels of per capita income. be close. But the protectionist phase enabled the However, the emphasis on public investment setting up of several heavy industries (though and the inefficiency of the large public sector not advanced capital goods). This period ended led to poor performance and a crowding out by 1959, when Spain started a long process of of the private sector from industrial activity, liberalization that is still going on. In 1986 it After a large devaluation in 1966, India joined the EEC, with safeguards for vulnerable returned to a fixed exchange rate regime industries for seven years. The Community's for a long period. This, in combination with external tariff currently protects Spanish indus- a highly inward-looking trade regime, led to try against labor-intensive and other (mainly a very sluggish export performance. In the automotive) exports from East Asia and other mid-1980s the government adopted a more developing countries. The gradual liberaliza- flexible and realistic exchange rate policy, tion allowed many traditional and modem which together with some liberalization of the industries in Spain to adjust and become com- industrial and trade regime led to an impres- petitive. However, two major sectors remained sive industrial growth and export performance. weak-advanced capital goods and electron- In the late 1980s, however, there was a resur- ics-and the continuous dependence on foreign gence of macroeconomic problems that are technology and equipment retarded the devel- now being tackled. opment of a local innovative base. The incentive 61 TABLE 2.3: INCENTIVE STRUCTURES IN SAMPLE COUNTRIES Spain Korea Indonesia Mexico Hungary India External incentives Trade Industrial sector of Strong overall export Early import substitu- Long history of As industrialized as Strong, prolonged regime long standing. Went orientation, with tion with heavy inter- incentive structure, many western Euro- import substitution through import protection of import ventions followed by with typical nonse- pean countries in 1950, with heavy inward substitution phase substitution and export strong export promo- lective pattern. But with a tradition of bias, only partly off- until the 1960s, but was industries by quantity tion since mid-i 98Rs, not as protected and research and develop- set by export incen- never isolated from restrictions, tariffs, gov- and some import liber- inefficient as India. ment. Then four tives. Structure of European industry. ernment procurement. alization. But high and Did not promote decades of distortion protection irrational Then joined the Euro- Heavy industry was pro- variable ERPs remain, capital-goods indus- (in relative isolation) and protracted, with pean Free Trade moted strongly, espe- and the future course try sufficiently. Some and specialization no economic selectiv- Association and cially in the 1970s. of liberalization is not liberalization ear- within the Council of ity. A lot of rent-seek- liberalized gradually. Variable effective rates clear. Rent-seeking by lier, but massive Mutual Economic ing, favoring large In 1986 joined the of protection (ERPs), large conglomerates. opening up since Assistance (CMEA). firms. Modest liber- European Economic but low rent-seeking. Main export thrust 1985. Manufactured But kept strong trading alization recently, but Community (EEC) High degree of selectiv- coming from resource- exports grew rap- links with the West, tariffs still high. Con- with some special tariff ity as part of industrial based industry and idly, but mainly in with some liberaliza- sumer goods imports barriers during the strategy. Import- labor-intensive activi- capital-intensive tion since 1968. Firms banned. High adjustment period, substitution activities ties relocated from process industries could export on their degree of local Common tariffs still moved into export newly industrializing and autos that were own in 1980s, so some integration. protect labor-intensive orientation constantly. economies (NIEs). highly protected. had good access and other sectors. Cautious liberalization to information. over 1980s. Technology No restrictions on Heavy reliance on Low indigenous tech- Highly dependent Relatively limited "Self-reliance," low imports technology import imported equipment and nology base, high reli- on technology access to Western relative imports of all (TI). Location made licenses rather than for- ance on imported imports, especially technology pre-1990, forms of embodied, for fairly easy access to eign direct investment. equipment,technology, from the US. Despite but a lot of licensing and disembodied world technologies, Strong absorptive effort. and skills. Very liberal nationalist rhetoric, and equipment technology. Technol- except for small- and Supported TI with infor- policies on TI by licens- effective reliance on imports in 1970s ogy transfer tightly medium-scale enter- mation. Local consult- ing and turnkey TI was very high in before the macro situa- regulated. Ham- prises (SMEs) and tra- ants protected. projects. No system of all forms. Public tion worsened. pered access to new ditional activities. screening or support. enterprises were technology, espe- Highly dependent among the largest cially by SMEs. on advanced equip- importers of technol- ment imports, local ogy and capital design weak. goods. Foreign Large foreign presence Relatively low, Some restrictions on Largest foreign Practically no FDI Very low, tightly direct in all sectors of indus- restricted selectively. entry earlier, but much presence in industry before 1990. Some restricted, guided investment try and services. Surge Nationalist strategy of eased, especially in of any large devel- best firms sold to into high-tech in foreign direct invest- ownership. Minority export-orientation oping country, MNCs since, but priva- export-orientation ment (FDI) just before ownership preferred. activity. Private large despite some restric- tization is going activity. Majority and after joining the Gradual opening up firms depend heavily tive policies. Multi- slowly. FDI volume not shares rarely EEC. Very liberal when own firms large on foreign partners in national companies large yet. allowed. Local affili- regime for FDI. and strong. all aspects of technol- (MNCs) in auto ates highly regu- ogy. FDI advanced industries are lead- lated. Some in process industries ing exporters. liberalization last but at low-level assem- two years, but cli- bly in engineering mate still poor rela- industries. tive to East Asia. Internal incentives Competition No policy barriers to Domestic competition. Widespread licensing Domestic competi- Central planning abol- Entry/exit/growth competition. Dualistic promoted, but among and other controls, but tion active. Some ished 1968, so some and diversification structure of SMEs in chaebol established by the not as restrictive as large conglomerates domestic competition, tightly controlled, traditional activities government to internal- India. A lot of rent- dominate private but tightly regulated by especially for large and large conglomer- ize markets. Entry con- seeking as a result of industry. Special the government and monopoly firms. ates and foreign affili- trolled by the govern- the political system programs to pro- labor. Most large firms Small-scale enter- ates in modern ment. Some selective and close links with mote private sector highly vertically inte- prise promoted by industry. restructuring. SMEs conglomerates. in selected sectors, grated, used to depend- reservations. Incen- relatively neglected. but generally few ing on government tive structure highly constraints. signals and favors. distorted by controls and rent-seeking. Public The national industry Very limited in manufac- Given role of entering Traditionally very Almost all large Given lead role in sector role institute (INI) played turing, but very effi- heavy industry. Later large in certain industry in public heavy industry, with a leading role in dent. Generally very strategic industries set sectors, with usual sector, but some many privileges. advanced industry and supportive of the pri- up to go into high-tech inefficiencies. privatized now. Hostile attitude to invested in research vate sector. activity. A lot on ineffi- Sweeping privatiza- Soft budgets until private sector. But and development. ciency in public enter- tion recently, with recently, little public enterprises Now being privatized. prises, and pressure to only a few sectors pressure to invest in subject to gross inter- reform, except for stra- reserved for public industrial technology ference. Generally tegic industries that enterprises. development. inefficient, loss-mak- continue to receive ing, overmanned, privileges but have unable exit. dubious economic benefits. structure remained geared to efficient operation early industrialization, though from a much rather than to research and development. smaller industrial base. Much of the engineer- ing goods sector did not move beyond the Korea had the most consistent and strong set of assembly stage, and a large part of the manufac- incentives for exporting, but combined this turing sector remains shallow and highly with a clear strategy of import substitution dependent upon imported inputs despite a local throughout the period, aimed at pushing indus- content policy. After the mid-1980s there was try into more complex, capital- and technology- significant liberalization, but this took the form intensive activities, and increasing local content mainly of strong export promotion and a grad- of current as well as capital-goods inputs. This ual, hesitant lowering of import barriers rather strategy was implemented by tariffs, quantita- than a rapid opening to world competition. tive restrictions, local content rules, and gov- There was a gratifying response on the manu- emnment procurement. The setting offered to factured export front, with the bulk of the exporters was, thetefore, a simulation of some increase coming from natural resource and of the necessary conditions for free trade, but labor-intensive industries, but with significant without a full exposure to import competition. activity also from a number of capital-intensive Protection continued to be afforded to export processing industries that had matured from activities, but they were allowed access to infancy. The progress of liberalization remains inputs at world prices. Effective rates of protec- uncertain. ERPs continued to be high and vari- "ion (ERPs) were often high for selected activi- able. However, unlike Korea earlier, they do not ties for long periods, but with rapid growth in form part of a coherent overall industrial strat- productivity they came down over time. How- egy to foster promising infant industries and ever, nominal protection on most export activi- force them into world markets in a short period. ties was not necessa:rily reduced, and imports of Thus, trade regime incentives for technological competing products were not liberalized until learning are muted. later, and then at a gradual, pre-announced pace. The Korean regime was geared to promot- Mexico's long period of import substitution also ing a relatively few infant industries at any followed the typical broad, nonselective given time. New infants were generally limited approach of India, but with two important dif- in number, carefully monitored for productivity ferences. First, the extent to which protection progress, given strong preference in access to and other interventions were pushed was con- credit, supported by capability-building mea- siderably less. Second, the heavy industries sures, and forced into export markets quickly. promoted were mainly in intermediates and consumer durables; the capital-goods sector There was little obvious rent-seeking. The was not strongly supported and its weakness harmful effects of protection were offset by affected the nature and depth of industrial the strong pressures and incentives to enter capability development. The Mexican economy export markets. The protection of the capital- was more exposed to world trends in technol- goods sector was undertaken carefully, so ogy than India's, but the lack of a strong export as not to handicap exporters, and Korea was orientation and a thriving capital-goods sector one of the largest importers of equipment in meant that capabilities did not develop fully the developing worlcl throughout its period and those that did were not fully exploited in of industrialization. the inward-looking period. After some hesitant attempts, Mexico liberalized its trade rapidly in Indonesia followed an Indian-style import- the latter part of the 1980s. This allowed many substituting strategy for a long period of its of the accumulated capabilities to be exploited 64 in export markets, and the bulk of the increase were geared to promoting other objectives in foreign sales came from heavy industry that besides economic efficiency. The overall bias of would not have been set up in the absence of the regime was to make domestic sales far more import substitution. However, the early growth profitable than exporting, and a number of spe- in exports was in the nature of a stock adjust- cific export-promotion measures failed to offset ment, and the rate of growth of manufactured this bias. The regime promoted the setting up of exports declined rapidly over 1987 to 1990. The a large range of industries, with high local con- future growth of exports will depend inter alia tent but without regard to competitiveness. The upon the creation of new capabilities. The structure of protection was not geared to the incentive regime in Mexico thus facilitated the learning needs of industries, nor was it offset by accumulation of largely operational capabili- other forms of international competition. ties, some in very complex activities, but it did The lack of a coherent overall strategy was not lead to the deepening of those capabilities. exacerbated by weak implementation, that led to a lot of rent-seeking. The strategy was Hungary was perhaps the most industrialized therefore not conducive to dynamic learning, economy of the sample at the end of the second though a base of capabilities was built up in a world war, with strong trading links and many variety of difficult activities. Restricted access to firms with independent research capabilities. new capital goods was particularly harmful for The long period of communist rule distorted the technological upgrading. There has been some incentive structure enormously, isolating the liberalization recently, but by most standards economy in large part from the west and enforc- the economy remains highly protected and ing specialization within the CMEA. Enter- inward-oriented. The accumulated capabilities prises did not deal directly in world markets for are still underutilized in world competition. a considerable period, though with the abolition of central planning in 1968, and the introduction Technology imports and foreign of relative prices based on world levels, there direct investment was a gradual return to more direct interaction with foreign markets. By the late 1980s firms The sample countries had different strategies on could trade fully with the West, and over half of access to foreign technology via licensing, turn- Hungarian exports were directed at Western key projects, and direct foreign investment. In markets. This gave some incentives to upgrade the post-Franco era, Spain had very liberal poli- technological capabilities, but the protection of cies to technology import (TI) and foreign direct the domestic market combined with domestic investment (FDI). Its gradual integration into distortions (below) and restricted access to the industrially more advanced European Com- Western capital goods and technology (exacer- munity led to substantial imports of technology bated by severe macroeconomic pressures in the and investment and the upgrading of opera- 1980s) led to progressive technological retarda- tional capabilities. It did not, however, catalyze tion. There was a massive liberalization after a process of indigenous technology creation. The 1990, and the incentive system is now strongly industrial structure retained many of its earlier conducive to technological upgrading. weaknesses in capital-goods and high-technol- ogy manufacturing. Design, R&D, and innova- India had the most consistent strategy of tion capabilities continued to lag well behind its inward-oriented industrialization strategy of Community partners. Access to foreign technol- all the market economies in the sample. The ogy did not feed into a dynamnic indigenous ITD protection it gave was prolonged and was com- process, though the trade and industrial regime bined with a host of other interventions that was conducive to competitiveness. 65 India and Korea were the most restrictive ogy, but remained in relatively simple activities of the market economies. Both showed a apart from the resource processing sectors. strong preference for nonequity forms of tech- Though easy access to foreign technologies nology import and intervened in licensing to and FDI provided incentives for Indonesian strengthen the position of local firms. However, enterprises to upgrade their capabilities, low there were important differences between absorptive capacity, distorted incentives, them. Korea was, as noted, a large importer of and a passive attitude to ITD detracted from capital goods, and used this as its main form of a full exploitation of the potential. Indonesia access to foreign technology. However, since remains highly dependent on TI for all this form provides less foreign know-how and advanced technological needs, and the technical assistance than all other forms of TI, local diffusion of technology is weak. Korea had to invest heavily in absorption and adaptation in order to meet its objective of Mexico went through phases of regulating TI export competitiveness. It allowed increasing and direct investment inflows to promote local amounts of licensing and turnkey imports to technological effort. In general these efforts gain technologies where this was necessary, were ineffective, and Mexican industry (includ- and only in recent years has it liberalized on for- ing its large public enterprises) remained very eign investment with majority foreign owner- reliant on imported equipment and technology ship. Until very recently, India rigorously in all forms. Foreign affiliates dominated most restricted capital-goods imports as well as other of the advanced industrial sectors, though, as forms of TI, and intervened far more exten- noted, the equipment manufacturing and elec- sively in TI negotiations than Korea (which tronics sectors remained underdeveloped. Rela- mainly provided information support to its tive to its size, Mexico had the largest imports of firms and insisted on the use of local engineer- technology import and foreign direct invest- ing consultants and, to some extent, local equip- ment of all the NIEs. As the economy became ment). In concert wil:h its trade and internal more export-oriented, TI and FDI went up, but interventions, the Indiian technology regime the traditional dependence on foreign technol- gave incentives to buy relatively little new ogy did not decline. As with Indonesia, access technology. Nevertheless, there was significant to foreign technology per se was not enough to growth in local design and engineering capabil- cause significant ITD, even when the trade ities, and active internal technology diffusion regime became more favorable to competing took root within India. in world markets. Indonesia always had a very liberal TI regime Hungary had relatively restricted access to but was restrictive on FDI until the mid-1980s. Western technologies, and practically no FDI Its undeveloped capital-goods industry and inflows, during the communist period. How- low base of indigenous design and engineering ever, its enterprises did import capital goods skills made it highly dependent on foreign from the West whenever permitted, and there equipment, engineering services, licenses, and were steady but not large inflows of technology joint ventures. It did riot intervene in the TI pro- via licenses. Access to TI worsened in the 1980s cess or support its firns with information on with macroeconomic problems [the COCOM sources of technology. FDI increased rapidly (Coordinating Committee for Multilateral after policies were eased, and there was a mas- Exports) restrictions also held back the transfer sive influx into resource-based activities and of sensitive technologies from the West], and labor-intensive assembly operations. Foreign technological lags grew particularly large in investors brought in good operating technol- this period. All restrictions have been removed 66 after 1990, but it is too early to say how Hungar- heavy industry and international markets, and ian enterprises will react in terms of ITD invest- to undertake the necessary investments, R&D, ment. It is likely that the large enterprises that and marketing. It guided their entry into partic- had a tradition of independent R&D (see ular activities, and directed credit to them in below) will use the opportunity to upgrade accordance with its trade strategies to promote their innovative capabilities. industrial deepening in selected directions. It allocated export targets at the product and even The experience of the sample countries sug- firm level. Exit was tightly regulated, some- gests that access to foreign technology is neces- times accelerated when the chaebol did not meet sary for technological upgrading, especially as performance targets, and sometimes prevented far as operational capabilities are concerned. It by infusions of resources and deliberate restruc- is also necessary for the deepening of ITD into turing of firms and industries. indigenous design and development, but clearly not sufficient. Whether or not the avail- The undertaking of R&D was encouraged along ability of foreign technology is used to deepen similar lines, with subsidies, persuasion, and local capabilities seems to depend on the tradi- support. The public sector was allocated a very tion of local R&D as well as the incentive frame- limited role; where it did enter industry (as in work. There is little evidence from the sample steel), it was allowed to function autonomously countries that openness to foreign technology and forced to conform to the same rules as the per se has resulted in a dynamic and deepened chaebol. This set of policies served to combine industrial technological capability. coherently Korea's trade, technology import, and industrial strategies with the objectives of Internal competitive regime realizing scale economies in heavy industry, R&D, and export marketing (and the internal- The internal competitive regime consists ization of the relevant capital markets and of the ease of entry and exit, regulations on risks), promoting vigorous domestic competi- size, concentration, growth and diversification, tion, providing access to foreign technology and ownership restrictions. Table 2.3 divides while restricting FDI, and inducing firms to these into two broad categories: competition invest heavily in absorbing and building upon and the role of the public sector. As before, imported technologies. there is a diversity of incentives for ITD in the sample countries. Indonesia also had widespread controls and assigned the public sector a leading role in Spain had free domestic competition, but with heavy industry in the early days. Many of these an inherited structure of large public enter- controls and biases were lifted over the 1980s, prises (INI) and powerful private conglomer- but the rules of the game remain unclear. There ates. Both are forced to compete in domestic is a lot of discretionary and nontransparent markets and against imports, so that there granting of privileges to firms and so a lot of would seem to be no disincentives to ITD. rent-seeking activity. A few large, private conglomerates dominate the industrial and Korea promoted vigorous domestic competi- financial scene. The medium-scale industrial tion, while simultaneously engaging in several sector is underdeveloped and cannot offer policies that aimed at enhancing the interna- competition or linkages to large firms, while tional competitiveness. The government built small enterprises are either in traditional, up the large, private conglomerate groups, the low-technology activities or in the export chaebol, to spearhead the country's drive into sector where they do not interact with local 67 industrialists. The public sector dominates India also tightly controlled entry, exit, and heavy industry, and within it a few "strategic growth of its private firms. But its objectives industries" occupy a privileged position where and results were very different from Korea's. they can command large resources for technol- The Indian government sought to hand the ogy development. Thus, the internal regime for "commanding heights" of the economy to the ITD is unclear and distorted, though not to the public sector, to which it did not allow sufficient same extent as in India. Unlike Korea, Indone- autonomy or clear efficiency objectives, and to sia has not been able to mount strategies that which it gave soft budgets and markets that would make use of the conglomerates to lead its were protected internally and externally. The technology development. incentives for ITD in the PEs were very limited as a consequence, and only a few with inspired Mexico has more liberal domestic competition, leaders were able to go beyond these con- though it too has dominant public enterprises straints and invest in significant and productive (PEs) in some activities and a number of large, R&D. The private sector was, for a long time, private conglomerates. There is fairly free subject to pervasive controls on all aspects of domestic competition, which has become investment, diversification, and expansion. far more active over the past decade with This applied particularly to large firms, espe- the liberalization cf entry, exit, and takeovers, cially those classified as monopoly houses or and the vigorous privatization of most PEs. under foreign control. The small-scale sector There seem to be few internal constraints to was given inducements and reserved markets, incentives for ITD. but in a way that distorted resource allocation and growth. There