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Conclusions and implications

The analysis presented above on the determinants of national technological capabilities provides a broad, suggestive framework rather than a precise set of causal connections. It has been suggested in this chapter that the development of capabilities is the outcome of a complex interaction of incentive structures (mediated by government interventions to overcome market failures) with human resources, technological effort, and institutional factors (each also strongly affected by market failures and so needing corrective interventions). Partial explanations of the development of national technological capabilities, which concentrate exclusively on market-driven incentives, on the one hand, or on capability-building measures, on the other, are apt to be misleading for analytical and policy purposes. It is the interplay of all these factors in particular country settings that determines at the firm level how well producers learn the skills and master the information needed to cope with industrial technologies and, at the national level, how well countries employ their factor endowments, raise those endowments over time, and grow dynamically in the context of rapidly changing technologies.

In view of the current prevalence of non-interventionist views on economic development strategy, it is important to be clear about the implications of the framework of national technological capabilities presented here. One set of determinants cannot by itself produce dynamic, broad-based, sustained industrial development. Just getting proper incentives in place will be better, ceteris paribus, than giving the wrong signals, but just "getting prices right" may lead to specialization in activities with static comparative advantage if the skills, technology, or institutions are not present to permit efficient diversification. Similarly, generating skills by itself would achieve little if incentives for efficient industrial activity were lacking. Given skills and incentives, performance would still differ (as it does between developed countries), depending on the ability of institutions and government policies to overcome market failures and protect activities with genuine dynamic potential. The existence of market failures considerably modifies what are regarded as neoclassical prescriptions for development, even within the strict rules of neoclassical analysis.

Government policy affects all three components of technological development. Let us reiterate, starting with incentives. A consensus is emerging on the trade and industry policies that promote healthy national technological capabilities development. These are largely taken to be market-oriented policies that promote competition, specialization by comparative advantage, and free flows of technology and capital internationally. However, it is recognized that there can be serious failures in the provision of correct signals from free markets. The existing configuration of prices and costs may not be a reliable guide to resource allocation (including investments in capability building) where there are externalities, complementarities, uncertain learning gains, or capital market failures [70, 71]. There may then be little theoretical or empirical justification for some fashionable policy prescriptions, such as free trade, or giving low and uniform effective protection to different activities. There may be a valid case for intervening in free trade on infant industry grounds. There may also be a valid case for selectivity: some activities may well need much higher protection (and capability-building support) than others, depending on their technical requirements, externalities, and the cost and risk involved in developing the necessary capabilities. By the same reasoning, there may be justifiable reasons for promoting "strategic" industries (because of extensive linkages) or selected individual firms (to realize economies of size and scope by internalizing deficient markets) [83].

As far as capabilities are concerned, there is perhaps more agreement on the need for policy interventions to promote physical and human capital development and technological effort. However, the interventions needed may be selective as well as functional if education and technology strategies are to be geared to realizing specific forms of dynamic comparative advantage. At early stages, industrial development needs basic human capital (literacy and numeracy, with some vocational skills); the period needed to absorb simple industrial technologies is short and needs little protection or external support. At this stage, relatively non-selective educational interventions may be appropriate. As development proceeds, more difficult technologies are used and the need for more sophisticated and specialized education/training grows. To the extent that the education "market" lacks information on these specialized needs, or under-invests in providing facilities of the right kind and quality, there arises the need for selective intervention. Moreover, since there is a serious risk of private under-investment in training at the firm level when labour is mobile, human capital development requires measures to induce more investment to support employee training, by firms individually or cooperatively, or by governments where private agents consistently under-invest. These measures may be functional, applied to all activities, or they may be selective, targeting emerging sectors.

The need for specific technological effort to acquire technological capabilities also rises with industrial development. Easy capabilities may be acquired by brief training combined with learning by doing (i.e. repetition without technical search, investment, or experimentation). More difficult capabilities necessarily require more training and technological effort to master, with concomitant risk and uncertainty. As technologies grow more complex, the development of capabilities runs into problems of appropriability, externalities, lumpiness, and requirements of very specialized skills [74]: policies may be needed to overcome these problems in firm-level effort. The policies must also cover the development of institutions external to firms, to provide information, standards, basic research, and other similar "public goods" relevant to capability development [30]. As development proceeds, moreover, institutional interventions may grow more selective as the initial basic needs are met and markets function more efficiently.

