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Macroeconomic aspects of technology choice

Two sets of analyses have been undertaken to trace the macroeconomic effects of technology choice. The first has to do with the political economy considerations as a rebuttal of the neoclassical paradigm [34, 60]. The second deals with quantitative modelling based on social accounting matrices [40, 41].

Political economy considerations

In the context of technology choice, macroeconomic considerations imply an examination of the effects of government policies on technological decisions made largely at a micro level in firms and farms of different ownership and organization. The political economy aspects refer to the influences of interest groups and their power on macro decisions and the external environment in which micro units operate. The government exercises an indirect influence on technology decision-making through its factor and product price policy, through control or encouragement of monopolistic structures, and through distribution, credit, fiscal, and import policies, etc.

Different socio-economic groups and technology decision makers have conflicting interests and motivations. They are also likely to be affected differently by different technology choices. For example, liberalization of tractor imports is likely to benefit large farmers (who can afford them) more than the small farmers Some groups are likely to gain and others likely to lose from a given technology decision. This is illustrated in table 2 with an example of rural linkages in the Philippines.

Some have argued [28] that governments mainly represent the views of one set of interests, viz. that of "researchers, bureaucrats and capitalists" rather than the social welfare of the whole nation. A given technology is closely associated with a particular economic, social, and political structure that it is in the interest of the government to protect.

A variant of the political economy considerations of technology choice is to consider its impact/implications under alternative development strategies. Implicit in this view [34] is the assumption that a particular development strategy is shaped by the politico-economic interests of the government that has formulated it. For example, a redistributive strategy favouring an increase in incomes of the poor and fulfilment of their basic needs is more likely to be based on support from small farmers and rural masses than a purely growth-oriented strategy. The former strategy is much more likely to use technology choice as an instrument of income redistribution than the latter.

Macro-modelling

Although no one would dispute the common assertion that technology affects the entire economy and society, few macro studies have ventured to trace these effects on an economy-wide basis. Most of the empirical studies, as noted above, are of a micro nature that trace only the direct effects of micro decisions. There are very few studies that aggregate these effects and the indirect ones at a sectoral level, much less for the economy as a whole. Yet indirect effects - through backward and forward linkages - may be far more important for output and employment generation. These indirect effects could only be traced through input-output analysis of sectoral interdependence in an economy. An improvement on this analysis is the social accounting matrix (SAM) framework, which makes it possible to trace the effects of alternative technologies on macroeconomic variables and policy objectives. Khan and Thorbecke [41] use the SAM technique to examine the technology-production interactions in the energy sector of Indonesia. The production activities are classified along dualistic technological categories: viz. products that could be produced with either traditional labour-intensive technology or modern capital-intensive technology. Effects of changes in output of selected dualistic production activities on aggregate output of agriculture and mining, energy and other sectors, and the whole economy are then estimated. Further, effects on factor income and employment and household income distribution are also attempted. Khan and Thorbecke [41] conclude that "the traditional technology generates greater aggregate output effects on the whole economic system than the corresponding modern technology..." and "the effect of the increased production of traditional technology has a greater impact on total employment and a much greater impact on the incomes of lower skilled workers than the corresponding modern alternatives" (p. 5).

Table 2 Matrix of gains and losses from policies to promote rural linkages

Interest group Promote within agric. Policy change
Policies within agriculture Rural infra structure Forward link
prices/ credit Investment Land reform Credit/ mech. Crop composition Elect./ trans. Credit Support small-scale
Large landowners/farmers G G LL L N G N  
Small farmers G GG G G G G N  
Landless labourers G G GG G G G N  
Rural industrialists G G G G G GG GG G
Elite/cronies l l L l N N L  
Urban workers LL I N N N N N  
Urban, informal LL I N N N N N  
Aid donors G G N U N U U U
Foreign cost N N L L N N L    
G: medium gain l: small loss N: neutral
GG: large gain L: medium loss U: unknown
LL: large loss

Source: Ref. 62.

These results cannot be taken as definitive; further refinements of the methodology and many more empirical studies of this kind are needed before we can be certain of their relevance for policy and practice. At present, the analysis is arbitrarily based on only two techniques for producing each of the selected products; yet there may be in practice several technological alternatives. Further micro analyses are essential to provide an improved understanding of their macroeconomic effects.