was a lot of corruption and Hungary kept tight controls on its (public) enter- rent-seeking, as the large private firms found prises even after the abolition of central plan- ways to manipulate the system to their advan- ning in 1968. Though enterprise managers tage and diversify excessively within protected gained considerable autonomy and learned markets. There was a significant growth in how to operate in product and factor markets on domestic competition over time, but the general their own, domestic competition was muted by effect of this regime (combined with the protec- soft budgets and a qjuasi-planning system that tionist trade strategy) was to stifle incentives for persisted until the late 1980s. The government ITD and distort it to meet the constraints cre- used a number of "indirect regulators" and ated by policy. Exit was practically impossible interventions to govern growth, diversification, for PEs and very expensive, slow, and cumber- and competition. Most firms remained highly some for private firms. Many of these regula- vertically integrated, with little subcontracting tions have been relaxed, but some remain: in and efficient specialization. Over time, the gov- particular, exit is still very difficult, and the ernment gave a greater role to labor unions in public sector remains more or less intact. The management. Since labor was difficult to shed in incentive regime for technology development is any case and was extremely immobile, enter- thus better, but far from ideal. prises found it difficult to formulate clear long- term strategies for technology development. In summary, the incentive framework for ITD Although the incentive structure was not as bad was given by a constellation of factors. Stable as in other centrally planned economies in the and predictable macroeconomic settings pro- region, it was considerably worse than most vided the essential background to healthy ITD. market economies. Despite this, many firms Not all the sample countries provided such a invested in R&D, presumably more for export setting on a continuous basis, but most countries markets than for internal competition. enjoyed a fair measure of stability and 68 sustained growth at the time the technology practically ruled out by the nature of the projects were conceived. The strongest economic economic regime. growth performance was exhibited by Korea, and may have been a factor in promoting its ITD. Skills Competition clearly was the main driving force According to the framework used here, the behind investments in technology develop- main national capabilities relevant to ITD are ment, and exposure to it forced firms to quickly skills, finance, and information on technology. upgrade their operational capabilities. Interna- These cannot be adequately quantified and tional competition was a particularly potent compared across different countries, but rele- stimulus to ITD, but most countries protected vant information on some indicators can be their industries to promote entry into techno- considered usefully. Table 2.4 on human capital logically demanding industries. This protection in the sample countries presents some relevant was often indiscriminate and overextended, data on education and training for technology and led to areas of inefficiency and technologi- development. These are on total secondary and cal stagnation. Only Korea managed to com- tertiary enrollments, enrollments in vocational bine infant industry protection with a strong training, enrollments in science and technology export drive, and was thus able to reap the ben- subjects at the tertiary level, and scientists and efits of the stimulus of international competi- engineers engaged in R&D. The data may not tion while building up an efficient and broad always be fully comparable, and they do not industrial base. The other countries also built take account of differences in completion rates, up a number of efficient industries that per- quality of training, or the relevance of the formed well once liberalization was intro- curricula to industrial needs. Nor do they duced. However, their failure to expose their measure a vital element of industrial skill industries to the stimulus of export competition formation, training of employees. In particular, adversely affected the dynamism of their ITD. they do not completely portray the situation in various countries when the projects were con- Internal competition varied in vigor across the templated. Nevertheless, they are instructive sample countries. In Korea, Mexico, and Spain for general comparison. it was relatively strong, while in India there were pervasive restrictions arising from indus- The table shows that Korea and Spain have the trial policy interventions. Indonesia started highest skill levels in terms of general educa- with a restrictive industrial policy regime, but tion at the secondary and tertiary levels. Korea gradually liberalized it over time. Internal com- has a significant edge in terms of tertiary enroll- petition in Hungary remained highly restricted ments, while Spain has higher rates of second- because of the socialist nature of the economy ary enrollments. Korea is far ahead of all the and its concentrated industrial structure. other developing countries in the sample on both counts (this is true even if a larger sample Access to foreign licensed technology was fairly of NIEs is considered-see the 1992 OED study liberal in all the countries with the exception of on industrialization). There are indications that Hungary and India. The entry of foreign direct Korean completion rates, quality, and relevance investment was controlled to different extents of its education (for industry) are also higher in these countries: Mexico and Spain, and later than in most developing countries, and meet Indonesia, permitted high inflows of FDI, while the standards of many OECD countries. India India and Korea placed severe restrictions until and Indonesia are weak performers in the recently. In Hungary FDI from the West was sample. Mexico is better, but Hungary (with 69 the same figure as Mexico for tertiary enroll- ever, that Hungary leads the sample by a signif- ments) is surprisingly poor for a European icant margin, suggesting that their employment country with such a large industrial structure. distribution was highly skewed to research The level of in-finm investments in training is even when the R&D performed was not espe- not fully known. Impressionistic evidence sug- cially innovative or geared to industrial com- gests that Korea and Spain invested large petitiveness and performance. Of the others, amounts in this, with Mexico some distance, Korea is far ahead of Spain (2.5 times), Mexico and the others much further, behind. (6.1 times), Indonesia (7.4 times), and India (11.9 times). This last figure is noteworthy, The table also gives the figures for enrollments because of the widely held impression that in tertiary-level science and engineering and India has a huge scientific establishment: the in vocational training. Hungary and Spain have absolute figure is large, but in relation to the the highest enrollments in vocational training size of the country it is very small. in the sample, attesting to the long-established system of schooling and its gearing to industrial Finance activity. Korea comes next, with ratios far higher than the otlher developing countries. The financing of ITD is fairly well-established India has a surprisingly low enrollment rate, in four of the sample countries: India, Korea, lower even than that of a relative newcomer to Mexico, and Spain. Of these Korea had perhaps industry like Indonesia. Mexico has a respect- the broadest and longest established array of able figure. As far as science and engineering financing mechanisms specifically to assist enrollments at the tertiary level (as a percentage of technological upgrading and R&D. There were the population) are concemed, Korea is the direct grants and subsidized credits to enter- clear leader, with Spain, followed by Mexico, prises, private research institutes, and official some distance behind. The others trail much R&D centers that undertook approved R&D further behind, with Hungary registering a fig- projects. There was a special institute to help ure between that of India and Indonesia. SMEs, as well as an institute to help firms to commercialize their innovations. India devel- The data on numbe:rs of scientists and engineers oped some venture-capital institutions over the in R&D (per million population) show, how- 1980s, while Mexico set up institutions in the TABLE 2.4: HUMAN CAPITAL IN SAMPLE COUNTRIES Spain Korea Indonesia Mexico Hungary India Secondary school enrollments 105 86 47 53 76 43 as % of relevant age group (1989) (1989) (1989) (1989) (1989) (1989) Total tertiary enrollments 32 38 8 15 15 9 as % of relevant age group (1989) (1989) 1989) (1989) (1989) (1986) Vocational training enrollments 3.31 1.72 0.71 1.05 3.13 0.09 as % of population (1987) (1989) (1988) (1988) (1988) (1988) Tertiary enrollments in science and technology as % of total 0.54 0.86 0.08 0.45 0.11 0.16 populationa (1987) (1988) (1987) (1988) (1988) (1987) Scientists and engineers in R&rD 536 1,346 183 222 1,948 113 per million population (1987) (1988) (1988) (1984) (1988) (1986) a. Subjects included are natural science, mathematics and computer science, and engineering. Sources: World Bank, World Development Report 1992; UNESCO, Statistical Yearbook 1990. 70 early 1970s to finance industry and, as part of structure has been diverted to uneconomic this, some technological activity. Spain also set technological aims. up venture-capital institutions in the 1970s. However, in terms of the volume and effective- Their impact on ITD differed considerably, ness of technology financing, Korea is clearly depending partly on the larger economic envi- in the lead. ronment and partly on the organization, staff- ing, management, and the incentive structures Information of the institutions themselves. The country studies describe in greater detail some of the The information needs of ITD are diverse, and institutions involved, but it would not be useful it is difficult to assess how adequately they are to summarize the analysis here in view of the being met. One way may be to look at the pro- difficulties in assessing their relative contribu- portion of national R&D that is not in the pro- tions to ITD. ductive sector, that is, that is devoted to S&T infrastructure, universities, defense, and so on. However, these figures capture far more than Conclusions: the technological national investments in technology support "problem" functions, and it is not possible to interpret much from them. The above discussion shows that industrial technological issues differed enormously These considerations apart, it appears across these six countries over the past 15 years that Korea invested quite a lot in the infrastruc- when all the Bank's technology projects were ture for S&T, while Mexico invested relatively launched. There were certainly a number of little, with Spain in the middle. If the effective- common problems that all countries faced, ness of national technological effort is the because of the practically universal nature criterion by which the information provision of market failures in the provision of finance, is judged, this ranking would not seem to skills, and information to industrial firms be unreasonable. In the nature of the investing in technological activity. However, phenomenon, however, it is not possible the weight and incidence of the specific market to say much more. failures differed. More importantly, the incen- tive frameworks within which firms were Although the assessment of institutions rele- investing in ITD varied greatly, as did the vant to ITD is difficult on a cross-country basis, "traditions" that countries had developed it is possible to compare the coverage of tech- over time of investing in local innovative nology infrastructure institutions between the effort as opposed to buying their more sample countries. While each of the countries difficult technologies from more advanced had a range of institutions dealing with technol- countries. These traditions, themselves the ogy, finance, education, training, and infra- outcome of location, history, and past policy structure, many long standing, it appears that interventions, appear to exert an independent the most comprehensive and effective coverage influence on ITD, regardless of the impact of of industrial needs was provided by Korea. incentives arising from the trade and industrial India, Mexico, and Spain had set up institutions regimes. Such traditions are not impervious to meet many industrial needs, but the linkages to change, but they do not shift quickly in of their institutions with industry was relatively response to policy shifts on trade and weak. Indonesia had a poor institutional frame- competition (this will be taken up in the work, and a large part of the technology infra- discussion of the projects). 71 To summarize the technological problems of number of instruments to support R&D in each of the sample countries: approved projects by the chaebol. Smaller innovators and other forms of technological * Spain's large and long-established industrial effort were not addressed. The S&T infra- structure has improved its operational capa- structure received a lot of financial and bilities considerably over a period of gradual human resources, and seemed to succeed in liberalization and active policies to restruc- establishing good linkages with industry. ture firms and r aise linkages with the S&T These measures led to spectacular increases infrastructure. The economy has the right in private R&D and the development of a incentive structure for ITD, with the excep- technology "culture" that enabled Korea to tion of trade instruments to promote infant achieve its main industrial ambitions. The industries (though there may be fiscal instru- main gaps that existed were in remedying ments for this purpose), and it has an ample the financial market failures for smaller base of skills and institutions. However, it innovators and helping the research infra- shows technological immaturity in its weak structure to enter more areas of activity to R&D performan,ce and its relatively (in the promote the government's selective indus- context of the EC) poor showing in dynamic trial strategy. These were the aims of the areas of manufacturing activity. This is again Bank's main efforts in the technology area. a problem of weak technological tradition, which may have been compounded initially * Indonesia has a much simpler industrial by inadequate I1D financing and insufficient structure than the other countries in the infrastructure support. sample, and so has correspondingly simple technological needs. It started with strong J Korea built up a deep and diverse industrial protection and inward bias; this has been structure by virtue of deliberate interven- improved, but significant and haphazard tions in the trade and industrial regime, protection still exists and the pace of liberal- guiding the allocation of industrial invest- ization is unclear. The continued growth of ments in particular directions largely under Indonesian industry and its exposure to the control of national private firms. These world competition require that firms invest firms imported technology mainly in the in developing better operational capabilities form of equipment and licenses, relying rel- and gain better mastery of the technologies atively little on direct foreign investments. they are using. Indonesian industry remains This raised the technological challenge for highly import-dependent for components them significantly, especially because of the and equipment as well as for technology pressures on them to be export-oriented and skills, and local firms invest practically very quickly after entering production. As nothing in engineering, design, and devel- industries entered more complex activities opment. However, some firms are showing and approached the frontiers of their tech- increasing mastery of complex process nologies, local R&D became imperative to industries as liberalization forces them to keep abreast of world levels of competitive- invest in more technological learning and ness. The skill requirements of this effort operational efficiency. The skill base is were met by massive investments in higher- small, and the lack of an industrial and level technical education and by measures to research tradition exacerbates the low out- induce firm-level training. Finance require- put of high-level technical manpower. The ments were initially left to the existing finan- only concerted technological effort comes cial intermediaries, supplemented by a from a few PEs (the "strategic industries") 72 that are entering high-technology activities ern markets. There were also other problems. unrelated to the bulk of private industrial The base of high-level technical skills was activity. The S&T infrastructure is weak and weaker than western European countries. delinked, except for a part that serves the The S&T infrastructure was comprehensive, strategic industries. The financing of ITD is but had become outdated and underfunded. nonexistent. Thus, Indonesia's ITD prob- Nevertheless, some firms retained an auton- lems cover a wide range, from incentives to omous technological tradition and capabili- skills, finance, information support, and ties. At that time, the incentive, governance, linkage between S&T and industry. and control system was the basic constraint on ITD, with minor ones arising in the finan- * Mexico combines a long history of import cial and infrastructure support areas. substitution with a tradition of heavy reli- ance on imported technology. Its import * India developed its industrial base behind a substitution was quite successful in creating set of interventions that had mixed effects, efficient process and automotive industries, with the costs of inefficiency and technolog- but remained deficient in fostering equip- ical lags apparently outweighing the bene- ment production. Few local enterprises fits of deepening. It pursued a strategy of developed a tradition of design and devel- technological self-reliance more assiduously opment over time, and even PEs showed a than most other countries, and invested in a strong preference for imported equipment large S&T infrastructure. A broad base of and know-how. The extent of local indus- technological capabilities was developed, trial R&D is the lowest of any major indus- and there was significant growth of R&D trializing country, and this remains true activity. However, the skill base for industry in a period of rapid liberalization. The skill remained relatively small, and distortions in base is reasonably good. There is large S&T the incentive system meant that technologi- infrastructure that has suffered the usual cal learning did not lead to fully competitive lack of linkages with production. The production or innovative capabilities. The financing of technology activity, though S&T infrastructure was largely delinked addressed by policy makers, has been weak from production. Access to foreign technol- (until the Bank's project). With a more open ogies was restricted. ITD finance was not and competitive regime, the basic problems well developed. Technological needs of of Mexican ITD have been the reluctance of small- and medium-sized firms were not firms to invest in deepening their own capa- addressed, while R&D by the large-scale bilities and entering the design and develop- private sector was inadequate. A large and ment process, and the gaps in the S&T generally inefficient public sector engaged infrastructure. in some research, but only a few PEs achieved competitive capabilities. Thus, * Hungary's ITD problems in the past decade India's technological problems were wide- were primarily related to the incentive ranging, covering all aspects of incentives, framework and the system of ownership, capabilities, and institutions. governance, and trade. Despite its substan- tial and deep industrial base and long tradi- tion of R&D, the hesitant and partial reforms Note Hungary had undertaken had failed to uti- lize its technological activity and experience 1. See S. Lall, Building Industrial Competitiveness in Developing fully to make industry competitive in West- Countries, Paris: OECD Development Center, 1990. 73 3. The technology projects Introduction million-aimed at assisting Israel, through the Office of the Chief Scientist, in its strategy of This chapter describes the Bank's technology promoting export-oriented industries based on projects in the sample countries in terms of their sophisticated product design and production objectives, design, and performance. These processes. As stated in the staff appraisal report projects addressed the most pressing techno- (SAR): "this strategy requires a high level of logical problems of the countries in question, research capability closely integrated with and have to be assessed on whether they identi- sophisticated marketing and commercial skills fied the problems co:rrectly, devised meaningful at the enterprise level. It is based on the convic- responses, and directed resources at the appro- tion in Israel that continuing reliance on foreign priate agents in the most effective manner. investment and licensing to acquire technology However, a Bank technology project is not and know-how does not generally provide a expected to meet all the ITD problems facing a sufficient competitive edge, and is intended to country. It has to be considered in the context of take advantage of one of Israel's major the Bank's broader operations-especially in resources: its wealth of technical talents."Spe- human resource development-and policy cifically six subprojects had been identified and advice that deal with many issues that affect appraised: (a) three that aimed at developing ITD (such as the general trade and industrial commercial prototypes of promising develop- policy framework, or the financial or basic edu- ments; (b) two involving applied research at the cation system), but cannot be addressed early stages of development; and (c) a multidis- directly by a technology project. Its evaluation ciplinary regional technological institution. must therefore be based on the awareness the project showed of such broader factors, and the While the Bank's loan constituted only 22 per- appropriateness of the project's specific objec- cent of the total R&D outlays, the remaining tives and priorities to the policy setting and the was expected to come from the sponsors and immediate technological problems. the government. In order to accelerate the pace of development and commercialization of The Bank's involvement with industrial tech- industrial technology, the government had nology projects started in the 1970s. The first already proposed to support industrial research project was designed for Israel as a component through grants to industry and to research insti- of an industrial development loan in 1975 (Loan tutes for up to 80 percent of the cost of selected 1116-IS). This was the last loan before Israel projects of "national importance."In the case of graduated from the Bank. This component-$5 this project, the amount of grant element was 74 estimated, on average, at 63 percent of the as those of Israel and Spain (both on the thresh- total R&D expenditures, with the sponsors in old of graduation from the Bank) the lack of effect contributing only 37 percent. There was indigenous R&D activities and the commercial- a firm belief in Israel, with which the Bank con- ization of R&D results remained impediments curred, that private enterprises lacked the to industrial and economic growth. This was the financial means of investing in potentially case even though both countries had developed profitable innovative projects and this argued high levels of technical skills and operational for strong and generous government support technological capabilities. The focus on R&D of R&D activities, even in a highly export- activities and commercialization resulted from oriented economy. the fact that in both countries a fairly developed technological infrastructure existed when these About the same time that the Israeli project was projects were being designed. being prepared, the Bank started work on the design of an industrial technology project for Spain. Already in 1973, an internal report pre- Spain' pared by the Bank had concluded that "espe- cially with respect to Spain's gradual The staff appraisal report states that the Spanish integration with Europe, it is important that project was intended to "encourage and increase appropriate policies and programs are set up the quality and quantity of efforts to develop that are designed to help adapt Spanish indus- new products and processes, and to bring them try to the changing conditions .... in order to to the point of commercial exploitation."These improve productivity to achieve efficient ambitious objectives were set in an economy plants, and to narrow the productivity gap with a well-established industrial sector that between the Spanish and EEC industries, as had failed to develop a significant research tra- well as on the extension of quality control and dition, though it had managed to build up a standardization. The promotion of indigenous heavy industrial sector behind protective barri- industrial research would increase the poten- ers and to upgrade its operational capabilities to tials of Spanish industries in international mar- cope with gradual liberalization. The project kets."The first reconnaissance mission for the was based on a clear recognition that, despite technology project actually took place in 1973 the liberal trading and the technology-import and two of the authors of the above-mentioned environment, Spanish industry did "very little industrial sector studies were on the identifica- research, development and engineering of new tion mission. While there were practically no products,"and that the resulting heavy depen- R&D activities in the foreign-dominated indus- dence on foreign sources of technology "limited tries, the mission was impressed by the rela- the ability of Spanish enterprises to export and tively serious attention that the chief engineers to compete in foreign markets."The SAR goes