Technological development always needs imports of technology from advanced countries. However, the extent of dependence on imported technology, and the form that technology imports take, affect national technological capabilities development. A passive reliance on foreign skills, knowledge, and technology may lead to national technological capabilities stagnation at a low level, while selective inputs of foreign technology into an active domestic process of technology development can lead to dynamic national technological capabilities growth. Imports of technology must therefore be directed to forms that feed into local efforts rather than suppress them. Adverse effects can arise from a massive foreign presence in the form of multinational corporations that keep their main R&D functions overseas. They can, however, also arise from licensing or use of foreign consultants in ways that do not transfer "know why" to local agents, and that transfer all the benefits of learning abroad. Licensing can be deep or shallow, a stimulus to local learning or a drain on it: national technological capabilities development requires appropriate information selection and negotiation. Thus specific interventions are needed to promote national technological capabilities development, and these will have selective as well as functional aspects.

The above is not meant to suggest that there is a single optimal path to industrial development for all developing countries. The experience of NICs shows clearly that there are many roads to success. Some differences in viable strategies are given by the "state of nature": viz. size, resource endowment, or location. Small countries are not, other things being equal, handicapped by their size, but the sorts of industries they can set up and the technological options they can pursue differ from those for large countries. But there are other differences in possible strategies that depend more on the strategic choices of policy makers than on the '`state of nature." The extent and pace of industrial deepening, for example, is a strategic variable for the policy maker: this determines, in turn, the pace and content of human resource development, incentives needed via protection or credit allocation, requirements for technical support or infrastructure, and so on. A country (like Hong Kong) that is content to specialize in light industry needs to invest heavily in (generic) human capital, infrastructure, and some (selective) support for likely export activities, but it needs to intervene less (and less selectively) in other ways than one that aims for heavy industry of particular types. Similarly, the desired extent of national ownership or depth of indigenous technological capability (the two may be closely linked) determines the need for efforts on local skill creation and investments in R&D.

Each of the NICs represents a different model of industrial development because of its choice among strategic variables: the promotion of selected industries or of selected enterprises, fostering of particular types of industrial structures, reliance on domestic as opposed to foreign ownership of industry, and development of an indigenous base of technology and skills. These choices dictate, in turn, different degrees and combinations of selective and functional interventions. It is an open question which set of choices constitutes an ideal long-term development strategy. What is evident is that many strategies are viable, that each is based on a different combination of incentives, capabilities, and institutions, and that each carries its own set of concomitant interventions.

The choice of a less selective set of interventions (à la Hong Kong) reduces the risks of backing expensive losers, but it has its own demands and drawbacks. To achieve something approximating the industrial success of Hong Kong, a government would need to intervene initially to build up a comparable base of skills, entrepreneurship, trading know-how, and infrastructure. To enable competitive new activities to emerge without selective promotion, furthermore, the government would have to intervene over time to create new skills, technologies, and institutions. If the objective is to establish a deep and diverse industrial structure (as it should be in larger economies), such functional measures would have to be very extensive indeed. It may even be the case that dynamic industrial development with non-selective interventions would place greater demands on administrative capabilities (to mount functional interventions) rather than less. If such capabilities were lacking, the process of development may be slower or more lopsided than with a package that included careful selective interventions. In any case, it is not clear that, in the absence of selective interventions (in factor or product markets), such a country would be able to diversify into more complex, demanding industries with heavy learning costs. Certainly industrialization experience does not suggest that it would.

In the final analysis, therefore, a large role remains for government policies in promoting each of the three determinants of technological development. But

governments face information and incentive problems no less than does the private market.... Good policy requires identifying them [market failures], asking which can be directly attacked by making markets work more effectively (and in particular, reducing government imposed barriers to the effective working of markets) and which cannot. We need to identify which market failures can be ameliorated through nonmarket institutions (with perhaps the government taking an instrumental role in establishing these nonmarket institutions). We need to recognize both the limits and strengths of markets' as well as the strengths, and limits, of government interventions aimed at correcting market failures. [71, p. 202]

The experience of developing countries is replete with instances of misguided intervention. It has been suggested here that many of these failed interventions were neither economic nor truly selective. The relatively few cases of successful selective intervention that exist suggest that interventions are necessary in the presence of widespread market failures. Consequently, improved methods of intervening are worth striving for. Much depends on the competence, honesty, and political strength of the policy makers: where governments are so weak or corruptible that selective interventions inevitably lead to the "hijacking" of policy by entrenched interests, it may be better to suffer market failure than pervasive "government failure" [6]. In such cases, however, it is not evident that non-intervention would lead to industrial success. It should be feasible to strengthen the administrative capabilities and power of governments by providing better information and building in measures to safeguard sensible economic policies and to limit interventions in scope to prevent the worst abuses. But this takes us well beyond the scope of the present discussion, into the realms of political economy proper, where again fears of "government failure" may have been overdone [69].