A pioneering aspect of the Khan-Thorbecke study is the use of R&D as a separate productive activity in the SAM framework. Notwithstanding the conceptual problem of reconciling the static nature of SAM with the dynamic effects of R&D, the authors have made a bold attempt to study the contribution of R&D expenditures to the development and adaptation of technology as a tool for better technology planning and policy-making. For lack of data, it was not possible to test the methodology for the Indonesian economy.

It is ironic that despite the clear recognition of the economy-wide effects of technology choice and change, and the need for understanding better these economy-wide effects, the macro-modelling has remained hampered partly by the limitations of methodology and partly by the absence of required disaggregated data.

Intersectoral linkages

Macroeconomic studies also enable an investigation of intersectoral linkages. Much of the literature on technology choice is concerned with the supply-side issues - technology development and utilization assuming that demand for technology exists. In practice, experience has shown that very few of the small-scale but improved technologies considered appropriate for many developing countries have been commercialized by the private sector on any significant scale. The problem is not simply one of engineering and development of prototypes. Instead, one of the major constraints to the commercialization of alternative technologies is the low effective demand for AT from a large number of small-scale producers. The poor engaged in small-scale activities, for whom the AT devices are intended, cannot afford to purchase them even if they perceived the merit of using them for raising their productivity and incomes.

The promotion of rural and urban and farm and non-farm linkages can help relax the demand constraint. A strong and positive relationship is known to exist between agricultural growth and changes in the rural non-farm sector [29, 50].

Three types of linkages between agriculture and non-agriculture are relevant. They are: (1) backward production linkages (e.g. equipment inputs to agriculture); (2) forward production linkages (e.g. food processing); and (3) forward consumption linkages (e.g. increase in demand for industrial products induced by increased purchasing power in the agricultural sector). The third type of linkages is noted to be the most important. It depends on a number of factors like growth of agricultural output and incomes, distribution of income, state of agricultural technology, and the crop mix, etc. [50].

Increase in agricultural incomes should also provide an impetus to the demand for agricultural technologies (both biological and mechanical), assuming that they exist and that the factor price distortions do not keep them beyond the reach of those who need them most.

The linkages need not move from agriculture to non-agriculture as noted above. They are also induced from the urban to the rural sector through such mechanisms as subcontracting between large and small enterprises. Watanabe [70] noted three types of linkages: technological linkages, i.e. transfer of technology and skills; input linkages, i.e. supplies of raw materials and equipment; and market linkages between a large-scale parent firm and its small-scale subcontractors. The flow of technology and skills from the large- to the small-scale rural sector is essential to bring about narrowing of technology gaps between the modern and informal sectors of developing countries. Invariably, the rural sector does not have any internal source of technology generation and equipment supply, most of the R&D being concentrated in the urban sector. Therefore, any strategy of gradual modernization of traditional technologies in rural areas calls for external inputs, as was clearly evidenced by the experience of the Green Revolution in the 1960s.

These issues of intersectoral linkages can be handled at a macro level mainly through the input-output and SAM techniques mentioned above. But the data requirements, as already noted, are serious constraints to undertaking empirical studies in developing countries.

New technologies and blending

The issue of intersectoral linkages becomes even more important with the advent of new technologies, which are likely to exercise an increasingly pervasive influence in different economic sectors, e.g. agriculture, manufacturing, banking and financial services. The new technologies have been heralded almost as a revolution on a par with the previous ones brought about by the steam engine, steel, and electricity [24, 47]. The new technological paradigm is associated with systemic changes in embodied technology as well as organizational structures and infrastructures. The global division of labour in manufacturing is one example of the organizational or disembodied technology. Organizational innovations changes in production organization, firm structure, labour process, etc. - are being regarded as preconditions for successful absorption of the microelectronics-based new technologies.

The emergence of new technologies in the early 1980s first produced doomsday scenarios predicting unprecedented negative employment effects and social evils pervading the entire economies and societies of industrialized countries. Very soon, however. it was realized that the pace at which new technological breakthroughs were expected did not really materialize, partly owing to economic recession and resulting sluggishness of demand, partly to a shortage of new types of polyvalent skills required, and perhaps also to the inertia of conventional types of managements and the ignorance of policy makers about the potential benefits of new technologies.