on of the locally owned companies gave to tech- to say that "inertia in Spanish R&D is difficult to nology and the frustrations they felt that their overcome without special effort. There is almost innovations never saw the light of day. no 'habit' of undertaking research and develop- ment in Spain." In preparing these two projects, the Bank gradu- ally conceptualized the rationale for risk sharing Thus the problem facing Spain was essentially by the government on the grounds of extemali- different from that existing in Israel. In Israel, ties and capital-market failures. The two there existed a thriving habit to undertake R&D projects demonstrated that even in fast-growing work and the amount of R&D expenditures at export-oriented industrializing economies such universities and industrial enterprises had 75 reached around 1.4 percent of GNP by the ures thus ranged from those in resource alloca- mid-1970s. Despite this impressive overall tion, arising from lack of foresight and information, effort and the gcvernment's policy of encourag- weak risk bearing capabilities, and possibly external- ing R&D in the private sector through a pro- ities, to the more normal capital-market and link- gram of 50/50 matching grants, only about 22 age failures. percent of the total R&D expenditure in Israel was in applied research carried out by industry. The explicit selectivity of the Spanish project The governmeni: of Israel, therefore, felt that it and its belief that "correct"incentives were had to accelerate the pace of development and not enough to stimulate the demand for ITD commercialization of industrial technology by make it unique among the projects reviewed supporting industrial technology development here. Implicitly, the project's objectives were more generously through grants (up to 80 per- close to what the Korean government (but not cent) to the selected projects with significant the Bank's ITD project in Korea) had achieved potential payoff.2 In contrast, one of the most by directly intervening in resource allocation important objectives of the project in Spain was and technology imports by its industrial and to inculcate the habit (culture) of undertaking trade strategies. However, the significant R&D activities, especially by the private sector. difference was that the project tried to achieve industrial targeting and a dynamizing of the The Spanish project saw a role for a new institu- country's R&D culture by setting up a new tion that would catalyze the process of R&D by institution to finance research rather than by direct and selective interventions in the process of intervening in trade and industry. The objective importing and utilizing technologies. In this the was possibly valid, but if Korea has any lessons objectives of the Spanish project were broader to offer, the means chosen seem rather anemic in and more interventionist (in a liberal market relation to the ends. setting) than in subsequent projects. In other words, the market failures addressed were The research development and engineering much larger, and there was greater faith in the (RD&E) unit to be set up to lead the growth abilities of governments to intervene effectively. of Spanish ITD, later called the Centro para el The new institution would take a direct and Desarrollo Tecnologico Industrial (CDTI), was active role in the selection, importation, adaptation, initially to be an autonomous body within the development, and utilization of industrial technolo- Ministry of Industry. It soon became evident, gies in activities selected for their importance to however, that this did not give CDTI sufficient Spanish competitiveness and export potential. It autonomy and made it impossible to recruit the was expected that the R&D would take place in right quality of staff, take risky decisions, enterprises and research institutes (separately and generally promote ITD effectively. The and in collaboration), so that linkages would be Bank pressed for a change, and in 1984 the strengthened. More significantly, the activity reorganization was effected, giving CDTI the would have beneficial spillovers in creating a necessary autonomy. research "culture" in Spanish industry. The main objective was thus based on the reasoning that The original design of the project was that CDTI industry itself could not select areas of future itself would purchase the necessary equipment comparative advantage and find the right tech- and take the lead in formulating and imple- nologies for those activities, was reluctant to menting research projects. This quickly turned invest in assimilating and adapting those tech- out to be unrealistic. CDTI could not select nologies, and was unable to find the finance to appropriate research projects for firms and develop its own technologies. The market fail- teach them how to do research, and soon it 76 became a more passive financier of industry ini- development project,"which is based on funds tiatives. The expectation that an institution like allocated by the Ministry of Industry, Trade, CDTI could change the prevailing research cul- and Tourism. This type of project deals with ture of Spanish industry (without any change in research conducted by enterprises in selected the larger incentive regime and in the face of sectors and follows the original idea of develop- strong international competition with easy ing technology in key areas. These projects access to foreign technologies) was too optimis- constitute some 79 percent of CDTI's total com- tic, and the institution was not given the policy mitments until 1990. The second type, termed tools or the skills needed to mount a Korean- "projects carried out under agreement,"is style industrial strategy. financed by the National Scientific and Techno- logical Research Fund. These projects, starting The project called for CDTI to support ITD in in 1987, deal with pre-commercial joint projects electronics, mechanical equipment, and food by firms and universities or public research processing, but it quickly had to diversify its institutes. CDTI has financed 334 projects of this activities and enter other industrial fields like type since 1984, and the total number of projects chemicals, biotechnology, and energy. In prac- approved by CDTI has risen from 110 per year tice, CDTI's financing did not meet the original in 1986 to 307 per year in 1990. CDTI has also design expectations: very little of the money been charged with managing Spain's participa- went into original research by Spanish firms. tion in the European Community projects such Most of the investments were for absorbing and as Eureka, Esprit, and BRITE/EURAM. improving imported technologies and a signifi- cant part of the borrowing was by foreign affili- CDTI has, in recent years, been covering 35 per- ates. The objective that CDTI would enter very cent of total research costs for technology devel- risky areas and fund individual innovators was opment projects and 42 percent for projects also not entirely fulfilled: its lending tended to under agreement. In 1990, the average cost per be conservative and focused on well-estab- project for technology development projects lished firms. including the companies' contribution was $1.8 million. The average cost per project for the The project got off to a slow start because of the joint industry-institute projects was $1.2 mil- difficulties in addressing CDTI's autonomy. The lion. The total cost of CDTI-financed research matter was not resolved until 1984 when the projects ($16 million disbursed in 1990), consti- government finally agreed to pass the necessary tuted about 10 percent of the Spanish R&D in legislation. During the seven years up to the that year. end of 1984, CDTI approved 306 projects with partial financing from the Bank loan. The aver- age cost of CDTI projects was $0.51 million, in Korea which CDTI's participation averaged $0.28 mil- lion. Of the total, 86 projects had been com- The Bank's first technology project in Korea pleted and 40 projects had begun repayment. was the Electronic Technology Project (Loan Few of the projects involved advanced indige- No. 1676-KO) approved in 1979. The objective nous research. Most were for development and of this targeted project was to develop KIET engineering of the existing technologies, either (Korea Institute of Electronic Technology) as a already known in Spain or imported. central facility in the semiconductor industry. KIET was expected to provide technological Currently CDTI finances two types of projects infrastructure of essential production and within Spain. The first is termed a "technology support services; to assist in the training of tech- :77 nical staff of the industry; to lead industry in specific projects as a catalyst to help industry acquiring and cdeveloping technologies; to carry identify promising areas for research and to out RD&E for industry; and to explore market improve their capabilities to manage and opportunities for the industry abroad. Contrary implement R&D projects. Thus, KTDC would to expectation, the major companies in Korea also provide information and instruction to started to invest heavily in semiconductor tech- firms, thus helping remedy failures in information nology and manufacturing and opted for a pol- markets for ITD. Finally, KTDC would promote icy of self-sufficiency in the major services that closer links between research institutes and KIET aimed to supply. With delays in the imple- industry by encouraging and financing projects mentation of this project the government of sponsored by the latter and carried out by the Korea eventually decided in 1985 to merge former. This would remedy failures in linkages KIET with anot]her research institute in telecom- between the infrastructure and enterprises. munications and form a new institute. The second KTDC project strengthened these The lesson derived from the Spanish RD&E objectives, while assisting KTDC's institutional and the Korean Electronic Technology projects and skill development, establishing the founda- was that targeting is a very difficult proposition tion for the institution's long-term resource if it is to be implemented by public institutions. base, introducing new instruments, and While the acquisition of semiconductor tech- expanding support to SMEs. The third project nology may have been the crowning success continued support for KTDC, while adding of KIET-demonstrating the practicability of further financial instruments, strengthening obtaining highly sophisticated and proprietary its capacity to deal with riskier projects, and technologies-it was clear that the private sec- helping start a subsidiary, Korea Technology tor was not so keen in collaborative efforts of Investment Corporation (KTIC), to finance this kind in a highly competitive environment. "technology start-ups."Over time, it was found The Bank used its experience with these two that KTDC was providing valuable advice to projects in the design of the industrial technol- government agencies in formulating technol- ogy development project in Korea. Thus it ogy policy, and was helping the Ministry of insisted on creating an entity that was majority- Science and Technology to appraise national owned by the private sector and moving R&D projects to be carried out jointly by SMEs away from targeting. and research institutes. Thus, the objectives grew to remedying failures in institutional skills, There were three technology development providing information for policymakers, and deliv- projects in Koreal aimed at financing the Korea ering technological support to SMEs. Technology Development Corporation (KTDC).3 The main objective of the first of these The progress of the three projects suggested projects was to remedy market failures in the that the original objectives had not been wrong. early stages offinancing technical effort. Conven- The main deficiency that they were addressing, tional sources of finance were not geared to capital-market failures, was correctly identified meeting this particular need, with its high risk as the main constraint to ITD in Korea at that element. However, the technical effort aimed at time. Other deficiencies were also identified, included both the import of foreign technology but were assigned lower priority, or else were and in-house development work. A secondary thought to be dealt with by other policy mea- objective was for KTDC to "influence and rein- sures. It is important to note that the projects force industry's attitude towards further under- were aimed atfunctional rather than selective inter- taking of RD&E activities,"using the finance of ventions. According to the project SAR, the loans 78 were in fact explicitly aimed to "move Korean * consulting services to help it carry out stud- industrial policy away from one in which the ies of Korean industrial R&D and areas of government takes the lead in 'picking winners' potential development; towards one which emphasizes functional interventions in such areas as ITD and develop- * visits from experts from other countries' ment of small and medium industry (SMI) and technology financing institutions to venture capital, where market imperfections exchange experiences; and externalities exist." This objective differs from that adopted in some of the other projects * training of KTDC staff; and reviewed here, and also from the Bank's own support for the Korea Institute of Electronics * purchase of educational materials for use by Technology (Loan 1676-KO), which was clearly staff. selective in intent. The second project continued the emphasis on KTDC was established under the Korea institutional development. The third went on to Technology Development Corporation Act introduce new financial instruments (such as promulgated at the end of 1980. The Bank had leasing and factoring) helping develop capabil- extensive inputs, through its dialogue with the ities to appraise more complex projects, and to government of Korea in the formulation of the set up a subsidiary (KTIC) to invest in technol- Act and its associated Presidential Enforcement ogy start-ups. The lead, in this as in many other Decree, which was issued in April 1981. Learn- aspects of industrial policy, came from the ing from its experience in Spain and the Elec- Korean government rather than the Bank, and tronics Technology Project, the Bank insisted formed part of a larger strategy that worked that the legal framework should enable KTDC extraordinarily well. The details of the projects to operate in an autonomous manner with the evolved through consultation between the efficiency of a private company; to have a Bank and KTDC, and seem to have been strong and independent management; and to well conceived. have the ability and means to attract and retain staff of high caliber and entrepreneurship. The Bank's lending for industrial technology in Korea has undoubtedly met with a large By the time the first loan was approved in measure of success. KTDC has become a very February 1982, KTDC was a functioning professional and efficient institution, gaining concern and much of its procedures were experience and strength with the passage of already formulated and in place. Since the Bank time. It became a very important instrument was satisfied with the institution's procedures, for developing technology, especially in the objectives, and capabilities, it used the loan SMI sector. Its current activities are manifold, mainly to provide additional resources and to ranging from financing ITD projects to venture- buttress some institutional aspects that were capital operations, promotion of industrial relatively weak. The first loan therefore had a technology development among SMIs, broker- major component to strengthen KTDC's capa- age services, leasing and factoring, and infor- bilities in the following ways: mation services. KTDC has also become an important arm of the government in reviewing * consulting services to strengthen KTDC's national projects and other projects, partially abilities to identify, appraise, negotiate, and funded by the government, in its efforts to supervise RD&E projects, especially those promote cooperative research between public for conditional loans; research institutions and industrial firms. 79 Despite its successful performance, KTDC's here. The specific objectives were threefold: to record in promoting risk-sharing financing has strengthen R&D capacity by "developing a not been very impressive. Neither has the Bank nucleus of well-trained Indonesian scientific pursued this mtatter very vigorously with and technical manpower through programs of KTDC, though the Bank made it a specific study in science and technical fields"; to objective of its third loan. This shortcoming develop procedures for implementation of the was, to some extent, due to the mix of KTDC's overseas fellowship programs; and to develop financial resources, some of which were not relationships between Indonesian and foreign suited to risk-sharing financing. Nonetheless, it research institutes and universities. should be noted that this type of financing moved on an upward trend and both KTDC The project identified overseas training as a and its subsidiary KTIC expanded their short-term and cost-effective means of meeting venture-capital activities. Indonesia's pressing skill needs for absorbing foreign technology, and thus addressed market At the end of 1991 KTDC's charter was changed failures in local education and training markets. The and, since July l992, it has been the Korea incentive framework at the time, while far from Technology Banking Corporation (KTBC). ideal, was being reformed. That Indonesia This action on tlhe part of the Korean govern- lacked an adequate base of high-level skills for ment (which had stopped to supply low interest industrial technology was indisputable, and the loans to KTDC in the beginning of 1990), was objective of meeting skill needs of research in line with its previously announced inten- institutions seemed valid. However, the tions. It should, however, be accompanied premise that training high-level manpower for with sufficient flexibility to allow KTBC to six nonministerial research institutes (LPNDs) survive in a financial environment that is under the aegis of the Ministry of Science and becoming increasingly competitive. The gov- Technology as a means of promoting industrial erinent's shareholding through the years had technology development was based on certain dropped to 22 percent, while KTBC's share- implicit assumptions: that the LPNDs were holding remained moderately diffused with capable of delivering technological assistance 163 small- and medium-sized firms owning to Indonesian industry; that the LPNDs were 13.5 percent of the shares. the most deserving of the S&T institutions in the country; and that industry; was engaged in an active process of technological upgrading Indonesia4 and effort into which it wanted inputs from the S&T infrastructure. The first two of these The Indonesian project is somewhat unusual in assumptions are questioned in the analysis the present context because it was not directed of project design. The last one needs some at technological activity per se but at strength- discussion here. ening the skill base for ITD. At the same time it was not an education project in the usual sense. The SAR for the project clearly noted that pri- It was explicitly aimed at meeting what the vate industry in Indonesia did practically no Bank regarded as the critical constraint to ITD R&D. As a relatively new sector, with low in the country-the shortage of professional linkages to the local economy and practically manpower in science and engineering for no autonomous design and development which there were insufficient indigenous train- capabilities, modern Indonesian industry was ing facilities. Its broad objective was thus com- heavily dependent of foreign equipment, con- parable to that of the other projects studied sultants, and technologies. There was no tradi- 80 tion of long-term technological effort beyond tematically importing, mastering, and building the minimum needed to make technologies upon state-of-the-art foreign technologies. They operational. This was partly because local skills were protected from import and local competi- were deficient, and partly because the S&T tion, given soft budgets, and allowed to operate infrastructure was ineffective and delinked. with few linkages to the rest of Indonesian However, it is not clear that these were the only, industry. The means by which they would or even the major, constraints of the develop- improve industrial technology of the bulk of ment of Indonesian ITD. The experiences of Indonesian industry was not clear. the other countries in this sample, with reformed incentive structures and ample While the government's strategy of building up supplies of skilled manpower, suggest that technological capabilities within the selected there are other factors at work that affect the activities was acceptable in principle, the focus development of ITD. on high technology areas,5 the lack of linkages of most strategic industries to private industry, There may, however, be greater justification for and their protected status (and lack of economic focusing on skill needs in research institutions accountability) meant that it ran the risk of in a case like Indonesia. Its ITD at this stage of being extremely wasteful. The project's design industrial development should consist of seemed to support the belief that such a techno- assimilation of imported technologies rather logical strategy was efficient and desirable for than of more innovative design and develop- Indonesia. Not only was this unjustifiable, it fed ment work. This requires fairly routine work into a process by which scarce skill and training that may feed into industrial technology if it is resources were diverted from other, possibly properly conducted and linked to enterprises. more deserving, institutions that were geared to However, the institutions selected for assis- serving the technological needs of Indonesian tance were in fact not engaged in this kind of industry. More specifically, a range of institu- work. They were mainly linked to the "strategic tions under the Ministry of Industry-which industries"under the control of the Ministry for were poorly equipped, staffed, and financed, Research and Technology, which aimed at and apparently far more relevant to ITD in pri- quantum leaps into high-technology activities vate industry-were ignored in the project. and at entering innovation in these activities. The project accepted the "big push"approach to Given the premise that skill constraints were technological development rather than the the most binding ones on Indonesian ITD, this more modest approach of supporting non-R&D project was designed to help skill acquisition in forms of ITD. It helped to reinforce the position six LPNDs by sending personnel overseas for of strategic industries. The skills it helped to high-level training. The LPNDs were responsi- create are likely to have few benefits to private ble for the bulk of formal R&D expenditures industry. The industries it does feed into may in Indonesia, and so were ostensibly the right turn out to be economically inefficient. On these targets for the project. However, the project grounds, the design of the Indonesia project ignored the fact that they were primarily geared seems to be faulty and misdirected. A project to serving the needs of the strategic industries for developing skills for ITD would have been under the control of their ministry. The strategic much better designed, in Indonesia's case, if it industries (ten in total) represented a "big had helped private industry and the supporting push"strategy of technology advancement in infrastructure that could directly feed into its Indonesia. They were aimed at setting up activ- problems of quality, productivity, design, main- ities in advanced industrial activities, and sys- tenance, and other such mundane issues (see, SI for example, the provisions of the Mexican human-capital base was adequate. This may project on research centers). have been true in a general sense, though it is difficult to judge whether this was also true in The Overseas Fellowship Program provided terms of the specialized high-level skills needed for about 1,500 overseas fellowships in mainly for ITD. physical sciences and engineering fields with a small number of fellowships to be earmarked The objectives of the project were based on an for related fields such as management and analysis of the demand and supply sides of the information science, contract and patent law, determinants of Mexican ITD. On the demand and statistics. This total of fellowships was to side, the SAR identified the legacy of import be roughly broken down into 250 in Ph.D. pro- substitution policies and restraints on inflows grams, 650 in M.Sc. programs, 300 in B.Sc. pro- of technology and FDI as the main cause of low grams, and 300 in nondegree training. These technological activity in industry. The liberal- general objectives appear to have been realized ization of trade, technology, and foreign invest- and by May 1992, some 1,079 fellows had ment under way was seen as removing all the returned to IndDnesia out of which 12 percent demand-side constraints to ITD-in the new did not obtain the intended degrees. The incentive framework Mexican industrial enter- remaining fellows were then being supported prises would, if supported by supply-side mea- by the Professional Human Resource Develop- sures, themselves come forward to invest in ment Project (Loan 3134-IND), which was R&D. In this respect, there are important differ- approved in Ncvember 1989. ences from the Spanish project. The Spanish project was based on the belief that Spain would not be able to maintain export growth Mexico6 without sustained increases in local R&D investments. It argued that continued reliance The primary objective of the project was to on technology imports would not allow the "help improve the capability of industry (espe- country to develop industrially in a liberal trad- cially private firms) to undertake technological ing environment, and that special measures innovation needed to face increasing competi- were needed to catalyze the process. The tion in the context of the government's eco- Mexican project, on the other hand, believed nomic liberalization program."It was