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9 The environmental challenge

Ignacy Sachs

This chapter was written in 1991, before the United Nations Conference on Environment and Development held in Rio in June 1992.

The first debate on environment and development
Slow progress towards ecologically and environmentally friendly development
Signposts for the future
Concluding remarks: Disentangling Prometheus

The "environmental revolution" [69] happened in the 1960s. Ecology, hitherto a quasi-esoteric discipline belonging to the realm of sciences of life, captured the attention of the general public. It even became the scientistic, if not scientific, foundation of the Green ideology [7], combined with the discontent generated by the deterioration in the quality of life ("les dégâts du progrès") and the rebirth of a religious feeling towards Nature in reaction to a world that appeared increasingly artificial.

This time the old Malthusian spectre of exhaustion of food supplies (and, by extension, of other natural resources) as a result of the population explosion was combined with the realization that the capacity of Nature to act as a sink was also limited. According to The Limits to Growth [61], the most influential book written with this viewpoint at the request of the Club of Rome, humankind is heading towards disaster: unless it departs promptly and sharply from its present growth-oriented path, the only cruel choice left within a few decades will be between death by starvation or death by excess pollution [24, 12].

This new wave of pessimism came at a moment when technological optimism was widespread, the competition between the two major sociopolitical systems - capitalism tempered by the Welfare State and "true socialism" - seemed to be judged in terms of their capacity to sustain high economic growth, and decolonization created a hopeful mood regarding the emancipation and modernization of the newly independent countries.

How can this paradox be explained?

Ecological awareness and Green movements originated in the richest part of our planet as a reaction to the excesses of boundless optimism projected centuries ahead without any serious consideration of the natural as well as social limits to growth [45] and its ecological costs. Herman Kahn's writings, at least as popular as the reports of the Club of Rome, epitomize this attitude, and his projections covered a two-century span [50]. Berry [6] extended them over 10,000 years, dismissing the fear of exhaustion of resources by suggesting that the problem would be overcome through the colonization of other planets! Technological optimism was also an article of faith among Marxists [54, 77].

Yet, the everyday experience of people living in the industrialized regions was quite different: urbanization and the phenomenal growth of industries brought in many inconveniences: highly damaging pollution and even disasters (Minamata, Seveso, Three Mile Island, and Chernobyl acted as eye-openers), unhealthy working conditions, a shortage of public housing, overcrowding of mass transportation systems, proliferation of private cars, and, above all, the inability to overcome the problems of poverty, social exclusion, and spatial segregation in spite of the unprecedented growth of GNP. Misdirected and misappropriated economic growth did not result in an improvement in the quality of life for significant segments of the industrialized societies, even though their material standards of living, measured by GNP per capita, went up.

This brings us to the interface between environment and development. We know today that the phenomenal growth of material production since the Industrial Revolution involved a predatory and so far mostly unaccounted incorporation of the capital of Nature, degrading the life-supporting systems (air, water, soils, forests). The very conditions of human life on our planet are menaced not only by the prospect of a nuclear holocaust, but also by the global warming of the atmosphere mainly due to the overuse of fossil fuels and massive destruction of forests. Furthermore, careless dumping of waste constitutes a powerful factor of environmental disruption.

On the other hand, three UN-sponsored decades of development, largely rhetorical, did little to overcome the gap between the minority of affluent countries and people, and the rest. Per capita consumption ratios in the North range from 2.9 that of the South for cereals, 5.7 for meat, 8.1 for milk, 19.9 for iron and steel, 20.3 for chemical products, 20.6 for metals, and 23.6 for cars. The per capita consumption of liquid fuels in the North is 9.8 times that in the South, and that of electricity is 13.4 times higher in the North than in the South. The respective shares in global emissions of CO2 per capita are in the region of 8:1.

Under these circumstances, it can be argued that past development, concentrated mostly in the North, has put such pressure on the carrying capacity of our planet that there is no room for newcomers. Given the resource-intensive and environmentally disruptive path followed by the industrialized countries - and that by Taiwan and Korea, often presented as a model for the third world- the planet would collapse if these models were to be extended to the rest of the world, i.e. if all the world's poor were to become rich in the sense that the affluent minority now gives to this term.

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