The new technologies are heavily dependent on scientific research and development, which explains why' with few exceptions, most of the production of these technologies is concentrated in the industrialized countries. The enormous investments required are simply beyond the capacity of most developing countries. Apart from capital investments, the human resources required - scientists and engineers, systems analysts and polyvalent technicians- are often not available in developing countries. In both the industrialized and the developing countries, the introduction of new technologies is changing the occupational composition of the labour force in favour of programming and broad-based skills, and against a high degree of specialization.

For the above reasons, the new technologies are concentrated in and controlled by big multinational corporations with enormous resources and organization. The generation of many new technologies, particularly biotechnology research, remains in the private domain, unlike the Green Revolution breakthroughs of high yield crop varieties made possible by publicly funded research.

Some empirical knowledge on the impact of new technologies has now been accumulated, although by no means enough to make any definitive generalizations. Three sets of studies may be noted: global or "synthetic" studies, sectoral investigations, and micro analyses. Much of the work (like that on technology choice and appropriate technology reviewed earlier) is of a micro nature.

A recent study [37] considers micro-electronics-based technologies in a socio-economic framework and the global economic. context of economic recession. It notes that available studies on the quantitative impact of microelectronics on employment are undertaken at different levels of aggregation process, plant, firm, branch, region, sector, macroeconomic and mete level which explains why they are non-comparable and often contradictory in their conclusions. Furthermore, conflicts also arise because their results are highly sensitive to the assumptions made about growth of output and productivity, qualitative and organizational changes, and the indirect and multiplier effects that are rarely considered.

Despite the initial fears of massive unemployment due to the use of microelectronics-based technologies, the limited experience of both industrialized and developing countries shows that the impact of these technologies on direct and indirect employment may in fact have been marginally positive [31]. The pessimistic predictions did not come true partly because of the economic recession. Furthermore, while the new technologies may displace labour in old activities, they generate additional demand for labour by creating new goods and services. Our present state of knowledge is not adequate to justify any predictions about the precise positive and negative employment effects of micro-electronics-based technologies. But one thing is clear: they are bound to affect not only the quantity of employment, occupational composition, and the labour market, but also its quality, in terms of flexible types of employment and its "informalization," shorter working hours, home-based work, and quality of working life.

The new technological revolution is also likely to have a tremendous potential influence on the distribution of income within and between countries 13, 331. Yet empirical evidence of the nature of these distributional implications is even more sparse than their employment implications. For example, little is known about the effects of micro-electronics technologies on the personal and size distribution of incomes, on the distribution between producers and consumers and between producers and workers. Also, it is not clear whether the effects of microelectronics on income distribution will he different from those of the Green Revolution. James [33] argues that microelectronics will probably have a greater impact on products than the Green Revolution did, and that the bias is likely to be weighted in favour of large producers and multinational corporations, which wield a comparative advantage in large-scale production and exports. In the case of the consumers, the gains may accrue mainly to the rich consumers in developing countries who can more easily afford the products incorporating micro-electronics (e.g. watches and clocks and passenger cars). However, there is little empirical testing of these hypotheses.

The new technologies are likely to exert a significant influence on the developing countries, both directly and indirectly. Directly, with increasing globalization of production and international competition, the export-oriented countries would be compelled to use new technologies to compete with the industrialized countries. The increasing production and use of new technologies in the industrialized countries is likely to widen the already serious technological gaps between countries. This fear of being left behind is likely to put pressures on developing countries to make a selective start with the use of new technologies. Indirectly, the use of new materials and new biotechnologies in the industrialized countries is already hurting the exports of primary materials and commodities from the developing countries. The developing countries have little control or influence on the "dematerialization of production" and the substitution of new for old commodities taking place in the industrialized countries.

As latecomers, developing countries may be able to take advantage of new technologies to leap-frog from manual methods directly to flexible manufacturing systems without having to adopt fixed automation. However, leap-frogging presupposes the existence in these countries of organizational and innovation capabilities to produce new products through the use of high technology. It also assumes that the developing countries possess technological capability at a sufficiently high level to assimilate the high technology efficiently. Yet few advanced developing countries meet these prerequisites. The majority of developing countries are at an early stage of industrialization, with small industrial sectors. For these countries, the usefulness of new technologies would not be for material industrial development, but for the development of human capabilities through, for example, the application of microcomputers for the delivery of health services to rural areas and the use of computers in education - new technologies can, for example, raise the efficiency of the traditional education system and permit training outside the school system [1, 12, 25].