thus that liberal incentives and access to foreign placed in the cortext of an incentive framework technologies were all that was needed to that was being reformed rapidly in a country dynamize the demand side of ITD. with a highly dependent tradition of technol- ogy developmernt. The broad objective was to This analysis may have been oversimplified. be achieved by improving policy instruments Much of the base of competitive capabilities through analysis and studies, a selective built up in Mexico, that then led the export strengthening of the S&T infrastructure and the surge after liberalization, had been developed expansion and strengthening of specialized under the earlier import-substitution regime. technology financing. The market failures Liberalization was clearly necessary in order to addressed were therefore similar to many of remove the distortions that held back the those in the Indian and Korean projects: capital exploitation of these capabilities and impeded markets, infrastructure "public goods," linkages, the development of new capabilities. Access to and policy information and analysis. Potential foreign technologies may not have been fully gaps in skill markets were ignored in this liberal, and may have contributed to technolog- project, perhaps in the belief that Mexico's ical stagnation. However, Mexico had the larg- 82 est imports of technology of the NIEs, certainly of local R&D effort was entirely different. much larger than Korea, which also pursued In Korea the projects were to add to a process import substitution policies. The fact that these that was already vibrant and dynamic; in technological capabilities in Mexico had not Mexico it was to stimulate and build up an been deepened had less to do with restrictions on essentially marginal activity. It was a very access to foreign technology than with the ambitious objective. industrial sector's traditional dependence on imported technologies and the underdeveloped The ITD studies were to be carried out by the local equipment manufacturing sector. It is Secretary of Commerce and Industrial Develop- doubtful, therefore, if freer access to foreign ment (SECOFI), and were intended to analyze technologies per se would boost indigenous the determinants of innovative behavior and R&D effort in much of industry. Some firms that the policy framework for promoting ITD. They had a research tradition would utilize the liber- were to draw on the experience of other coun- alization to invest more in research, but the bulk tries. However, the initial intention to use these of industry could become more dependent on studies in policy formulation was diluted as the imported technologies to meet the threat of government's policy direction changed. world competition. The restructuring of the National Program of On the supply side; the objective of remedying Science and Technology (CONACYT) research market failures was justifiable per se. The centers was to start with four selected insti- project had five specific objectives: tutes7 (of a total of eight), and was to involve an element of privatization along with the * analysis of ITD issues to help the govern- investment of funds. The centers would use ment develop appropriate policies and the investments to re-equip and improve their instruments (financed by the government capabilities to meet the needs of industrial firms of Mexico); in terms of product development, design, technical assistance, quality control, and tech- * strengthening the technology infrastructure nological information. The beneficiaries were through selected restructured R&D centers, expected to be mainly SMEs, who lacked their with private-sector ownership participation; own technical facilities and whose technologi- cal upgrading would, in turn, benefit large - study for strengthening metrology services; enterprises that purchased their products. * specialized financing for ITD via the The ownership of each of the selected centers National Fund for Industrial Equipment would be changed, with part of the equity held (FONEI); and by CONACYT and part by private enterprises (it was hoped that the dominant share would be * institutional strengthening of FONEI. privately held). The enterprises were expected to play an active role in the management of The bulk of the project ($37.1 million of the total the centers, to make them more responsive of $48 million) was for financing ITD. Industrial to industrial needs. The Bank project would technology development was defined broadly, lend, through FONEI, up to 100 percent of to include all efforts to assimilate and improve the money to take equity shares in private on foreign technologies, upgrade productivity, enterprises. The total investment in the four and develop new products. In this it was similar centers was estimated at $16.8 million, of to the Korean projects, except that the context which the Bank would finance $8.2 million. 83 This seemed an imaginative and appealing The design of the project altered soon after its design for reforming and reorienting launch, because FONEI was merged into a CONACYT R&D institutions. national financiers company (NAFINSA) in 1988 and some of these financial aspects were It was not clear from the project documents, changed. The government asked that the grant however, which private enterprises were and subsidy element of the ITD financing be expected to play the "senior partner"role in the reduced as part of its general move away from reformed centers. The SAR did not discuss interventions in the market. The grant and guar- which firms would have the desire to take on antee elements were to be replaced by greater this sort of finarncial responsibility or the skills equity participation by NAFINSA, and subsi- to participate in the running of an essentially dies were to be completely phased out by 1990. infrastructure service. Large firms with the financial and human resources may not have The design of this component of the project, been interested, because the centers were aimed both original and revised, was based on rather at SMEs, while the latter may not have had the optimistic expectations of the demand for desire or resources to participate. It also raised financing by Mexican enterprises for conduct- the question of whether private ownership in ing their own research and development the provision of services with strong "public (importing technologies was also included, goods"characteristics was necessarily a desir- but was implicitly regarded as a second-best able objective, or whether responsiveness to form of ITD). Given the poor record of innova- industrial needs may have been achievable by tion by the bulk of Mexican industry, this was other incentive and institutional measures. presumably based on demand for innovation expected to be created by the liberalization and The study of the metrology infrastructure the availability of technology finance from the was to be conducted by SECOFI with the project. As noted earlier, this was an overly sim- help of foreign consultants. This would ple view of the determinants of technological address a vital need of Mexican industry, activity in Mexico, though it seemed to be one which lacked an institution for the calibration to which the government increasingly sub- of measuring instruments. scribed. The revised design, removing all the subsidy elements from ITD financing, seemed The bulk of the loan was intended for ITD to assume that there were no information or financing, throug:h commercial banks, by other market failures for local firms in under- FONEI. The financing was intended particu- taking R&D activity. The possibility of channel- larly for commercializing locally developed ing resources into activities selected for their technologies, though the import and assimila- externalities or future comparative advantage tion of imported technologies was also was not considered. Nor was the possibility included, and would cover research centers as that the liberalization would raise the demand well as engineering firms and industrial enter- for more imported technologies rather than for prises. It would consist of a mixture of loans, local innovative effort. The results of the project grants, conditional loans, and equity (the last suggest that these factors should have been would be new, to be tried on a pilot basis). The taken into account. government initia]ly agreed to strengthen FONEI's financial base so that it could ade- The pattern of technology lending by NAFINSA quately provide the subsidy element. It was proved very erratic. The large increase in tech- expected that FONEI's financing would grow nology lending expected in 1985-88 did not by 45 percent per ay, num during 1985-88. materialize and in any case the sums involved 84 were very modest (1984: $10.3 million, 1985: the private sector. In brief, CONACYT was $20.1 million, 1986: $18.7 million, 1987: restructured and trimmed, and placed under $21.3 million, and 1988: $11.8 million in current the Ministry of Education (rather than Plan- US dollars). Such lending lost more ground in ning). Funding for basic scientific research was 1989 and only recovered somewhat in 1990. increased (but with allocations determined by It appears that many of the projects were for competitive bids rather than government prior- upgrading productivity rather than for innova- ities). The public research centers were rational- tion, and that most of the innovative R&D was ized, made more service-oriented, and made to undertaken by the larger groups (or by smaller earn a larger proportion of their revenues; technology groups set up by them). There were, the private sector was to take a greater role in however, few cases of innovative activity in operating and financing them. The worst per- smaller companies, many in the software area, forming centers were to be shut down (as in where small-size and low-cost engineering pharmaceuticals and food in Chihuahua). Four manpower provided an advantage to Mexican Presidential Funds were created for improving firms in exporting systems to the US. the science institutions, repatriating Mexican scientists, for endowing Chairs of Excellence, The selective strengthening of infrastructure and for funding equipment purchase for ITD through the restructuring and privatization of activities. A nonpresidential fund was set up to four CONACYT institutions has had very lim- fund ITD projects by private industry at conces- ited achievement. Of the four preselected R&D sional rates of interest. Incubators were to be set institutions that were earmarked for restructur- up to encourage the commercialization of aca- ing, the pharmaceutical center was the first to demic research. The metrology center was to be be privatized. This was achieved by the end of set up, and quality assurance and standards 1987, but the Mexican Secretariat of Planning were to be improved. Intellectual property pro- and Budget (SPP) decided to keep the other tection was to be strengthened. Access to for- R&D centers in the public sector. Despite the eign technologies and the inflow of foreign unusual assistance envisaged in the project- direct investment were to be encouraged. FONEI initially lending up to 100 percent of the funds needed by eligible industrial enterprises It is too early to comment on the effects of to invest in the restructured R&D centers, at an the new policy framework for ITD in Mexico, interest rate of not less than the average cost of but it appears that the thrust of the initiatives funds to the banking system-there was little is in the right direction. The incentive frame- enthusiasm by the private sector to participate work for ITD has improved, though it is not in the scheme. clear whether the liberalization will stimulate upgrading via further ITD or the import of tech- In early 1988, just as the technology policy anal- nology. The reduction in the scope of infant ysis study was being reviewed and discussed, industry promotion may channel future ITD in SPP initiated a second effort (supported by less risky and less dynamic areas of industrial funds from the project) in formulating an indus- activity. In general, it does not appear that any trial technology policy. This later study was catalyst has been planted that may change the completed by the end of 1988 and formed the traditional attitudes of Mexican private indus- basis for the National Program of Science and try towards R&D. This does not mean that Technology Modernization in 1990-94, which improvements in the technology support provided for an increased commitment of services will not be valuable in raising the resources to support the science and technology efficiency and competitiveness of industry- program and to elicit greater participation from most of them are vital current inputs into 85 the production process. However, whether or were moves to introduce more market forces not such improvements will lead to greater within the socialist system of ownership, and innovative activity is not clear from the evi- to start developing some of the relevant institu- dence at hand. tions. They were important reforms in the Hungarian context, but very tame compared to the usual structural adjustment programs in Hungary8 many developing countries. It was the 1990 reforms after the political shift that marked a Because of the socialist setting, the Bank's real liberalization, but these came after the technology project in Hungary was bound to project was started. have different objectives from the others in the sample. Nevertheless, the stated objectives In the context of the more modest reforms were not very different. The Hungary project under way in 1988, the technology project's sought to "improve the capability of Hungarian objectives were fivefold: industry to undertake and sustain TD necessary to meet the national objectives of increased pro- * Improve the S&T infrastructure, especially ductivity and international competitiveness in in computer applications and software; the context of the government's economic reform prograrn." * Improve production in industries selected for their spread effects on other industries; Though this seems to have similarities to the Mexican project., which was also located in the i Increase the commercial orientation of R&D context of a reform program, there are many activities; differences between them. On the one hand, Hungary already had a mature industrial sector * Develop activities that could become inter- (the longest-established in the sample), with a nationally competitive; and strong technological tradition, a capable capi- tal-goods sector (though one that had been * Develop and strengthen institutional and forced to specialize according to lines laid down financing mechanisms for ITD. by the CMEA), and a diverse S&T infrastruc- ture. On the other hand, the ownership and These objectives had certain standard compo- incentive structures were grossly distorted, and nents addressed to market failures in infrastruc- many of the market institutions (especially in ture, capital markets, and training needs. They the financial sector) were missing. Technology also had some elements that were less standard, imports and FDI were much smaller than with similarities to the Bank's first technology almost all the cotntries in the sample, with the project in Spain: the targeting of particular possible exception of India. industrial and infrastructural activities that were likely to have beneficial spillover effects The liberalization envisaged in Hungary at that and to dynamize Hungary's comparative point was very limnited compared to that in advantage. The project argued that Hungary's Mexico. It consisted of allowing greater compe- R&D resources were being "spread too thin," tition and enterpnise autonomy, imposing and that interventions to guide them into partic- greater financial discipline, encouraging more ular directions would increase the impact of the trade, reforming banking, allowing state enter- technology project. The rationale for directing prises to exit, introducing new laws on enter- R&D was slightly different from that advanced prises, and seeking more FDI. In effect, these in Spain. In the latter, enterprises did not have a 86 research culture and were considered unable to competitive potential. Three projects had select and develop technologies appropriate to been selected for preappraisal. These included long-term comparative advantage. In Hungary, CAD/CAM (computer-assisted design and the research habit existed, but market forces had manufacturing) services for SMEs and two a limited impact on resource allocation, and the automation projects for upgrading process con- existing method of R&D spending spread trol equipment in manufacturing and process resources ineffectively. industries. The third subcomponent consisted of two subprojects in computer software devel- It was clearly acknowledged by the project opment. Future projects would be appraised on that, despite the significant proportion of GDP criteria of introducing new technologies, devoted to R&D, the past incentive structure strengthening the R&D infrastructure, and had negative effects on Hungarian ITD. Was upgrading the software industry. These compo- it right to seek to upgrade technological activity nents were themselves part of the government's within the context of ownership and distorted medium-range plan for technology, launched a industrial structures? It seemed likely that short period earlier to concentrate the country's the enterprises directly benefiting from the technological resources on selected priorities. project would gain in productivity and compet- This plan had twelve programs to be financed itiveness, despite the incentive problems. How- jointly by the government and enterprises ever, it was unlikely that in that setting, with (divided 47 percent-53 percent). The Bank thus restricted domestic and foreign competition, picked up on the evaluation and priorities of overintegration of production, lack of account- the Hungarians themselves, with the common ability and governance, and so on, this would perception that automation and software had spark off a sustained process of ITD. Thus, the the most to offer industry in terms of productiv- objectives of the project seemed unrealistic ity returns to a limited investment. without more drastic reforms than appeared feasible at that time. The second main component of the project (7 per- cent of the total) consisted of two preappraised The Hungarian project had three components: investments in noncommercial state-owned investments in "commercially oriented"sub- infrastructure institutions, the Center for projects, two investments in infrastructure Metrology, and a set of nine Quality Control institutions, and training. The first component, Institutes. The skills for testing and calibration constituting the bulk of the project (92 percent were present, but the equipment was obsolete. of the loan), had two subcomponents. The The explicit intention was to improve quality first subcomponent dealt with infrastructure control and certification for Western export to support commercial R&D. There were three markets. The third component of the project projects here: the production of special-purpose (1 percent) was for technical assistance and printed circuit boards to enable closer linkages training to banks, enterprises, institutes, and between designers and users of tools, models, government officials in technology manage- and instruments for R&D work; the supply of ment and appraisal, and for two studies on pol- imported R&D instruments for rent; and the icy planning. Both components seemed sensible setting up of an "innovation park"for research- and coherent. ers from the Budapest Technical University. Given that the incentive structure in Hungary The second subcomponent dealt with the intro- was distorted, and that no existing institutions duction of new technology into productive could allocate resources efficiently, the project enterprises selected for their externalities and was designed to direct resources into areas of 87 greatest econornic significance. The Bank weakness of its domestic market. The instru- accepted the government's priorities in technol- ment rental and the printed circuit board sub- ogy upgrading and the proposition that scarce projects were also facing financial difficulties. technological resources had to be carefully mar- The former enterprise is being privatized and shalled and used in a few areas that could yield the latter is expecting better capacity utilization the greatest benefits to competitiveness. It also through higher export sales. accepted that R&D was being "spread too thin" and, despite its high level, was not allowing On the strategic approach, the objective of industry to keep up technologically. Thus, targeting particular technologies was unusual the project made a case for guiding the in the context of the Bank's approach to ITD in strong technological efforts that existed in the 1980s. Only the Spanish project of 1977 had Hungarian enterprises. espoused similar targeting. In general, the stra- tegic element was reflected in the focus on com- The project was overtaken by events shortly puter technologies as the means of promoting after coming to effect. Still by mid-1989 the ITD. It is possible that the Hungarian project implementation of many of the subcomponents was so designed because of the weaknesses of had started. Subloan agreements had been market forces there, and it was thought that in signed for the three projects constituting the this setting some of direction of investment was R&D infrastructure, namely: the facility to pro- justified. However, given the distortions that duce the special-purpose printed circuit boards, existed in the economy, it is not clear that such the entity to effect instrument rental, and the targeting would have given the desired results. Innovation Park. Of the other five preappraisal projects that were supposed to introduce new The objectives of the Hungarian project technology into industry, four opted out in thus have a mixture of strengths and weak- view of the uncertainties created by the new nesses. The strengths are the attempts to economic environment. Instead, industrial enti- direct resources at selected areas to maximize ties with fairly good technology such as the the impact of the loan, and to meet the usual pharmaceutical enterprises chose to meet the market failures in finance and infrastructure. new competitive environment with intensified The weak ones are the acceptance of the distor- R&D efforts and they, therefore, joined the tions in the industrial and incentive structures, project. In fact by early 1992, the number of within which the project was bound to have these new beneficiaries had reached nine, with more limited benefits than envisaged. In this others awaiting the result of their application. sense, the project overestimated the scope of the reforms underway at the time, and By the end of 1992 disbursement remained so failed to address the most pressing ITD somewhat behind schedule at around 52 per- needs of the country. cent. All subcomponents dealing with the Met- rological Center and the Quality Control This raises a general question on the design Institutes had been implemented. Although the of technology projects. Is it the case that other Industrial Automation I subproject (designed to countries, with less-developed industrial upgrade the capability for production of auto- structures and little tradition of R&D but mated control equipment for manufacturing with market economies and institutions, are industry) had been successfully completed and better at allocating technological resources than design laboratory was fully operational, the Hungary? Or are there market failures, apart company was rumiing into financial problems from those caused by mistaken govemment due to the loss of its CMEA markets and the interventions, that lead to underinvestment in 88 technological effort and its diversion into existed in the incentive framework for ITD in wrong activities? India, and aimed to support industry in a period of liberalization that was then under- The evidence on the sample countries suggests way. It drew upon studies of industrial regula- that there do exist market failures that may lead tions and technology policies in India done to misallocation of technological resources and three years earlier by the Bank, though it did inadequate ITD. These market failures arise not try to incorporate all the latter's recommen- from the lack of information on the technologi- dations into the design of the project. cal development process, the externalities that are inherent in creating technical knowledge The project was clearly not intended to remedy and skills, and the costs of investing in learning the deficiencies in the broader incentive frame- technologies that have already been fully mas- work. Its own objectives were to promote func- tered elsewhere. It is possible, therefore, that tional interventions to remedy the market failures in the level of technological investments is socially capital markets, institutions, and access to foreign suboptimal, that it is not undertaken in areas technologies noted above. The selection of the that seem to involve high learning costs. This is beneficiaries of the loan was to be left to the the rationale for policy interventions to stimu- financial institutions that were to deal with the late and guide technological effort. venture-capital element, to the Industrial Credit and Investment Corporation of India (ICICI) for The second question is whether the Hungary the S&T institutions, and to the government for project itself took sufficient account of the struc- the technology-import financing (through the tural constraints (apart from inadequate ITD) Technical Development Fund). The bulk of the that held back industrial competitiveness. If funding was directed to the Technical Develop- these constraints were more binding than those ment Fund, which was to receive $100 million of of technology, the project could not be expected the total. Next came the S&T infrastructure com- to have the desired impact on productivity and ponent, which was to get $55 million, divided competitiveness. The evidence suggests that between $40 million for interest-free loans to this was in fact the case. institutions for equipment and so on, and $15 million for a Sponsored