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Inclusive growth and technological diffusion

— PHOTO: AP

ALL CONCENTRATION: A Chinese worker uses a grinding tool at the Hanyang steel factory in Wuhan in central China’s Hubei province.

Technology was crucial for industrial revolution, which supported many nations to become economically developed.

While the poor nations or underdeveloped nations were yet to receive technology for its economic progress, developing nations too failed to utilise the existing technological knowhow as an engine for development, especially for a much-publicised ‘inclusive growth’.

“Despite having technologically sophisticated cities and world-class firms, the economy-wide level of technological achievement in countries like China and India is not very different from that in other countries at similar levels of development,” says the World Bank report on Global Economic Prospects 2008. It suggests a number of policy-direction to bolster “technology diffusion and absorption” within developing countries to achieve goals like inclusive growth.

When economic reform was heralded in the country in early 1990s’, some leading lights of reforms believed that the effects of new-found wealth in the nation would percolate to several economic strata, especially the bottom of the pyramid, of the society, automatically. However those expectations were belied.

A nation’s or a governmental role is different. On reaching out to the bottom of the pyramid, Prime Minister Manmohan Singh is very clear on his vision of economic reforms for the country. He proclaimed on several occasions that, while the pyramid’s upper layers would be looked after by the private sector, the lower layers would be taken care by the Government.

However, the country waited around 15 years to find the new slogan of ‘inclusiveness’ to accommodate the poor of the country in its growth process.

Inclusive growth is not possible without technological diffusion as well as absorption.

The surprisingly low level of overall technological achievement in countries such as China and India contrasts with popular perceptions which are based on the relative technological sophistication of some of the two countries’ major cities and trading centres.

“Although, one might have expected India to have scored substantially better than many sub-Saharan African countries in overall technological diffusion, in fact, it does not,” the World Bank noted. Several technologically advanced cities of India notwithstanding, technologies have not penetrated deeply in many parts of the Indian countryside.

The rise in China’s index of diffusion of new technologies is almost double that of India in part because the more technologically backward regions in China have made progress in closing the gap with the more technologically advanced regions on the coast.

The technology employed by firms within sectors in individual countries also exhibits tremendous variation. In India, most firms, especially small ones, tend to use low levels of technology and only a few operate near the national technological frontier.

The skewed distribution of enterprise productivity implies potentially huge productivity and output increases are possible, if already existing within-country knowledge were to diffuse from top performers to the rest of the economy.

Assuming that domestic competencies were available (or created) to efficiently use the technologies by enterprises at the national frontier, according to the World Bank, Indian gross domestic product (GDP) could be 4.8 times higher if those technologies were successfully applied by their less productive rivals. The juxtaposition of India’s increasing technological prowess and relatively poor access to technology in per capita terms largely reflects the limited penetration of technology in rural areas, which account for more than 70 per cent of the population, but less than 30 per cent of the GDP.

First, developing countries should safeguard the principle of openness and actively strengthen skills in the domestic population to ensure that they are able to take advantage of future opportunities.

Second, to assist diffusion throughout the economy, policy needs to reinforce technological absorptive capacity at the sub-national and regional levels and to strengthen dissemination channels within countries, including the outreach, testing, marketing and dissemination activities of applied R&D agencies.

Third, the authorities should ensure that publicly supplied technological services and technology enabling infrastructure are widely available, whether they are delivered directly by the state or by private firms.

Four, in low-income countries and in those middle-income countries with uneven access to quality secondary and tertiary schooling, efforts should concentrate on raising the quality and quantity of schooling.

Finally, governments may need to intervene directly to encourage the rapid diffusion of technology and a domestic culture of ‘new-to-the-market’ innovation.

However, caution is required, said Alan Gelb, Chief Economist of World Bank. “Although direct interventions have sometimes been associated with some important technology successes, in many instances they have not.

Policies that have succeeded have tended to make subsidies conditional on performance and put in place high quality and independent-of-industry oversight systems.”

OOMMEN A. NINAN

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