In the majority of developing countries, therefore, the potential for new technologies is through what has been termed technology blending - a combination of new and traditional technologies without destroying the latter. The concept of technology blending was introduced in 1983-1984, and the idea originated from the growing recognition that the benefits of modern science and technology in the developing countries had not trickled down to the rural and the urban poor. In most developing countries, notwithstanding the development and availability of new and advanced technologies, age-old low-productivity techniques continue to be used. Can the application of new technologies to traditional activities in these countries lead to a process of gradual modernization rather than of displacement? [9, 12, 11]

Admittedly, in the process of technical change, at any given time, new and old technologies coexist. In this sense, there is nothing new - retrofitting at a micro-firm level takes place all the time. The novelty of the concept of technology blending lies instead in focusing on the potential and limitations of applying new technologies to small-scale low-income activities for meeting basic needs of the bulk of the third world's population. Three interpretations have been given to the notion of technology blending in the recent literature:

  1. physical combination of old and new techniques - retrofitting;
  2. application of new technologies to market-oriented traditional small-scale activities without displacing them;
  3. application of new technologies to public goods and services (e.g. rural telecommunications, public health and education).

Is TECHNOLOGY BLENDING ANOTHER NAME FOR APPROPRIATE TECHNOLOGY? Like that of "appropriate technology," the concept of technology blending does not refer to a choice from among an existing set of techniques but rather to the development of new technologies that would be more suited to the needs of the poor developing countries.

Technology blending (or blends) may be best analysed in terms of the objectives sought and the characteristics of the new technological variant. The objective is simple enough: it is to bring the benefits of the new technology revolution to bear on improving the standards of living of the rural and urban poor. To some extent this aim determines the required characteristics of technology blending. As a general rule, two extremes can be envisaged. At one extreme, a technology blend (as an outcome of integration of new and traditional technology) would reflect almost entirely the characteristics of the new technology. At the other extreme, a technology blend would embody the characteristics of the traditional technology. In practice, however, acceptability of technology blends to the rural and urban poor can be ensured if their characteristics are not too far removed from those of traditional technology.

As the rural and urban poor lack purchasing power (their incomes are generally very low in relation to the average income in the developing country concerned), it is clear that the technology blends cannot be too expensive, demanding cash outlays that are beyond the reach of the target beneficiaries for whom they are intended. In the initial stages, diffusion of new technologies to rural areas may have to be subsidized in the same way as were the agricultural inputs during the Green Revolution.

Moreover, infrastructure and repair and maintenance facilities and skills are very scarce in urban and rural milieus where the small producers are concentrated. The technology blends would be required to be simple, easily comprehensible, easy to maintain and repair. Thus, in terms of characteristics, technology blends are somewhat similar to the appropriate technologies considered in the previous section. It is this similarity that seems to have led some authors to describe technology blending simply as a variant of the concept of appropriate technology.

Of course, on the surface there may appear to be a parallel between the two since blending represents an intermediate stage between conventional and new technologies in a process of continuous technical change. In addition, improvements of traditional technologies is the objective common to both technology blending and appropriate technology concepts. But the similarities end there.

There are substantive differences between the two approaches to improvements of traditional technologies. First, while the concept of appropriate technology refers mainly to incremental innovations, the blending of new technologies with traditional activities implies a quantum leap on the part of developing countries that do not necessarily have to go through all the stages followed by the technological leaders of today. This scope for leap-frogging has been aptly summed up as follows:

Developing countries are for the first time enabled to "leapfrog" stages in the development process which have up till now always been regarded as prerequisites for the achievement of prosperity and growth.... This result of the current technological revolution represents a quantum leap from the debate of appropriate or intermediate technologies so central to much development thinking in the 1960s and early 1970s. [13]

Furthermore, in contrast to "appropriate technology," new technologies are being developed and applied at a very rapid rate, particularly in the industrialized countries. They entail capital costs that far exceed those involved in the development and commercialization of "appropriate technologies." Thus, the pace of development of technology blends can be more rapid and their commercialization perhaps easier if the industrialized countries - the main producers of these technologies - take account of the potential needs of the developing countries.