R&D Promotion Fund (also to be administered by the ICICI) that would India9 finance loans to industry to cover up to one-half of the cost of research projects sponsored by The general objective of the project was to industry at the research institutes. The venture- "boost technology acquisition, development, capital component was to receive $45 million to and commercialization in India,"which was to fund four schemes to help enterprises develop be addressed by three means. These were to and commercialize innovative products and pro- provide finance for ITD (remedy capital-market cesses. Thus, the "revealed objectives"of the failures), improve the S&T institutions and their India project were to provide functional support linkages with industry (provision of infrastruc- for technology imports, strengthen the S&T tural "public goods"and remedy linkage failures), infrastructure and make it more relevant to and provide quick access to imported technolo- industry, and promote innovation financing. gies (overcome failures created by government import and technology restrictions). In addition, The objective of boosting technology acquisi- these components would be supported by tech- tion, development, and commercialization in nical assistance and studies. The project was India was addressed by three components. based on a full awareness of the distortions that None of them dealt directly with R&D by large 89 established business houses in the private sec- ing agency would introduce a welcome busi- tor, perhaps on the assumption that they were ness orientation into the effort. financially and otherwise well-equipped to deal with their needs. The first component of The remaining $15 million of this component the project dealt with venture-capital financing, was to go into the Sponsored R&D Promotion This constituted $45 million to be re-lent by the Program, a pilot effort to stimulate industrial government to four financial institutions to demand for the services of the research insti- invest in the equity of new venture-capital tutes. The projects promoted would be carried funds (VCFs). Each VCF would also raise funds out entirely by the institutes or jointly by from other local and foreign sources. The bulk them and enterprises, with the project funds of the funds ($2'.0 million) would go to ICICI, (administered by ICICI) given as conditional with another $1]3.5 million to be shared by loans for up to half the value of the projects. three other banks, and the balance of $11.5 mil- The firms aimed at would be of all sizes, lion to be given when the first allocation was but presumably the large ones would be used up. Experienced staff would be provided more able to take advantage of this facility. by each of the banks. The final beneficiaries The sponsors would have a commitment to would presumably be innovative small- and the research project, while the conditional loan medium-sized firms that had difficulties in component would act as an incentive to enter- raisi-ng other forms of finance. The design prises to enter into this arrangement (if success- of this component was sound, though the ful, however, the loans would be repaid at projection of the uptake turned out to market rates of interest). Again, the choice of be overoptimistbc. ICICI as the administering agency seemed apt because of its extensive contacts with industry The second component dealt with S&T institu- and its ability to reach medium-sized enter- tions. Of the total of $50 million allocated, $40 prises. This element of the project seems million would be in the form of loans to 12 to 15 imaginatively designed. institutions, inclading the Bureau of Indian Standards, to import equipment, set up com- The third component of the project was the mon R&D facilities to be shared with industry, Technical Development Fund (TDF). The bulk of pay for technology collaborations abroad, train the project funds ($100 million) was destined and exchange staff, and upgrade management for the TDF, which had been in existence since skills. Six institutions had been preselected 1976. The intention was to provide resources for including the Standards Bureau and a private the rapid import of embodied and disembodied R&D institute. The projects would be moni- technology for "upgrading or product diversifi- tored by ICICI, using criteria of cost recovery, cation involving the introduction of new and revenue generation, productivity, and licenses more sophisticated products."Before the incep- sold. Future loans would be made by ICICI. The tion of this project, the TDF was constrained by idea of loan finance rather than grants for the various rules. These were reformed, and the S&T institutions was new to India, and fitted in project considerably improved its scope and with the government's plans to overhaul these functioning. The main recipients of this compo- institutions and make them earn more of their nent were expected to be SMEs, who would be revenue from industry. The timing and design able to obtain rupee loans at commercial rates seemed appropriate, suited to making the insti- to finance the imports. The design of the TDF tutes more service-oriented, and geared to component drew upon the ICICI's "Productiv- improving their productivity, capabilities, and ity Fund,"also financed by the World Bank, management skills. Using ICICI as the monitor- which was regarded as a great success. 90 The design of the TDF was specifically based on several private industry research units. It the constraints in the Indian technology import appears that NCL is not an isolated case. regime, and it had strictly limited aims. It sim- However, as far as the TDF is concerned, the ply intended to speed up access to financing recent liberalization by the government of India for foreign technology, but not to help technol- has completely superseded its regulations, and ogy importers in other ways. It did not seek to the new technology import regime has led to give technical assistance or information to more expeditious approval and disbursement SMEs on sources, prices, or conditions for of funds. technology imports. If it had, its utility may have been greater. Apart from this, the compo- nent seemed appropriate to meet a particular Final evaluation need of the time. At the time of writing this study, in addition to The Industrial Technology Development the project in Spain and two earlier projects in Project is proceeding well. During 1991, the Korea, the third project in Korea and the science venture-capital financing lagged behind sched- and technology project in Indonesia have ule in the three active financial institutions and closed and their project completion reports are the fourth, the Andhra Pradesh Industrial under preparation. The technology develop- Development Corporation, had still not ment projects in Mexico and Hungary will be resolved its financial problems. The project completed and closed during 1993-94. Given expectations regarding demand for venture- the relative newness of the project in India, it is capital funds was proving to be somewhat likely to be ongoing for some time. overoptimistic. The largest venture-capital company, the Technology Development and The main objectives of the projects are shown in Information Company of India, had launched a summary form in Table 3.1. It is evident that second fund (Rupees I billion) with money despite a diversity of objectives there are many from the Bank's technology project. common elements in the projects. The ones appearing in most projects are financing ITD This would be the first time that the Indian tech- activity and strengthening S&T institutions, nology institutions had received loans rather with improvements in research institutes and than grants. This arrangement was seen to com- industry close behind. Other objectives are plement the government's efforts to reform the more peripheral. Skill creation specifically for technology institutions. The government had ITD is the primary objective of only one project already launched a major effort to change the (in Indonesia); the others only provide for some Council for Scientific and Industrial Research's minor training to institutions that deal with culture in order to increase its financial inde- technology rather than technical training as pendence and linkages with industry. There such. Bank projects in education and training were indications that these efforts had been normally come under the purview of education productive. The National Chemical Laborato- rather than technology, even if they deal ry's (NCL) earnings had gone up in 1991-92, with industry-related skills. This may result accounting for 50 percent of the grants coming in certain aspects of ITD skill creation being from the government. Relationships with the neglected, a weakness resulting from the way in ICICI were excellent and the institute had been which the Bank divides its functions (this will able to commercialize some technologies be taken up in the next chapter). Improving through the venture-capital route. Close work- access to foreign technologies is a specific ing relationships had been established with objective only in the India project. Providing 91 TABLE 3.1: OBJECTIVES OF TECHNOLOGY PROJECTS IN SAMPLE Korea (only Korea Technology Development Indonesia Spain Corporation projects) (S&T training project) Mexico Hungary India Skills for ITD - Training for KTDC staff Primary objective to Training for finan- Technical assistance to appraise and manage provide overseas cial intermediaries to train staff of enter- technology finance. training for S&T pro- to provide technical prises to manage Appraisal procedures to fessionals. Also to finance. R&D, and to banks improve R&D manage- develop skills for and government ment by firms. implementing fel- agencies to deal with lowship programs. technology. Finance Create new financing Primary objective to pro- - Finance (by mixture Finance introduction Venture-capital for ITD institution to take vide venture-capital and of grants, loans, of new, imported support through activity direct role in selecting, new financing instru- equity, conditional technology to firms four financial importing, develop- ments for technology loans) firms and selected for spill- institutions. ing, and diffusing import and R&D. Estab- research institutions overs and potential technology in selected lish long-term financial to commercialize competitiveness. areas. Would commis- base for KTDC. Later to local technologies, Finance production of sion R&D in selected provide support for undertake ITD to printed circuit firms and research finance of SMEs and absorb, improve for- boards. institutions, and "technology start-ups." eign technologies. "teach"firms value of in-house R&D. Strengthen - Training for person- Finance research Grants to Metrology Loan finance to S&T institu- nel from six nonmin- institutions as Center and nine 12-15 technology tions isterial government above. Restructure Quality Control Insti- institutions for institutes under research centers tutes to modernize equipment, col- Ministry of Research financially, with pri- equipment. Import laborations, train- and Technology. vate-sector partici- R&D instruments for ing programs, Develop collabora- pation. Invest in new rental. Set up innova- management tive relationships equipment. Fund tion park for aca- upgrading, between local study of proposed demic researchers. and so on. and foreign universi- metrology center. ties and research institutes. Strengthen Promote and fund col- Finance projects - Private-sector Conditional loans research laborative R&D sponsored by industry at involvement in to industrial institute- between industry and research institutions. research institu- firms to meet part industry research institutions, Bring together research- tions' finance and of cost of spon- linkages as above. ers and firms. management. sored research at universities and research insti- tutes. Improve - Finance for access to Technical Devel- foreign opment Fund, technologies to provide quick access to imports of equip- ment and technol- ogy, especially by SMEs. Information - Reinforce industry - Analyze ITD to help Conduct two and policy attitudes to R&D. govemment with studies on advice Inform on technology technology policy technology policy. trends, market formulation. prospects. Advise govermnent on technology policy. '0 policy analysis and information to the govern- often with the need to construct alliances. In ment appears in three cases, but not as an many instances Bank staff have been the intel- important part of the total project. lectual force behind the idea, in search of The underlying aim of all ITD projects is to knowledgeable, like-minded, and willing inter- strengthen the cornpetitiveness and productiv- locutors in the borrowing countries. Because in ity of the industrial sector. This is based on two most cases, new financial entities need to be set general premises, articulated in most of the up, Bank staff have had to satisfy themselves project documents. The first is that some tech- with the quality of management of such new nological capabilities are essential to achieving enterprises. Often, they faced recalcitrance on world levels of efficiency at all levels of indus- the part of the staff of R&D and scientific insti- trial development, but that as the industrial tutions whose indifferent attitudes could not be structure grows more complex a developing easily altered. In practice, the expertise in this country has to deepen its capabilities. In partic- line of activity in the Bank is too narrowly held ular, it has to invest in design and development by a small number of specialists who have capabilities to absorb and build upon more designed and implemented industrial technol- advanced imported' technologies. The second is ogy development projects, starting with the that there are market failures in the acquisition first loan component in Israel. of technological capabilities, which have to be addressed by policy instruments. These are broadly valid premi,ses, but there are certain Notes points about the Bank's approach that are fur- 1. Industrial Research, Development, and Engineering (IRDE) ther analyzed in Chapter 4. Project, 1977, for $18 million. 2. Appraisal of an Industrial Development Project in Israel, Loan The specific objectives of the projects were to No. 1116-IS, 1975. remedy the most pressing constraints to ITD 3. These Technology Development Projects were in 1982,1984, identified in the sample countries. These con- and 1988, each for $50 million. It should be noted that there are a straints differed according to the level of indus- number of other Bank projects in Korea with technology compo- trial development, the policy setting, the nents that are not considered here. human and other resources available, and the 4. Science and Technology Training Project, 1985, for $93 million nature and relevance of the S&T infrastructure. equivalent. The Bank's perceptions of these constraints 5. Like aircraft design and manufacture, armaments, ships, tele- informed the objectives set out for each of the communications, heavy equipment, diesel engines, and so on. projects, but the response in terms of the design 6. Industrial Technology Development Project, 1986, for $48 of interventions differed. million. 7. These R&D centers were in pharmaceuticals, agroindustry The nature of industrial technology develop- and biotechnology, metalworking, and chemicals. ment projects makes them difficult to conceptu- 8. Technology Development Project, 1988, for $50 million. alize, design, and app:raise even under the most alize,design and apirais even nder te most 9. Industrial Technology Development Project, 1989, for a total conducive of environments. It requires lengthy of $200 million, made up of a loan of $145 million and a develop- and laborious consensus-building negotiations, ment credit of $55 million equivalent. 94 4. Assessment, lessons learned, and recommendations Introduction cal development of beneficiary entities, while in some cases the benefits have gone beyond the Technology projects have played an increasing particular project. In rare instances, the indus- role in the Bank's operations affecting the indus- trial projects have assisted the development of trial sector. Since the early 1970s, the Bank has new technology as a part of the project.1 made a total of 75 loans with explicit science and technology objectives, of which 32 were for higher education, 13 for industry and technology, Assessment and 30 for infrastructure and energy. Nearly 85 percent of the projects in the category of industry The need for ITD is clearly and forcefully stated and technology have been initiated since 1980, in nearly all the project documents. In general, and almost 70 percent since 1985. It appears that it is argued that the need to make existing "over this period both the Bank and developing industries competitive and to develop new countries have become increasingly aware of the sources of comparative advantage in manufac- critical role of science and technology in national turing both need investments in technology development" (project appraisal report). Of these development. The perception is that: 13 industry and technology projects, eight were in Asia, four in the Middle East and North Africa, * technological activity is a driving force in and one was in Latin America. industrial development, productivity, and competitiveness in developing countries; Investment projects, especially those in produc- tive fields, have been a major vehicle for tech- * it is a purposive activity that does not nology transfer and development. Bank result automatically from a passive learning lending for industrial projects has normally process, and requires enterprises to invest included imports of licensed technology, advice in specific areas like training, information and information from consultants and equip- collection, engineering, design, and ment manufacturers, and service from equip- experimentation; ment and component suppliers. This has usually been accompanied by skills training * it involves the interaction between individ- and a host of other activities that have charac- ual enterprises and an infrastructure of terized efficient import of new technology. science and technology institutions that Though mostly project specific, these efforts provide certain services with "public have all helped assist the industrial technologi- goods" characteristics; and R95 * there is a need to deepen technological capa- spread market failures in the supply of skills, bilities with industrial development. finance, information, standards, and so on. It has little problem in accepting market failures The need for ITD is seen to exist at all levels of because all developed industrial countries industrial development, but the content of ITD have, over a long period of time, invested in set- varies at each level. At low levels, the most ting up specific mechanisms and institutions to important need is to master the relatively sim- provide for education, training, technology ple technologies that have been imported, to finance, science infrastructure, and research achieve world standards of quality and compet- institutions. It further accepts the need for gov- itiveness. This need for mastery persists ernment intervention on account of the "public through higher levels of industrial develop- goods" nature of ITD efforts and their external- ment, but the technologies concerned become ities. Despite this, the Bank shies away from more complex, larger scale, and more demand- taking the argument to its logical conclusion by ing of specialized skills and knowledge. All the accepting that there may be a very good case for project documents related to the technology selective intervention in exploiting these exter- loans accept that such operational capabilities nalities. There may also be a case that scarce may not be easy to acquire, and may need pol- ITD resources should be used in activities with icy support. the most learning and spillover potential. At the same time, the ITD projects suggest that There is no generic design for the ITD projects. the need for technological deepening, a greater Each must depend on the country's industrial- understanding of the technology itself (the ization strategy, stage of development, and other know-why), grows with industrial develop- country-specific factors. It is, however, very ment. The technology literature suggests that important that there be an integrated approach this is correct. The lack of advanced capabilities to the design of an ITD program. Such a pro- holds back not just the ability of local firms to gram should clearly define the objectives and set diversify, diffuse technology, and reap the out all the actions that are needed to achieve the externalities that ari se from technological activ- objectives. For example, if the program aims at ity, but also their ability to absorb more sophis- enhancing the competitiveness of existing ticated technologies from abroad. R&D serves industries based on imported technology, then as much to keep up with technical progress as its design will be somewhat different from one to generate innovations.2 Both aspects of R&D that aims at improving, deepening, and devel- are essential ingredients of industrial competi- oping technology. Once the elements of a pro- tiveness in the advanced industrial countries, gram in terms of capability and institutional while in the developing countries the imitative, development are known, then it can be decided absorptive, and monitoring functions of R&D whether all issues are to be addressed by one or are predominant. However, technological deep- many projects and in what order. It could well be ening may not follow automatically from the that the Bank is satisfied that components of the development of ope:rational capabilities. These integrated program are being adequately and essential features of the ITD process are clearly satisfactorily taken care of by other loans or by understood by the Bank. other entities. In short, there has to be a clear integrated program and confidence that all its There appears to be a broad agreement in all the components are being addressed. Bank's technology projects on the proactive role of government in strengthening the supply side A strategy of developing technological capabil- of ITD. The Bank accepts that there are wide- ity needs to be a part of a broader industrial 96 strategy aimed at industrial development and entirely justified. ITD is an essential and international competitiveness. As pointed out integral part of industrial development, and in the 1992 OED study of World Bank support the factors that affect the latter necessarily for industrialization, the Bank has been a cred- affect the former. Long-term investments in itable and effective proponent of trade and capability development and R&D are bound industrial policy reform but has failed to to be exceptionally sensitive to incentives develop an integrated approach in order to arising from the macroeconomic and competi- build up capabilities that are necessary for long- tive environment, which determine the term industrial development in the developing "demand" for ITD. countries. In the words of that report: Given the implicit significance of incentive In principle it is not a very large shift for factors, it is important to understand the kinds the Bank to include, in its analysis of industrial- of incentives the Bank regards as conducive ization, the interplay of incentives with skills, to ITD. While the precise incentive require- technology and institutions. Its analysis of ments of ITD are not discussed explicitly in incenitives, based on restoring market efficiency, the project documents, it is possible from remains the same, but it is located in a more com- their analysis and from other Bank writing on prehensive framework where incentives do not industrialization to decipher the Bank's view of "do all the work." The analysis directly covers the ideal incentive framework for capability such structural factors as investment capabili- development. It is one that meets the following ties, skills of various kinds, technological effort four conditions: and the development of institutional structures, so that the Bank can evaluate and devise methods It provides a liberal trade regime, with con- to help the "supply response." Taking all these siderable exposure over time to interna- factors into account can produce a major change tional competition in all its forms (import as of emphasis and content in the Bank's analysis of well as export competition). The case for trade and industrial policy. The phasing, content protecting particular activities to promote and thrust of liberalization and structural ITD or to exploit technological linkages or adjustment programs would change, and would externalities is generally more than counter- take more account of the industrial structure, balanced by the risk of government failure skill endowments, technological and other fea- in exercising selectivity. tures of each country. The design of sectoral pro- grams and projects would also be more realistic * It provides full access to foreign technology and comprehensive. and equipment in all its forms (licensing, service and consultancy contracts, turnkey Incentives projects, arm's length purchases, joint ventures, majority-owned foreign invest- The Bank's decision to undertake ITD projects, ments, and so on). Foreign technology in and their specific design, depends strongly all forms is seen as a necessary input into on its reading of the incentive regime in each domestic technological effort, and the country. There is a clear awareness that the "make or buy" choice on technology is incentive framework has a critical impact on best left to individual enterprises respond- the "demand" side of ITD and the extent and ing to competitive market signals. There nature of technological capability investments, is no reason to restrict technology imports and that the framework has to be conducive to or to prefer certain types of technology industrial development as a whole. This is imports over others. 97 * It promotes domestic competition, remov- information benefits of participating in world ing all artificial constraints to entry and exit. trade. The need for protection, moreover, declines as ITD progresses. With the progress of • It emphasizes the role of the private sector, technological learning, industries have to be on the assumption that private ownership exposed to import competition to stimulate fur- provides a more efficient form of ownership ther lTD-but the exposure should not be so and better incentives for ITD than public sudden that the learning process itself is ownership. aborted (see below). These criteria are based on the Bank's experi- Accepting that world competition is a powerful ence of industrial development in a range inducement to efficiency and that much of the of countries pursuing a range of industrial history of import-substitution in the develop- policies. On both theoretical and practical ing world has been wasteful, it is still the case grounds, they have much to recommend them. that ITD in complex industries can require pro- ITD is strongly driven by international compe- tection, and that deepening of ITD can require tition. Technology imports are a necessary longer protection than the mastery of opera- input into local capability development, and tional capabilities. In the absence of such inter- attempts to impose technological "self-reli- ventions, the industrial structure may take a ance" are generally disastrous for healthy ITD. very long time to deepen, and comparative Selectivity does not have a good record, and advantage may stay confined to relatively easy picking technological winners is especially dif- activities. Within the present sample, India, ficult. Domestic competition is conducive to Mexico, and Spain have many instances of com- ITD and to efficiency and growth. Finally, the plex industries, unlikely to have been set up private sector is generally more efficient and under free-trade conditions, that attained tech- responsive to market signals than the public. nological "maturity" behind protective barri- The experience of ITD in the sample countries ers. The export surge in Mexico in the late 1 980s, suggests, nevertheless, that some of these condi- following massive devaluations and export tions need qualification. The main qualifications liberalization, was overwhelmingly led by pre- are discussed below. vious import-substituting industries that had acquired the necessary operational capabilities. Trade regime. The presumption that untram- Much of Spanish heavy industry was very sim- meled competition in world markets provides ilar. There are some comparable instances the most effective stimulus for resource alloca- emerging even in relative industrial newcomers tion and investments in technological learning like Indonesia. None of these trade regimes is critically dependent on several conditions were as well planned or rigorously adminis- regarding the efficiency of markets. These con- tered as that of Korea, especially in their ditions are often not met in developing coun- abilities to offset the disincentive effects of tries, leading to the r'isk of underinvestment in protection. Their effects on ITD were therefore ITD by enterprises. As discussed in the analyti- less dramatic. But some of the benefits for cal framework, there may be valid grounds for capability-building are nevertheless present. infant industry protection when certain types of market failure are present. Experience shows, However, the immediate policy issues confront- however, that the interventions are best located ing the Bank and the developing world now are in a strongly export-oriented regime that offsets less to do with the promotion of infant indus- the disincentive effects of infant industry pro- tries than with the restructuring of existing indus- tection while providing the competition and tries under structural adjustment. Here too the 98 issues of promoting technological learning sur- ITD. The projects in Mexico and Spain, for face, but in a different guise. For economies instance, had as their (legitimate) objective with a number of industries that have attained the reduction of dependence on foreign sources maturity (or near maturity) under protectionist of high-level technological functions. This trade regimes, liberalization allows these was based on the concern that enterprises industries to exploit immediately their existing were investing too little in their own design, technological capabilities in world markets. It development, and innovation. It was noted induces them to upgrade their technologies and in particular that affiliates of foreign multina- to take on related activities, and allows them tionals tended to spend little on local technol- access to imported equipment and know-how ogy apart from that needed to adapt to local that may have been restricted before. conditions. In other words, foreign technology was tending to substitute for local efforts to These benefits of liberalization are very signifi- deepen ITD rather than to complement it, cant. However, there may be a case for phased and was constricting an important source programs of restructuring and relearning in of dynamism and competitiveness. some industries. Moreover, as the comparative advantages shift and new low-wage exporters The Bank's explanation for this differed enter the international markets, the need for between the two countries, as did the remedies ITD efforts increases not only for the countries suggested. In Spain, with its relatively open to retain their hard-won share of the market but economy and mature industrial sector, exces- also for them to enter new areas of comparative sive technological dependence was traced advantage. It is in this respect that the experi- mainly to the lack of knowledge and under- ence in Japan, Korea, and Taiwan (China) is full standing on the part of enterprises of the value of lessons for other developing countries.3 The of R&D, and secondarily to the weak capital- Bank acknowledges this case, but is generally goods sector and a lack of linkages between averse to programs that have a large discretion- enterprises and the S&T infrastructure. The ary element and so run the risk of government solution proposed was the setting up of a new failure. The Bank's approach to trade strategy institution that would catalyze R&D. It would may thus underestimate some of the critical ele- do this by selecting foreign technologies, teach- ments of industrial technology development. ing firms the value of R&D, and involving them in research in-house and in collaboration with Technology imports. The presumption in Bank research institutes. documents that technology imports are essen- tial to ITD is justified. Arbitrary interventions in In Mexico, with a large industrial sector and the technology transfer process have often very little R&D, the problem was traced to the inhibited ITD on grounds of promoting techno- legacy of import substitution and lack of inter- logical self-reliance. In the sample, the case of national competitive pressures, and again sec- India illustrates clearly the risks of trying to ondarily to the weak local capital-goods sector. control all aspects of technology transfer and Here liberalization by itself was assumed to attain technological self-reliance. create the necessary demand for ITD, with no further need for interventions in the incen- Accepting the critical need for access to foreign tive structure. The experience of Spain was not technology, however, there is a need to distin- mentioned. The assumption seemed to be that guish between technology imports that comple- pressures to achieve operational efficiency in ment local ITD and those that substitute for it. This response to liberalization would also lead to distinction is stressed in Bank documents on pressures to invest in R&D (that is, know-how 99 development would automatically lead to using trade and industrial strategies to promote know-why acquisition). It was not considered ITD, providing strong incentives to indigenous that free access to technology imports, in a lib- industrial R&D, and even restricting easy eralizing environment where there is little habit access to "ready made" imported technologies. for undertaking R&D, was more likely to lead to more rather than less dependence on foreign Domestic competition. There is no doubt that design and development (even when firms the Bank's emphasis on removing barriers to were upgrading their operational capabilities). domestic competition is salutary for ITD in most countries. Most interventions by means The other projects did not address this issue of licensing, reservations, ownership restric- explicitly. Hungary was a mature industrial tions, subsidies, and the like serve mainly to power with high levels of innovative expendi- deter and distort technology development. ture; its problems were essentially systemic. The only exception that may be admitted is Indonesia was at Itoo early a stage to warrant based on the need for large firm size to bear the investments in innovation (though evidently costs and risks of technological deepening the Indonesian government thought other- (and to internalize imperfect markets for capital wise). India had already invested too much in and skills). Korea used the fostering of giant know-why in a distorted environment. Korea conglomerates as a deliberate strategy to imple- had managed, by a combination of protection, ment its industrial and technological ambitions, internal resource allocation, and other mea- and was able to discipline them by exposure sures, to develop a research culture among its to export competition, internal monitoring, dominant enterprises. More important to the and performance requirements. This may present analysis, K:orea intervened in the tech- not, however, be an easy strategy to adopt nology transfer process to favor arm's length for other countries.4 modes that would allow local firms greater autonomy and induce them to invest in their Capabilities and institutions own technological deepening. These interven- tions differed in effect from the Indian, in that in The Bank's ITD projects exist because there are Korea they were part of a coherent strategy of perceived market failures in the capability and developing an internationally competitive and institutional needs of ITD. The sample projects diverse industrial structure, and did not con- show a fairly good awareness of the main gaps fuse the economic objective with other noneco- in the factor markets affecting the "supply" side nomic aims. It is not clear that the other of lTD: skills, finance, infrastructure institu- countries had the administrative capabilities tions, linkages between the infrastructure and for Korean-style interventions. industry, and access to foreign technology. They also show a due appreciation of the fact that This would not matter if technological deepen- many of these gaps are universal, and most of ing was not an objective of industrial technol- the project appraisal reports start with the state- ogy policy, that only operational efficiency ment that advanced industrial countries also mattered. However, the ITD projects certainly intervene in these markets to support 1TD. This did not assert this. On the contrary, it was is entirely correct. While national approaches strongly argued that technological deepening differ, all these countries have intervened exten- was conducive to competitiveness and growth. sively in the creation of skills, information It was not considered that this objective could support systems, infrastructure institutions, require more far-reaching measures to change technological services for SMEs, finance for the entrenched habits of the industrial firms, exceptionally risky research projects, and 100 sometimes the launching of collaborative R&D industrial growth ensured that any slack cre- across enterprises or between industry and ated was quickly taken up. By contrast, India government.5 There is therefore little disagree- and, surprisingly, Hungary come near the bot- ment that certain market failures are pervasive tom in terms of skill creation. It is possible that in this sphere of industrial activity, these countries have a large enough base of spe- cialized research and other skills to "go on The ITD projects show due appreciation of the with," but it is also possible that many special- differences in the levels of industrial develop- ties are lacking. More importantly, it is not clear ment that affect the nature of the most immedi- that the majority of industrial enterprises, as ate market failures in each country. However, as opposed to S&T institutions, have the necessary noted below, there tends to be a compartmental- skill base to absorb and implement technologi- ization of approaches to the different elements cal improvements. The project documents do of capability development that sometimes pre- not provide the answer. vents the projects from taking an integrated view of the ITD process. This was noted for the Finance. The provision of technology financing Bank's approach to industrialization as a whole was one of the main objectives of Bank ITD in the OED study on this subject.6 The problem projects, based on the presumption that capital- appears in the ITD context in perhaps a less market failures were one of the main con- acute form, but it is worth noting, especially in straints to technology development. This was issues of skill development. correct, and the particular attention that the projects paid to the needs of SMEs was wel- Skills. The Indonesia project is the only one in come in that these enterprises face greater the sample where technical training and educa- financial constraints than large enterprises. tional needs of technology development are The Korea project had venture-capital and addressed directly. The other projects have rela- other new technology financing instruments as tively minor components for training essen- its exclusive focus. The Hungary, India, Mexico, tially to administer the technology loans. This and Spain projects had it as a major focus, along pattern may reflect one or both of two assump- with efforts to remedy failures in information tions: first, the other countries have signifi- markets. The aim of the finance component dif- cantly better skills for ITD than Indonesia, or, fered across countries. The Spain project was to second, the skill needs for ITD are being finance the import, development, and diffusion addressed by other Bank projects or by the gov- of selected technologies as part of a specific ernment concerned.7 strategy of changing the country's technology culture. The Hungary project was primarily It is difficult to determine if these assumptions to provide loans for the import of up-to-date are valid, because no evidence is provided on equipment and technologies from the West for whether the skill needs of ITD are in fact ade- process control and software. The India project quately met. The evidence of the country stud- was to finance local innovative efforts via ies shows large variations in their output of venture capital, while the Korea and Mexico high-level technical skills. According to all the projects were to finance both the absorption available indicators, Korea leads the field in its of foreign technology and the commercializa- enrollments in tertiary level S&T fields and in tion of local technologies. These three projects the employment of scientists and engineers in did not attempt to select the technologies or R&D. Its investments in human-capital forma- industries where ITD was to be promoted. The tion consistently tended to outrun those in general objective of financing ITD was clearly other needs of ITD, though the high rates of justified in view of the evident failure in capital 1)13 markets. However, three points need to be another. In Korea there appeared to be a fairly made about the design of the projects. high proportion of local innovations, in Mexico rather low. As noted above, the habit to under- First, in the sample projects, there appears to take technological efforts by the countries was be altogether too much attention to R&D determined by many other policies than the financing rather than the more mundane needs provision of technology finance, and the Bank's of training, quality improvement, improved apparent belief that plugging the financing mastery of technology, and so on. These gap would suffice to catalyze local R&D operational improvements were presumably was misplaced. assumed to be met by ordinary sources of finance for working capital. While it is true Third, as disillusionment grew with the experi- that most countries in the sample are among ence of poor interventions in most developing the NIEs, and may have long industrial tradi- countries, the financing component of the ITD tion, this lack of attention to other capabilities projects moved away from targeting specific may have constrained the industrial technology activities.8 In Mexico, perhaps in accordance development of SMEs to the extent that these with the government's own perceptions, the improvements needed more than working- tendency has gone further. In its new project on capital financing, and normal banking channels science infrastructure the Bank has withdrawn may not have funded slightly longer-term from industrial technology financing as such, needs without collateral. Thus, these technolog- apparently on the grounds that no such target- ical upgrading needs may have fallen "between ing is required. the cracks" of immediate production and research financing. The Korea Technology However, as argued, this approach overlooks Development Corporation loans were meant the legitimate casefor targeting, and ignores the to fill the gap between burgeoning chaebol R&D positive experience of selective interventions in on the one hand and infrastructural R&D on the the best performers in the developing world. other. In the other countries the strategic setting Despite the Bank's unsuccessful early experi- was different, and this surge in private sector ence with targeting, there is always a risk that R&D was lacking. Thus, efforts to meet the scarce technology resources may be "spread needs of private enterprises in technology too thin." While there is a strong possibility of investments may have been less effective. government failure in all policies that permit large discretionary powers, as long as there were Second, the purposes for which technology differences in learning potential and externalities finance was provided included the develop- across activities, a careful and limited use of tar- ment of local technologies as well as the absorp- geting may be beneficial. Thus, concentrating tion and adaptation of imported technologies. resources where such potential and externali- Bank projects did not, correctly, draw a distinc- ties exist might yield more benefits than spread- tion between these. There was nevertheless a ing them over the whole manufacturing sector. stated preference for supporting local develop- ment of technologies, that is, for creating a will S&T institutions. The strengthening of the to carry out R&D, ral her than for the less information and technical services network gener- demanding task of adapting imported technol- ally involved two objectives: improving the ogies. However, there was no mechanism con- capabilities of S&T institutions, and establish- ceived whereby this could be achieved. Thus, ing closer linkages between them and industry. the technological content of the subprojects The strengthening of institutions was a major financed varied greatly from one country to objective in three of the projects (four if the skill 102 development for the nonministerial govern- would become a substitute for in-house R&D, ment institutes in Indonesia is included). was evidently not well thought through. The In India, the project fed into the government's risk that a few large enterprises would domi- broader market-oriented reform of the Council nate the centers for their own benefit was not for Scientific and Industrial Research institu- considered. Thus an apparently imaginative tions, as well as improving the Standards solution turned out to be impractical. In India, Board. The India project envisaged loans to there were conditional loans to enterprises to research institutions in the context of a wider encourage them to sponsor research at the insti- reorientation of the Council network launched tutions. The scheme seemed promising and by the government. These loans were to be appropriate. KTDC, too, sponsored and administered and monitored by a private-sector financed research at institutions, but the gov- financial intermediary (Industrial Credit and ernment also had other, larger, schemes to bring Investment Corporation of India), and would industry and institutes together on "national be based on criteria that included interaction projects" in technologies selected for their stra- with industry. In Mexico, the project envisaged tegic importance. However, the experience of the tying in of investment in research institutes the KTDC shows that even there it proved very to their partial privatization. It also included difficult to create strong linkages between pri- a study for a metrology center. In Hungary, vate firms (in this case, mainly SMEs) and the the project included strengthening the metrol- research institutions. ogy center and quality control centers, and the selective boosting of infrastructure provision of inputs into R&D. Lessons learned and recommendations The needs to improve research institute and Based on the experience from the industrial industry linkages were mentioned in most technology projects in the sample countries the projects, though in Hungary and Indonesia following factors may be cited as those most they did not appear as immediate objectives. In instrumental in the outcome of the projects. Indonesia, the need for better linkages was par- ticularly pressing, and the failure to address ITD should form a part of a broader strategy this is a major weakness of the project. In Spain, for industrialization; otherwise its impact too, the project made explicit provision to pro- may be diluted. There is need for an integrated mote linkages. The Mexico project adopted a approach in the preparation of ITD projects different approach. It sought to finance the where incentives, technological capabilities, restructuring of some CONACYT institutes as and institutions are all discussed and part of a privatization program. This assumed addressed simultaneously. that a group of private enterprises, for the most part with little research tradition, would have The impact of a technology project on ITD an interest in financing and managing these depends on the existence of a clearly defined centers. The output of these centers consisted and articulated technology strategy. The partly of technological services that were ame- projects in Korea were effective because the nable to sale, partly of development work that Korean government not only had a strong hand involved secrecy and so would not easily by in directing the economic and especially the entrusted to such centers, partly of the provi- industrial development of Korea, it also formu- sion of "public goods" on which rewards lated a clear strategy for the technological would be difficult to appropriate. The feasibil- development. This was the case, to a lesser ity of such privatization, and the hope that this extent, in many of the other countries and 103 where there was need, the Bank insisted on a should examine its understanding of what technology policy study to be carried out. drives the process of technological develop- ment and the creation of an R&D culture, pay- Since the industrial technology projects usually ing particular attention to the effects of address issues of the factor market failures on imported technology inputs versus local tech- the "supply" side, it should be reiterated that nology development. the incentive framework is a crucial determi- nant of ITD. In addition to a sound macroeco- Technological dynamism requires a heavy nomic setting, liberal trade, industrial, and involvement on the part of the private sector technology policies play a decisive role in pro- in technological activities. The role of public moting ITD. Where the incentive regime is institutions in technology should decline highly distorted-as in Hungary at the time of over time to provide support for private the project's inception-even well designed technological activities. Very few countries measures on the supply side do not lead to a have managed this transition. In the case of dynamic process of ITD. ITD projects should, Korea, this involved, in addition to clear trade, therefore, not be implemented until the eco- industrial, and science and technology strate- nomic environment is conducive to their gies, several financial and fiscal measures to potential success. encourage private-sector R&D. Conversely, in Mexico formal technological activity was Access to foreign technologies is critical to ITD, very low, and nearly all of it was in public and the Indian case study illustrates the dam- institutions. Given the nature of R&D activities, age that may result from widespread and government policy should encourage private severe restrictions on technology imports. R&D through incentives including fiscal and However, the mode of technology import may other measures. affect the extent and nature of local capability development. A heavy reliance on foreign Technological effort is necessary for efficient direct investment can be an extremely effective industrialization at all levels. Though the mnethod of transferring operational know-how Bank's ITD projects have so far been mainly of new technologies, and can have numerous concentrated on NIEs, they should be started in beneficial externalities. It may not, however, be less industrialized countries. In some develop- the best way to prornote technological deepen- ing countries, what may be initially required to ing. In Korea, the preference for arm's length promote competitiveness and efficiency are the technology imports Dver direct investment improvement in skills and an efficient technol- encouraged local enterprises to invest in their ogy infrastructure (for standards, metrology, R&D capabilities, because it was comple- quality assurance, and so on) before elaborate mented by a battery of policies encouraging R&D facilities are created. industry to enter complex areas while forcing them to face export competitions. Long-term trends in technology affect competi- tiveness and technological response of each The deepening of industrial technology capa- country. Although the Bank cannot specialize in bility may also need interventions in trade and all such technologies, it nevertheless needs to technology regimes that promote local research have some idea of the critical areas of generic activity. Exposure to international competition technologies on which developing countries and technology flows by itself may not-as wit- may need guidance. This would give more nessed in Mexico and Spain-be sufficient for meaning to its industrial technology develop- the promotion of technological effort. The Bank ment lending activities. 