Whereas the developing countries are both producers and consumers of appropriate technologies, in the case of "technology blends," most of them (with very few exceptions) will remain mere consumers for the foreseeable future. The new technologies will continue to be produced mostly in the industrialized countries. While appropriate technology was inspired by a development strategy of national and local self-reliance, technology blending may tend towards eroding such self-reliance and technological autonomy. In the absence of a national/domestic capacity to develop new technologies, most developing countries will have to depend on the industrialized countries that are the main sources of supply of these technologies. This technological dependence may be particularly serious in the case of the least developed countries, with limited capabilities to create or absorb new technologies.

A differential capacity of developing countries to create and absorb new technologies may mean widening technological gaps not only between industrialized countries and developing countries but also among the developing countries (the newly industrialized countries being better endowed than the least developed ones). In other words, a growing divergence of third world interests may be explained in the future partly in terms of the technological factor.

THE CASE FOR "HIGH TECH" COTTAGE INDUSTRY. The micro-electronics-based high technologies are known to be miniaturized, simple to maintain, and requiring rather simple skills to operate and maintain. Miniaturization enhances the scope for flexibility in production that large-scale mass production did not offer. This "flexible specialization" and the ability to respond to fluctuating demands through small-batch production are said to make decentralized production more feasible than what was possible with the use of conventional technologies. Through the use of microcomputers, simple reprogramming enables equipment to be put to different uses without requiring any physical adjustment.

Piore and Sabel [49] have argued that mass production in the industrialized capitalist countries has come under stress owing to the limits of the model of industrial development and the economic crisis facing them. They believe that the mass production paradigm is likely to give way to craft type specialized and customized production thanks to the advent and use of new technologies. The latter facilitate "flexible specialization" and small batch production. This means that a shift will occur from specialized dedicated machinery to multipurpose machinery, from a narrowly trained workforce to one with multiple skills, and from standardized products to small batch, customized products [53]. Piore and Sabel show how in the nineteenth century, craft production was based on the use of flexible machines and varied skills to produce several products within the economic organization of "industrial districts." This craft production is shown to have re-emerged in Japan, Germany, and Italy in the twentieth century. In Japan, for example, craft industries like weaving and wood products are being revived through the use of high technology to capture "niches" in saturated markets. In Italy, the dynamic growth of small firms in the Como, Prato, and Emilia-Romagna regions in the silk, cotton textiles and garments, and ceramics industries has been quite impressive. Although not all of this dynamism can be attributed to "high" technology, there are good examples of how small firms have successfully adopted computer-based technologies to respond to rapidly changing market requirements [15, 143.

The question arises whether use of new technologies and greater scope for "flexible specialization" can improve the efficiency of craft production in developing countries and thus expand output as well as employment. There is scattered empirical evidence to show that some small firms in developing countries are taking advantage of new technologies to improve their product quality and international competitiveness. A representative survey of 19 small and medium-size firms in the mechanical industry of the state of S„o Paulo in Brazil showed that the majority of them adopted computer-aided design (CAD) and numerically controlled machine tools (NCMT) to attain higher quality, precision, and productivity. The survey also suggested that by and large, any direct employment losses resulting from the use of high technology seemed to be at least partly compensated for by additional demand for labour resulting from work reorganization and training activities [12].

Of course, the conditions for "flexible specialization" outlined by Piore and Sabel for the industrialized countries are different from those in the developing countries. In the former it was a response to stagnating and competitive mass markets. Although similar conditions of demand may also apply to developing countries, the supply constraints- lack of access to raw materials and spare parts due to scarce foreign exchange - are likely to impose major bottlenecks. Secondly, surplus labour conditions and resulting low labour costs in developing countries are likely to discourage the wide use of new technologies. Thirdly, to benefit most from new technologies and flexible specialization, developing countries will need to establish agglomerations of small firms, such as prevails in Kumasi (Ghana). "Small firms individually cannot attain flexible specialization; it is the sectoral agglomeration which gives them their strength" [53].