104 There is need for the dissemination of ITD liter- experience and quality of the staff of the institu- ature within the Bank and a serious discussion tions. Not only should the institution attract of the subject. ITD projects are currently carried and retain qualified staff, it should continue out by a few individuals in the Bank who under- to improve their effectiveness through a variety stand the imperatives of technology develop- of training programs. ment but often find it difficult to communicate their concerns to others. This is all the more Venture-capital and risk-sharing operations important because of the Bank's preoccupation should be approached with great care because with the supply response and competitiveness the skills required to manage them are not that is expected from trade and industrial policy always readily available and take time to reform and industrial restructuring. develop. In the Indian project, the projectio ns made on the uptake of such financing was overoptimistic. Risk-sharing activities also Project implications require the availability of financial resources that permit prudent risk-taking. In setting In financing R&D by firms, the Bank should up the financing of the intermediaries, there look for intermediaries that understand R&D, is need for reasonable certainty as to the sources have technical expertise, are knowledgeable of finance, the commitments by the government about various industries, and are committed in terms of assistance, and a well-designed and willing to take risks. The ownership of the devolution program. project should, therefore, be vested in only dynamic organizations that are willing to lead, In all the countries in the present study, facilitate, and monitor progress in the interest of R&D institutions set up to deal with industrial efficiency. Normal financial intermediaries like technologies have found it difficult to link commercial banks are generally not equipped up with manufacturing enterprises. The priva- to deal with the needs of such financing, and it tization of public-research institutes faces vari- is desirable to entrust such activities to special- ous difficulties, as illustrated by the experience ized financial institutions. in Mexico where enterprises were reluctant to take on the ownership and management of Successful financing of technological innova- such institutes. Since large firms normally tion in industry depends on the institutional have their own resources for R&D, priority make-up of the financial intermediary. Though should be given to financing R&D for SMEs. the government's presence may be necessary Financial incentives to the private sector to get started, the intermediary should have might help create linkages between SME strong private-sector participation and support and R&D institutes. as well as complete autonomy so that bureau- cratic interventions are avoided. The Indian While it is important to have the private sector and Korean experiences illustrate the advan- represented in the policymaking bodies of pub- tages of privately managed institutions that are lic R&D institutes, it is highly unlikely that the responsive to market needs and have intimate private R&D institutions can be put in place relationships with industry. Conversely, in through the collective participation of private- Mexico the first-tier commercial banks had sector firms without strong government sup- very little inputs in the technology loans. port and financial assistance. The services of the private-sector private institutions could be Successful technology and venture-capital brought in to facilitate the linkage between financing depends, to a very large extent, on the industry and R&D institutes. 105 The best approach. towards strengthening 3. Korea was exceptional in the diversity of measures it used. research linkages seems to be one where it is It gave grants and subsidized aedit for R&D in areas regarded as strategically important, both for in-house activity by firms clearly recognized: (a) that only those research and for collaborative work with the research institutes. Its tax institutes with the "service to industry' culture incentives for R&D were extremely generous and given years can be instrumental in strengthening the link- in advance. Innovators received preferences in procurement, age; and (b) that firms, especially SMEs, face and were given awards and citations. It gave privileged access and credibility gaps in subcon- to importers of research-related equipment, and invested in set- ting up 'science towns' that brought together universities, re- tracting research to institutes. This is partly a search institutes, and industry. It guided and promoted R&D problem of their inability to define clearly their in activities of strategic importance. In addition to the primary own technological needs. It is partly due to a urge for technological deepening that came from the trade and lack of knowledge on their part of the capabili- technology import regimes, this pervasive set of measures to encourage and catalyze private R&D clearly helped to promote ties of the institutes and a lack of trust on indus- technology development in Korea. Grants were also used in trial secrecy. These gaps can be filled best by other countries to stimulate R&D between the industry subsidizing, at least at the start, the process of and research institutions. linkage creation, while securing some financial 4. The situation in Taiwan (China) is totally different with the commitment on the part of the enterprises. preponderance of small- and medium-scale industries. Many of the ITD projects did recognize the need 5. For a historical review of government polides on technology for this subsidization, and it took the form of in the developed countries, see D. C. Mowery and N. Rosenberg, conditional loans, preferential interest rates Technology and the Pursuit of Economic Growth, Cambridge: Cam- bridge University Press, 1989. On the current practice in Japan, targeting selected activities, and so on. This the US, and some European countries see the Office of Technolo- approach was correct, though a systematic gy Assessment of the US Congress, Making Things Better, Wash- assessment of the form of support that works ington, DC, 1990. best is still lacking. 6. To quote, "The functional division of work does not permit an easy integration of educational, industrial, institutional and mac- roeconomic disciplines. These divisions themselves reflect the Notes academic and other distinctions that have grown over time be- tween these subjects. They are not difficult to break down, but it would require deliberate effort of building intellectual as well as 1. ar mistance, the Tamil Nadu Newspint Project i india (Loan bureaucratic bridges." OED, World Bank Support for Industrializa- 2050-IN) used a chemi-mechlanical pulping process developed at tinnKoe.ndaadidnsi,19,p.5-4 TNPL for the production of newsprint from bagasse. A subcom- ponent of the Fertilizer Rehabilitation and Energy Saving Project 7. The Bank had a number of tedcnical training and education in China (Loan 2541-CHA) consisted of strengthening the newly projects in many of the sample countries. But in most countries established China Fertilizer Development Center and ferfftilizer (except Indonesia and Korea) the question of education and design and research institutes for improved R&D and engineer- trainig in science and technology is not explidtly addressed. ing capabilities in the fertilizer industry. In Jordan, the Second In India and Mexico training of technicians was the major objective Arab Potash Project (Loan 2786-JO) helped the pilot plant trials and, even in Spain, the Bank approved two education loans for the development of a cold crystallization process that was in the early 1970s. eventually used in the third expansion of the project. 8. The Hungary project was something of an exception, but the 2. See W. M. Cohen and D. A. Levinthal, "Innovation and Learn- selectivity recommended may have been justified with reference ing: The Two Faces of R&D," Economic Journal, 99,1989, pp. 569-96. to the lack of market institutions there. 106 Annex Technology and growth: definitions The available technology for production in any economy, in practice, however, ranges A virtuous circle connects technological between those that are efficient and represent progress and economic growth. Ever since the 'best practices' and those that are inefficient, path-breaking work by Robert Solow in 1957, requiring greater quantities of inputs than in technological progress has been empirically the best practice cases to produce the same identified as one of the most important factors levels of output. in determining economic growth. On the other side of the circle, economic growth feeds Following this definition, technological advances in technology by making technical progress can then be seen as the increase in advances economically profitable.' Growth the stock of knowledge or ideas, or a change in raises the demand for technology and makes the recipe, that enables an economy to produce investment in technological progress profitable. on average a greater quantity of output without Growth also contributes to technological increasing the amount of inputs. This techno- progress through increasing the stock of knowl- logical progress and its effects upon growth can edge that arises from learning by doing-that take place in two ways: (a) an improvement in is, from obtaining more experience with pro- the 'best practice' or efficient technology (this is duction. Thus growth and technological termed as invention or innovation), and (b) an progress reinforce each other through increase in production that uses best practice this virtuous circle. technology, for example, the average technol- ogy in use improves and comes closer to the In this annex we address one half of this virtu- best practice frontier. This is known as the pro- ous circle: how does technological progress cess of imitation, or alternatively as the process contribute to growth and development? The of diffusion of technology. In either case the first step in answering this question is to define immediate effect upon growth is quantitatively technology carefully. Technology may best be the same: it lowers the amount of inputs neces- thought of as the available knowledge, the sary to produce the same level of output. It thus stock of ideas, or the 'set of recipes' available to releases resources to produce more output and combine and transform material factors of pro- thus causes economic growth.2 duction, such as land, labor, and capital, into output. This recipe set, or existing knowledge, While the immediate effects of both processes is embedded in the available machinery and of technical change on growth are the same, equipment and in the training of the work force. it is the first process of technological progress 107 that will be decisive in sustaining growth of the growth rate of output in the US economy, output in the long run. The second process, between 1909 and 1949, could be explained by the improvement of 'average' technology, is an increase in the use of material inputs like necessarily limited by the frontier of best labor and capital. The remainder of the growth practice; at some point the scope for output rate remained unexplained, a residual.3 It was growth through imitation will be exhausted suggested that this residual was explained by in the absence of new innovations and inven- increased technical efficiency in the use of fac- tions. Lastly, as the potential for the indefinite tors of production and not to the accumulation accumulation of material factors of production, of these factors. This finding indicated that such as capital and minerals, may be necessar- technological progress probably played a ily limited, technological improvement pro- highly significant role in determining long-run vides the only route through which economic growth of the economy Indeed, Solow's work, growth can be sustained. later generally confirmed by similar exercises for other Organization for Economic Coopera- The rest of this annex is organized in the follow- tion and Development (OECD) countries, sug- ing way: in the next section we present empiri- gested that as a factor the contribution of cal evidence to show the influence of technical growth in productivity to overall growth in pro- progress on economic growth. We then turn to duction was more important than contribution a discussion of some of the ways that technical from the accumulation of capital. This result is progress affects growth. also confirmed by looking at growth in several OECD countries. Figure 1 compares the contri- bution of total factor productivity (TFP) catch- Empirical evidence: productivity up and the unexplained productivity residual and costs against the contribution made by capital deep- ening to relative growth rates of several OECD The principal manifestation of technological countries.4 Thus ever since Solow revealed progress in economic growth follows from the these results economists have been sharply nature of technological progress: Technology is aware of the potential importance of technolog- like a factor of production, but hidden behind ical progress as a determinant of growth. capital and labor. Consequently, any 'increase' in technology manifests itself as an increase in mul- Later studies of the sources of long-ran tifactor productivity; that is, it leads to a rise in economic growth have further refined these output beyond what can be accounted for by the early studies by carefully decomposing the rise in capital and labor inputs. The effect of this residual, gTFp into several possible compo- boosts the growth rate. Equivalently, technologi- nents: (a) the gains from increasing returns cal progress leads to a fall in unit costs of produc- to scale; (b) the gains from intersectoral reallo- tion. As less inputs are required to produce one cation of labor; (c) the gains from increases unit of production this releases factors for use in in allocative efficiency; and (d) the pure gain production elsewhere. Thus economic costs, or from the contribution of technological progress. opportunity costs, fall. In this section we present Also, considerable effort has gone into account- some evidence on both of these indices. ing for changes in the quality of labor and capi- tal inputs to isolate the measure of technical Productivity change contained in the residual.5 Neverthe- less, even after all these refinements the impor- In 1957 the pioneering work by Robert Solow tance of growth of technological progress has revealed the striki:ng result that less than half of continued to be emphasized in these studies. 208 Studies on the growth of total factor productiv- TA ity and its contribution to economic growth and BLE I development are generally extensively available Aggregate TFP growth for developed OECD countries. Recently there Country total factor net of labor have also been some studies that estimated total income group productivity growth reallocation effects factor productivity growth and their contribu- Low income 0.3 -0.38 tion to developing countries.6 However, work Lower middle 1.3 0.75 on the decomposition of total factor productiv- Upper middle 1.7 1.15 ity into its various parts is generally at the pre- High 1.8 1.80 liminary stage. As such there is less direct Source: World Bank. evidence available on the role or contribution of technological progress to recent growth in developing countries. However, observations the stage of development. In general empirical on total factor productivity across countries estimates show that the contribution of total reveal some interesting patterns. These patterns factor productivity to growth is much less offer some useful insights into the nature of significant in the poorer developing countries technical progress and their potential contribu- than in upper-middle-income countries and in tion to economic growth in the less developed rich developed countries (Table 1, Column 3). economies. We summarize these patterns here: Thus in the early stages of growth it is the accu- mulation of factors of production rather than (1) As a source of growth, the contribution of growth of productivity that accounts for raising productivity through technology is growth in poorer countries. more important than many other factors. In the case of the US in the post-war years, for For the poor or lower-middle-income group of instance, the contribution of pure technological countries, the contribution of technical progress progress to annual growth rates was three per se, after isolating the impact of sectoral real- times the contribution of gains in allocative effi- location of labor, is much less. In fact, for the ciency.7 The contribution of technical progress very poorest group of countries, the technical in middle-income developing countries is residual is actually negative, showing a regres- also quite significant. After accounting for inter- sion in technical efficiency in these countries. sectoral reallocation of labor in lower-middle This suggests that technical progress and eco- and upper-middle-income, total productivity nomic welfare, as measured by per capita growth varied around 1 percent on average income, are significantly connected at both for the lower-middle-income and the upper- ends of the scale: in upper-middle-income middle-income developing countries (see and rich countries the contribution of TFP Table 1). Thus as a source of growth in develop- growth and technological progress is high, ing economies in the long run, technical while in poorer countries multifactor produc- progress is potentially considerably more tivity seems to be actually falling. important than possible gains from removing distortions in resource allocation. While techni- (3) Most significantly, these patterns of produc- cal progress sustains growth in productivity tivity across countries reveal that the transfer of annually, the gains for removing resource mis- technology across borders through imitation allocation is by nature of a one-shot kind. of international best practices is not automatic across all countries. The famous Gerschenkron (2) The contribution of technological progress hypothesis states that backward countries have through increasing productivity increases with an advantage in that they have to incur less 1(9 FIGURE 1: CONTRIBUTIONS TO RELATIVE GROWTH France Germany 52.5 2.5 s: 2 1.5 1X5 U 0.05 _ 1° 0-0 9 '.° -I- -2 -2 1950-60 1960-73 1950-60 1960-73 Italy Japan 2 2.5 S 2.5 -X 0 1.5 1.5 0 05 -0.5-0- I-1- I5 1.51 -2 2-- - - ___ - - --2 - 1950-60 1960-73 1950-60 1960-73 ; Due to technical catch-up 3 Unexplained residuals Capital deepening costs to develop the 'best practice' technology, OECD countries in terms of growth of total and can instead imitate what is available in the factor productivity. More specifically recent advanced countries. The data on productivity studies on the causes of growth of high per- patterns lend only qualified support to the forming Asian economies reveal two interesting advantages of backwardness suggested by this things. One, they show that the growth of total hypothesis. Convergence of productivity and factor productivity has been exceptionally high incomes, suggesting successful imitation of for high-growth economies such as Hong Kong, technology, holds only for advanced OECD South Korea, and Taiwan, suggesting the countries and upper-middle-income countries.8 important contribution that technical progress makes in the growth of these economies. Two, As Table 1 above shows, upper-middle-income there is some evidence that some other high- countries have caught up with developed performing Asian economies, like Indonesia, 110 FIGURE I (continued) Spain Turkey E 2.57 E 2.5l 1.5 F1- 0 1- t-0.5 t-0.5l |l I --1 -1.5 _1 -15 8 -2 -- --- t -2 1950-60 1960-73 1950-60 1960-73 United Kingdom USA 82.5 - , 2.57- 2 2 2 1.5 ~c1.5- LtQ 0.5 U 0.5l 0 - mM=0 -05 *0.5 tR-2 ! __ _8-2 --_ 1950-60 1960-73 1950-60 1960-73 Source: Computed from S. Dow-rick and Duc-Tho Nguyen, "OECD Comparative Econonmic Growth 1950-85: Catch-Up and Convergence,' Amreri- can Economic Reviezo, 79, No. 5, 1989, pp. 1010-1029. Malaysia, and Thailand, where growth has been (4) Technological growth, economic growth, driven mainly by investment in the past few and investment in human capital are closely decades, may have entered a phase where linked. Cross-country studies on the determii- increase in technical efficiency is a more impor- nants of per capita income growth show that tant contributor to growth. This suggests that the extent to which poor countries can catch up the contribution of technological progress to with rich countries-that is, imitate best practice growth increases with the level of development. successfully-depends on the quality of its labor The increase in the knowledge pool, the training force, its endowment of human capital.' This of labor, and the development of overall techno- suggests that the contribution of improvements logical capability of the country (all of which in technical efficiency to econonmic gr-owth accoinpany development) enhances the ability depends on the country's capacity to absorb of the country to use technology for production. technological progress (that is, its technological 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 capabilities). Wte raise this theme again later, be contained in a single microchip will double as a major issue. every year. This law has now held for over 25 years."' Consequently, the quality-adjusted Costs prices of electronic devices have also declined at an unimaginable rate. The price per kilobit As discussed in detail earlier, technical progress of dynamic random access memory12 has is a 'hidden' factor and contributes to economic declined from more than four dollars in the growth and development by raising total pro- early 1970s to less than one cent lately; that is, ductivity of all the factors in use. This also a kilobit of memory was 5,000 times more means that technical progress contributes to expensive 15 years ago than today. growth by decreasing the costs of production. To the extent such costs represent opportunity costs for the factors in use, the fall in costs Linkages between technological reflects the additional goods and services progress and growth that can now be produced. This then contrib- utes to output growth. The interaction between growth and technol- ogy and between allocative efficiency and There are some spectacular examples from technological progress is one of the least under- economic history on the dramatic reduction stood areas in modern economics. Economic in costs of some fundamental goods caused by historians have generally stressed the profound technological progress. The use of the Bessemer importance of technological progress as a factor process reduced the cost of making steel in behind economic growth. In stressing this, his- twenty years from $100 per ton in 1870 to $12 in torians have emphasized detailed descriptions 1890; the cost of production of blue dye alizarin of the process through which technology and on a large scale brought production costs from growth interact with each other.13 Schumpeter, 200 marks per kilogram in the mid-1870s to for instance, defined some aspects of develop- nine marks in 1836; the introduction of the Hall ment almost synonymously with technological process in making aluminum reduced prices progress: his definition included (a) the intro- from 87.5 francs per kilogram in 1888 to 3.75 duction of a new good, and (b) the introduction francs in 1895. Advances in metallurgy, the sub- of a new method of production.14 This defini- stitution of steel for cast iron, improvements in tion thus clearly highlighted the central role machining, and progress in mechanical engi- played by innovation and technology in neering underlay these spectacular cost reduc- economic development. tions and made possible the cheap and mass production of agricultural machinery, sewing In contrast, neoclassiscal economic theory machines, typew:riters, cash registers, bicycles, has paid relatively little attention to the and automobiles.10 detailed processes through which technology and growth influence each other. In fact, the In more recent tirnes there are also equally dra- theory has consigned technology15 and its role matic examples that can be drawn from within the black box of a single parameter in the advances in information technology whose production function. This does not mean that impact on economic growth seems analogous to neoclassical theory did not assign any impor- that of steam engines and electricity. Advances tance to technical progress in economic growth. in modern information technology appear to On the contrary, according to the neoclassical have conformed with Moore's Law, which theory technological progress was the chief claims that the number of components that can instrument through which long-run growth 112 rates of the economy could be affected. How- are affected not only by the quantity of inputs ever, the nature of the technological progress used in production, but also by the greater range remained entirely exogenous in the model. As and types of inputs used in production."7 With such, there was little insight into the disequilib- the same stock of resources the greater is the rium and dynamic processes that accompany range of differentiated inputs available, more the development and diffusion of technology. specialization and the use of 'finer' production processes become possible. This raises produc- The more recent endogenous growth theory tivity and growth. has provided much greater insights into this question, to some extent by formalizing ideas The examples of the dramatic reductions in developed by earlier economists. This line of costs that were given earlier also serve as exam- thinking identifies knowledge, and its public ples of the importance of developing new good characteristics, as the catalyst behind inputs for technological progress. All those long-run economic growth and the high rates of examples-the Bessemer process in steel, blue productivity growth that have been maintained dye alizarin, the Hall process in making alumi- in the developed countries. Knowledge and num, and the development of the microchip- technology are embodied in human capital, and share a crucial common characteristic that illus- in the range and quality of inputs generally. trates the importance of new inputs. These Technology can also be disembodied in blue- products are, or were in their time, key inputs in prints and books for instance. However, even in a very broad spectrum of economic activities. the case of 'disembodied' innovation, the rate Thus there is a close association between of innovation is significantly influenced by the advances in a few such key technologies and economy's endowment of human capital.16 with episodes of major strides in economic We turn next to a discussion of some of the growth. The development of the steam engine, themes that link technology and growth. electricity, and the modern steel-making pro- cesses are commonly regarded as the impetus We list these themes as (a) the development of behind what is termed as the First and the new inputs and processes; (b) increasing invest- Second Industrial Revolutions. ment in new machinery and equipment; (c) experience and learning by doing; (d) external- More recently, inventions such as semiconduc- ities and agglomeration; and (e) the develop- tors in the industrialized world and break- ment of human capital and capabilities. Note throughs in agricultural technology, such as that these mechanisms are not isolated and dis- the hybrid corn and the high-yielding rice seed tinct from each other. They are treated sepa- varieties, have revolutionized productivity in rately in the ensuing discussion only for the industrialized countries and developing coun- sake of clarity. tries. The widespread impact of some of these technological breakthroughs has led some to suggest that "whole eras of technical progress Development of new inputs and economic growth appear to be driven and processes by a few key technologies'18 that have multiple purposes-that is, they are used in a broad The development of new inputs and processes spectrum of productive activities. The develop- is one of the major channels through which ment of such 'general purpose technologies' technological progress affects productivity and thus provides some sharp instances of the growth. Both theory and evidence suggest that contribution of technological advancement to long-run growth and increases in productivity economic growth. 113 Investment in machinery through which technology affects growth. and equipment Foreign investment in less developed countries is generally associated with use of equipment Investment in machinery and equipment plays and machinery that embody the current the central role in the contribution of technolog- 'best practices'. Foreign investors have the ical progress to economic growth. It is invest- required knowledge to make an informed ment that connects technology with the other key choice of technology in addition to providing of economic grozwth: the role of incentives. Techno- the resources to acquire this technology. logical progress can benefit growth and devel- Thus foreign direct investment becomes an opment only when there are incentives to invest important conduit of efficient 'imitation'; this in such progress. There are stark examples in links technological advancement in industrial- support of this notion from economic history. ized countries (shifts in 'best practices') to When incentives to invest have been absent, the increases in productivity and growth in impact of technology on growth has been mini- developing economies. mal, even whert the technology has been highly advanced in the context of its time.19 Thus the On the other side, technological progress and mere existence of advanced technology, per se, innovation cause growth by increasing the can contribute little to growth. incentives to invest. The use of new technology by firms increases their market power. The Technical progress contributes to economic introduction of a new product or of more effi- growth through investment in machinery in at cient techniques of production that cut down least two ways. One, new machinery and equip- costs are not immediately or automatically rep- ment embody technological progress and hence licable by other firms. Consequently, the scope raise productivity of capital and labor. Two, and opportunity for earning monopoly profits advances in technology provide opportunities are created for a while. Investment is encour- for profitable investment-provided of course aged by this opportunity of earning monopoly that investment is at all attractive in the first rents. This in turn spurs growth and develop- place. A good part of technological progress ment in the economy. comes embodied in physical machinery. Advances in knowledge obtained through research and development (R&D) or through Learning by doing experience in production-learning by doing- are incorporated in the design and specifications Learning by doing-that is, the gains achieved of new machinery and equipment. Conse- from greater experience in the workplace-is quently, investrnent and use of new machinery another important channel through which and equipment have been found to be strongly technology contributes to growth. Technologi- and causally associated with high rates of pro- cal progress increases the scope for such gains. ductivity growth. This association has been true Over the longer haul, in fact, the gains from historically over the past century for a group of technological progress are manifested in eco- six industrial countries for which data were nomic growth mainly through this channel, available.20 It has also been found to be true for rather than through the sudden bursts of inven- a broader set of countries, including several tion and innovations developed from formal developing economies, since World War II.21 research and development. Historical evidence suggests that even until about 1875, nearly a Foreign direct investment in equipment hundred years since the beginning of the and machinery in a country is another path industrial revolution, the technology used 114 in the West was mostly developed in the Externalities, agglomeration workplace by artisans and engineers, who externalities, and increasing returns were not scientists by training. A little further back in time, industrial technology in around Recent developments in economic theory iden- 1800, including technology of the industrial tify externalities, the gains from agglomeration, revolution, was principally derived from and increasing returns to scale as principal learning by doing. Thus technology in ship- mechanisms that lead to sustained high-growth building, engineering, construction, architec- rates in the long run. One of the distinguishing ture, mining, smelting, and weaving was based aspects of technology is that it possesses some on rules of thumb and craft tradition derived features of public goods. This nature of technol- from long experience.22 ogy makes technological progress a central ele- ment in the various mechanisms of growth Even later, when formal research and develop- suggested by endogenous growth theory. ment became a significant part of technology's contribution to growth, the gains derived Technology, or the stock of knowledge in the through learning by doing continued to economy, is a nonrival good and a partially be important. One of the most significant nonexcludable good.24 First, nonrivalry means advances in production efficiency in recent that the use of existing technology by any eco- years in the OECD-countries is the 'just-in-time' nomic agent does not deny its use to other eco- inventory system, which minimizes expensive nomic agents. For example, like a street light, inventory costs. This system was developed technology can be used by all who choose to use on the factory floor, resulting from experience it. Second, partial nonexcludability means that and trial and error.23 The new emphasis it is difficult for the party that has invested in that is now given to the Japanese concept of acquiring new technology to completely, and Quality Control Circle is also a recognition for a long time, exclude other parties from using of the value of learning by doing. that technology. By nature, technological gains spill over from the original inventor or imitator In general, the productivity gains from to other users of that technology. research and development that lead to blue- prints of new products, new inputs, or new Thus while the costs of acquiring technology processes are not realized at once. Rather it is are of a one-time nature, the gains from it keep the experience of implementing the blueprints, accruing continually. Therefore, the gains from of producing new products, and of working investing in technology-through direct R&D, with new inputs and processes that leads to learning to work with new equipment, or the major increases in productivity. However, investing in formal education-can, in varying new inventions and innovations are still vital degrees, be shared by all. This leads to increas- to the productivity gained through learning ing returns in production: output rises at a by doing. It is the development of new technol- greater proportion than inputs. Recent empiri- ogy that sustains gains from learning by doing. cal work for the OECD economies has shown, Without the development of new techniques for instance, that increasing returns caused by and processes, the scope for productivity externalities are indeed highly significant at the gains from learning would be exhausted. aggregate level, that is, for the entire economy. Thus this is another way through which When all industries increased their output, the technological progress, learning by doing, elasticity of output increase with respect to productivity, and economic growth input increase was 1.3 for four European coun- are related. tries and 1.33 for the US.25 115 The benefits of technological spillovers are also The more developed and efficient the country's reinforced by agglomeration externalities, or technological capability, the more effective is the advantages of size. The contribution of tech- the contribution of technology to growth. Two nological progress to economic growth, by this important issues are implicitly raised by this viewpoint, is enhanced as technological notion. One, the mere existence of knowledge progress takes place; that is, the contribution of and 'best practice' in advanced industrialized technological progress is a self-reinforcing countries is not sufficient to ensure that it will mechanism. As technological development pro- be adopted in developing countries. Technol- ceeds, its benefits are spilled pervasively ogy has to be understood in order to make effec- through externalities. More workers get experi- tive use of it. This is the tacitness property ence with working with new machines and the of technology.27 This property then implies human capital stock and the knowledge base that even imitation, the ability to use ideas grows. This process then endogenously reduces instead of producing them, is not automatic the costs for future technological progress. Con- and costless. Hence, the greater the level of sequently technological progress receives fur- development and investment in technological ther impetus. A good indication in support of capabilities, the greater is the contribution this comes from location theory and the behav- of technology to growth. ior of foreign investment in particular. Nonagri- cultural economic activity (manufacturing, for Two, mere imitation of what is best practice in instance) is not spread evenly geographically, the advanced industrialized countries may not but is concentraited in "cores." be 'best practice' in developing economies. This is the result of another characteristic of technol- The behavior of foreign direct investment ogy: circumstantial sensitivity. This means that illustrates this. The bulk of foreign direct invest- "technology that has been developed for use in ment goes to these cores, which exist mostly one locale is seldom equally well suited to oth- in developed countries, and not to developing ers."28 In consequence, effective imitation will economies where labor is cheap. Because tech- require the capability to adapt technology nology is more advanced in these countries, developed elsewhere. In fact, in countries like important specialized services and critical Japan, the key to rapid and systematic growth technical knowledge are more cheaply avail- of technological capabilities and productivity able. Consequently, returns to new investment lies in their ability to use 'adapted technol- are higher there. Closing the cycle, more invest- ogy'-the ability to choose advanced technol- ment in the core results in yet further develop- ogy and adapt it to their own resource ment of technology and the pool of knowledge availability and skill endowment through a and services available in the core. Growth is fur- process of reverse engineering.29 ther stimulated, and the economic gap between technologically developed and underdevel- The importance of externalities and the advan- oped economnies increases.26 tages of agglomeration, as discussed above, the lack of convergence in productivity between less developed countries and industrialized Technological capabilities OECD countries, and the importance of using adapted technology suggest that the technolog- The contribution of technology to economic ical capabilities of a country to use technology progress in any country is mediated through for growth have to be systematically devel- the country's technological capability: its stock oped. This technological capability to efficiently of human, physical, and institutional capital. imitate (or adapt) international best practices 116 depends principally on several broad factors: ity and growth. On the other side, it is also true (1) the facilities available in the country for that in the long run the full realization of tech- the diffusion of knowledge; (2) the ease with nological potential can only come from learning which changes in the composition of output, to produce ideas, from being able to take part in occupation of labor force, and other structural developing 'best-practice' technology. The parameters can take place; (3) the growth investment in technological capability that is of capital investment; (4) endowments of necessary for effective imitation becomes par- human capital: the existence of a skilled ticularly invaluable by this light. and trained labor force and educational and scientific establishments.30 Notes These conditions suggest that in the final analysis there is little qualitative difference 1. We owe Allyn Young's, "Increasing Returns and Economic between the two different ways that tech- Progress, 'Economic Journal, 1928, the credit for identifying this nological progress takes place: (a) through cycle. innovation and invention, or producing ideas, 2. It is important to distinguish between improvement in alloca- tive efficiency and improvements in technical efficiency. While and (b) through imitation, or using ideas. both lead to higher economic growth, we are interested in the lat- Both of these ways through which technologi- ter concept here. We use a simple diagram to clarify what we cal progress contributes to growth lie in one mean by available technology, the two forms of technological continuing spectrum. Effective imitation progress, and the difference between allocative gains and techni- the ability and the effort to evaluate cal gains. A more elaborate discussion, where technology and r[-equires the ablllty and the effort to evaluate techniques are differentiated, is available in Howard Pack, and choose technology fitting the specific cir- Productivity, Technology and Industrial Development: A Case Study cumstances of developing economies; effort is in Textiles, Washington, DC: World Bank, our, 1987, p. 8. needed "to acquire and operate processes and produce products; to manage changes in prod- ucts, processes, procedures, and organizational arrangements; and to create new technology. This effort takes the form of investment in tech- k , C nological capability, which is the ability to make effective use of technological knowledge."31 x, A Thus this process is not too different from the process of original innovation itself. And finally, the ability to undertake original research and create new inventions and innova- tion cannot be truly developed in a developing country without mastering the process of \ imitation, or using ideas. 0 , There is a substantial issue involved here. On In the diagram above the k (vertical) axis measures capital inputs one side, contrary to what is sometimes sug- needed to produce one unit of output while I measures labor in- gested, the gains from 'catch-up' and imitation put needed to produce one unit of output. The least amount of are not automatic and costless. Developing inputs, k and 1, that can be used in different combinations to pro- duce one unit of output, x, is given by the curve xlxl. The points countries need to invest in technological capa- in this curve represents best practice, the state of technology in bilities to ensure that they can use technology producing x. There is no combination of k and I more efficient effectively. Only then can technological than the points in xlxl. In other words there can be no points to progress support a sustained rise in productiv- the left and below xlxl (like point B) that is feasible. However, 11 7 points to the right and above of xlxl (like C) are feasible. It is al- Griliches, "The Explanation of Productivity Change, "Review of ways possible to produce the same one unit of x with more of k Economic Studies, July 1967, pp. 249-283. and 1. But clearly these are inefficient points. 6. World Bank, World Development Report, 1991 estimates of total Now technical progress consists of two components: (1) the pro- factor productivity growth in developing countries. cess of imitating best practices, moving from points like C to A; 7. See E. Denison, Trends in American Economic Gronoth, 1929- and (2) original inventiotns and innovations that enhance best 1982, Washington, DC: The Brookings Institution, 1985, Table 8-1. practice. This removes the curve xlxl to the left and below to x2x2, for instance. The effect of either is to raise productivity and 8. See W. J. Baumol, "Productivity Growth, Convergence and reduce costs. Welfare What the Long-Run Data Show, "American Economic Re- How does allocative efficiency fit here? Alocative efficiency min view, 76, No. 5,1986, pp. 1073-1085, and S. Dowrick, "Technolog- How oesallcatve ffienc fi hee? lloatie ef dncyin- ical Catch Up and Diverging Incomes: Patterns of Economnic volves the choice between points like A and D-where both rep- Goth 196a88 The Economic resent best practices. Given the fixed prices of k and 1, the slope of the straight line k/l/ gives the relative price of k and 1. This 9. See R. Barro, "Economic Growth in a Cross Section of Coun- line (and other lines with the same slope) then can be used to tries, "Quarterly Journal of Economics, 1992. measure the cost of production of x in terms of labor and capital. 10. Nathan Rosenberg and L. E. Birdzell, Jr., How the West Grew Assume that the economy produces x using technique D. Then in Rich, Basic Books, 1986, p. 213 terms of labor only, 1/ is the cost to produce x; in terms of only capital, k/ measures the cost of production. Now given this line, 11. T. F Bresnahan and M. Trajtenberg, "General Purpose Tech- D is more efficient in allocative and economic terms than A (or in nologies: 'Engines of Growth?'," National Bureau of Economic fact than any other point ir, x1xl). With these prices a move from Research, Working Paper No. 4148, August 1992, p. 9. A to D leads to allocative gains because it reduces costs from 12. More familiarly the RAM of a compute I" to 1' in terms of labor. In ending we note that our discussion in this paper focuses on technical effidency and not allocative 13. See, for instance, N. Rosenberg, Inside The Black Box: Technol- efficiency. We are therefore concerned with the movement from ogyand Economics, Cambridge: Cambridge University Press, 1982. C to A or the downward movement of the xlxl curve to x2X2. 14. The other parts of the definitions of development are (c) the 3. Robert Solow, "Technical Change and the Aggregate opening of a new market, (d) the conquest of a new source of Production Function, "Review of Economics and Statistics, 39, supply of raw materials and intermediate inputs, and (e) the car- August1957,312-320. This refers to the famous'Solow Residual'. rying out of the new organization of any industry. This can be identified as the foliowing: 15. And crucial economic institutions, induding the firm. gTFp + ek gk + el g1 16. 1. Ehrlich, "The Problem of Innovation: Introduction, "Jour- Solow's results in percent: 2.9 = 1.49 + 0.32 + 1.09 nal of Political Economy, October 1990, p. S7. giFp is the residual and where gy is the growth rate of gross 17. See W. Ethier, "National and International Returns to Scale in domestic product. the Modern Theory of International Trade, "American Economic Review, 1982, pp. 389-405, for the first theoretical expression of ek and el are the elasticity of GDP' with respect to capital and la- thi idea. Rcnl hshsbcm n ftesadr ehd bor respectively. If it is assumed that there are constant returns to Recently this has become one of the standard methods for deriving increasing returns based on long-rin growth of pro- scale, then ek and al become equal to the share of ncome of cap- ductivity. See G. Grossman and E. Helpman, Innovation and ital and labor in national income respectively. Grow,th in the World Economy, Massachusetts Institute of Technol- gk and gl are the growth rates of capital and labor stocks ogy (MIT), 1991. For a discussion on the empirical evidence see, respectively. R. C. Feenstra, J. R. Markusen, and W. Zeile, "Accounting for Growth With New Inputs: Theory and Evidence, "American Eco- Like many other quantitative measures, the interpretation of nowth Wiew May 1992, and 415421. the residual gTFp as corresponding to technical progress is sub- ject to considerable controversy. Also gTFp includes other com- 18. See the discussion on 'general purpose technologies' in Tim- ponents aside from technical progress. Nevertheless gTFp othy F. Bresnahan and M. Trajtenberg, op. cit. remains the most broadly available and used measure of such. 19. The ancient societies of Rome and China, for instance, were See Zvi Griliches (1991). founts of spectacular technological advancement. For instance in 4. Relative growth rates refer to deviations from average OECD the first century BC the city of Alexandria knew of virtually ev- growth rates. ery form of machine gearing that is being used today, including a working steam engine. But very little of this was actually in use; 5. See E. Denison, Accounting for United States Economic Growth, h nyueo h ta nie o ntne a ooe n 1929-1969, Washington, DC: The Brookings Institution, 1974, and the the us of a tempengi for istance, was to Open and Trends in American Economic Grrmoth, 1929-1982, Washington, DC: dor the in of arnemg of whr i the her of a Ro- The Brookings Institution, 1985. See also D. Jorgenson and Z. or advance in the hamessing of power in the heyday of the Ro- man empire, was invented in the first century BC, it was not put 118 into general use until the fifth and sixth centuries AD. Similarly 25. R. J. Caballero and R. K. Lyon, "External Effects and Europe's the technological precocity of the Chinese economy around the Integration, "Columbia University, Department of Economics Sung period (960-1270 AD) was also most striking. Huge librar- Discussion Paper Series No. 486, June 1990. ies, printing by moveable type, an extensive canal system, can- 26. See Krugzman, Geography and Trade, MIT Press, 1992, among nons and gunpowder, the compass, waterwheels, all existed w'<''' durngots perigunpowd.Her, thicompass, wtehnolcall edgesdid no others. The argument itself is a formalization of the famous the- durig ths peiod Howver,thi tecnoloica edg didnot ory of 'circular cumulative causation' developed earlier by Gun- lead to a sustained rise in productivity and economic growth. orMyorcul There was again little incentive for widespread productive nar Myrdal. investment for this to happen. 27. Robert E. Evenson and Larry E. Westphal, "Technological 20. Canada, Germany, Italy, Japan, the United Kingdom, and the Change and Technology Properties, "Asian Development Bank, US. See J. Bradford De Long, "Productivity Growth and Machin- mimeo, 1992, p. 2. ery Investment: A Long-Run Look, 1870-1980, "The Journal of Eco- 28. R. E. Evenson and L. E. Westphal, "Technological Change nomic History, June 1992. and Technology Properties," p. 2. 21. See J. B. De Long and Larry Summers, "Equipment Invest- 29. See K. Ohkawa and H. Rosovsky, Japanese Economic Growth: ment and Economic Growth, "Quarterly Journal of Economics, Trend Acceleration in the Twentieth Century, Stanford University, May 1991, pp. 1138-1154. 1973. 22. See N. Rosenberg and L. E. Birdzell, Jr., How The West Grew 30. See Moses Abramovitz, "Catching Up, Forging Ahead, and Rich, pp. 242-244. Falling Behind, "Journal of Economic History, June, 1986, pp. 385- 406. 23. G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, p. 12. 31. H. Pack and L. Westphal, "Industrial Strategy and Techno- logical Change: Theory versus Reality, "Journal of Development 24. See P. Romer, "Endogenous Technological Progress," Journal Economics, 1986, p. 105. of Political Economy, October 1991. _119} Distributors of World Bank Publications ARGENTINA The Middle East Observer KENYA SINGAPORE, TAIWAN, Carus Hirsch, SRL 41,Sherif Street Africa Book Service (E.A.) Ltd. 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