In principle, miniaturization of high technology should facilitate decentralized production and rural industrialization. Many developing countries have in the past promoted rural industries as a means of generating employment and preventing rural-to-urban migration. But, with few exceptions, the performance of rural industry programmes has not been good. The programmes have suffered from lack of markets resulting from low local purchasing power, poor infrastructure, inadequate credit facilities, and competition from large-scale industry. The last factor has become particularly acute in recent years with privatization and liberalization of economic policies in both developing and industrialized countries.

It is not clear whether these problems faced by rural small industry can be overcome by the use of high technology. Furthermore, even if high technology were available, its cost in relation to the resources of small producers may be prohibitive - and may therefore restrict their access to it.

Little empirical evidence exists in the third world to support or refute the argument that new technologies facilitate transfer of production away from the big urban centres. While some surveys of small firms have been undertaken in the industrialized countries, the same is not true of the developing countries. This is partly because the high technology is quite new, not yet widely diffused, and is perhaps also costly.

THE SCALE FACTOR. The case for the promotion of "high tech cottage industry hinges on the premise that the use of new technologies reduces the scale of optimal production. In other words, economies of scale no longer matter much.

The relationship between high technology and the scale factor is not very simple or straightforward. Silberston [58] distinguished between three different dimensions of scale: life of product, plant, and equipment; cost variations for products for different rates of output and degrees of standardization among products; and scale economies for distinct levels of aggregation, e.g. for plants, firms, or industries. Generally, scale economies are considered only in relation to the size of plants and output of individual products per unit of time. There can be divergent trends in the three dimensions of scale economies noted above.

Technological trajectories towards scale economies by different types of industries are described in table 3. Mass production has generally led to growing economies of scale in both large-batch discrete products industries and continuous process industries. However, in small-batch production, the economies of scale do not seem to have become any more important. If anything, it is claimed that the replacement of the mass production paradigm by small-batch flexible production noted above [49] will lead to a decline in the importance of the scale factor.

BEGINNING OF A NEW DEBATE. The long and controversial debate on "appropriate technology" had both political and analytical connotations, whereas an emerging debate about the concept of technology blending is, at least at present, confined only to its analytical properties and limitations. The concept is being increasingly recognized as a useful practical tool for focusing attention on the relevance and application of new technologies to meet the basic needs of developing countries.

Table 3 Technological trajectories towards scale economies over the past century

Type of industry or forms of production organization Dimensions of scale Product economies Plant economies of scale Firm economies of scale
Small-batch products discrete static varies by sector, but generally static varies by sector, but generally static
Large-batch products discrete growing growing growing
Continuous process growing growing growing  

Source: Ref. 39.

However, the critics find fault with the analytical merits or utility of the technology blending concept. The first legitimate criticism has to do with the difficulty of drawing any clear-cut dividing line between frontier technology and blended technology, although this was recognized by the proponents of the concept. The problem of boundaries cannot be solved in any process of continuous change. Nevertheless, to the extent that technical progress is discontinuous (which corresponds more closely to reality), the boundaries between different technology sets or trajectories can be perceived by analysing their distinctive characteristics and properties.

Secondly, some authors see utility in defining technology blending only narrowly in terms of retrofitting and not in any more macroeconomic sense. For Rosenberg [52]:

the prospects for technology blending will be very much shaped by the ease with which new technology can be introduced without having to scrap the old. Indeed, this really takes us to the essence of what blending is all about. In the extreme case, if a new technology requires the complete scrapping of an old one... no blending is possible. (p. 26)

Kaplinsky [38] suggests an alternative definition of technology blending. Pursuing the line that blending is a variant of AT, he identifies and distinguishes between the following sources of AT: downscaling of large-scale production, the improvement of existing/ traditional technologies, and the production of new technologies. This definitional approach seems to be equally faulty since it mixes up objectives/ends (technological improvements) and means (downscaling and production of new technologies). The developing countries need not produce new technologies at a high cost if they can obtain them from abroad on reasonable terms. The whole raison d'Ítre of technology blending is to adapt the imported new technologies to suit them to the developing country's conditions. The above definitional approach does not capture this participatory process, in which the consumers of new technologies (most of the developing countries) can ensure that the producers (the industrialized countries) design them so as to make them more relevant to their special requirements.

Admittedly, to some extent consumption and production of new technologies would have to be done within developing countries to ensure that learning effects are internalized.


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