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National technological capabilities: Some evidence from developing countries

This section applies the above framework to a selection of eight industrializing countries: the four East Asian NICs (Korea, Taiwan, Hong Kong, and Singapore), India, the two dominant Latin American industrial economies (Brazil and Mexico), and one second-tier NIC, Thailand. These give a fair coverage of the different types of countries that have achieved a measure of success with industrial development. There is also some consensus about their strategies and achievements, which makes a classification possible to incorporate relevant elements that cannot be easily quantified.

Despite their obvious importance, institutions are not considered here because it is practically impossible to compare institutional structures and performance across countries.

Table 2 sets out some relevant data on industrial structure and performance and two sets of determinants of national technological capabilities on which figures could be obtained: education and science and technology [46]. The top section of the table is intended to provide background information and illustrates some features of the sample countries. The four East Asian NICs are the most dynamic and efficient (in terms of international competitiveness) of the group. There are, however, significant differences between their industrial structure, export specialization, and reliance on overseas investment (these are taken up below). Of the larger countries, Brazil has the biggest industrial sector, with an advanced technology in many areas of heavy industry; however, it has large areas of uncompetitiveness [10], a high foreign presence in modern industry, and a large public sector. Mexico is similar in many ways, but has a smaller capital goods capability, a higher foreign presence, and a lower manufactured export base. India's industrial sector is very diverse but riddled with inefficiency and technological obsolescence; it has suffered low rates of growth of exports and value added (until very recently), but has the distinction of having a very low level of reliance on foreign investment and technology imports in other forms [44, 43, chap. 10]. Finally, Thailand is a relative newcomer, with a shallow industrial base but very dynamic export growth based on the relocation of labour-intensive activities away from Japan and the older NICs.

The pattern is well known: indeed, such diversity of industrial performance, as typified by the relative success of the East Asian NICs (and the emergence of "new NICs" in the region), has prompted much theorizing on the virtues of liberal trade strategies [87]. Our framework suggests that simple incentive-based explanations may be partial and misleading, but let us look at the available evidence.

Incentives

Macroeconomic management has, with one hiccough in Korea in 1979-1980, been excellent for the four East Asian NICs and Thailand, moderately good for India, and poor for the two Latin American NICs. Their trade strategies are well known: consistently highly export-oriented (i.e. with incentives that were neutral between domestic and export markets, or biased in favour of the latter) over a long period for the East Asian NICs, with little or no protection in Hong Kong and Singapore but with selective, variable, and often high protection for several industries in Korea and Taiwan; more inward-oriented for Brazil and Mexico, with large areas of high effective protection, but with export incentives to partially offset the bias; highly and consistently inward-oriented for India; and increasingly export-oriented for Thailand, but still with remnants of protected import substitution. At the trade strategy level, therefore, export-oriented strategies seem to be positively correlated with industrial success, supporting the arguments of the liberal school that competition in international markets stimulates efficient specialization and healthy FTC development; in addition, it is suggested, export orientation provides free inflows of information from world markets, gives greater and more stable access to foreign technology and equipment, and is associated with lower rent-seeking behaviour [4, 56].

However, these simple categorizations of "export orientation" may be misleading depictions of strategies that are much more complex in their impact on national technological capabilities. There are several varieties of export orientation [18]. Hong Kong is at one extreme, with fully laissez-faire economic policies combined with stable administration, a strong presence of British trading and financial enterprises (with considerable spillover benefits), a concentration of textile-related skills and technology (from Shanghai), and a long tradition of entrepôt trade (which created a variety of contacts and Singapore offers no protection, but intervenes heavily in several ways, in guiding investment, setting up public enterprises (these account for 10 per cent of value added in manufacturing), directing wages, encouraging savings, and so on [41]. It permits only very selective immigration (of skilled personnel) and is generally highly involved in guiding the economy's development, especially by inducing foreign investors to upgrade the skill and capital intensities of the projects they undertake. As a result, the industrial structures of the two island economies differ quite sharply [41]. Hong Kong has remained specialized in light consumer goods, essentially assembling imported components, while moving up the quality scale - its industry does not have great technological depth or high vertical linkages [7], and competitive pressures are forcing it to relocate in cheap-labour areas (chiefly China) rather than to deepen domestic industrial activity. Singapore has a much "heavier" industrial structure, with strong emphasis on producer goods and very high requirements of technical skills.

Table 2 Indicators of national technology capability in selected NICs

Sources: refs. 2, 23, 64-66, 78, 79, 86-88. skills).

Korea and Taiwan have been much more interventionist, with the former traditionally far more so than the latter [42, 81]. Until the 1980s, the Korean government protected and promoted selected (strategic) industries highly, sometimes set up public enterprises (like its highly efficient Pohang steel plant), directed investment at the sectoral and, often, the firm, level, promoted exports by several direct measures, intervened in technology transfer agreements and technology development (as in petrochemicals, see ref. 20), restructured industries, and enforced labour training [62, 86, 1, 83]. Even today, despite considerable liberalization, a strong element of "guidance" remains in Korea. Taiwan also protected emerging industries, guided expansion along particular lines, and had a very active technology development policy [81, 34]. However, the Korean strategy was more specifically directed at creating and supporting giant firms (the chaebol) that could internalize many inefficient markets, though at the risk of a high level of government direction and the rigidities associated with size. Taiwanese strategy concentrated on providing support to small and medium-size firms, providing great flexibility but holding back large, risky investments in technology by the firms themselves. It was perhaps a safer, more "incremental," strategy, while the Korean one was more risky but permitted larger leaps into high-tech activities. In the production of semiconductor (DRAM) chips, for instance, Korean chaebol were able to cross-subsidize and enter into production and export in a major way with little explicit government support [39, 49]; an electronics research institute set up to launch semiconductor technology was quickly bypassed as the chaebol went directly into production with massive facilities. The Taiwanese government, on the other hand, had to adopt a far more interventionist strategy because of its earlier "hands off" stand on promoting firm size. Its DRAM production facility was set up by a public sector firm, and the government had to coordinate related technology import, design, manufacture, and marketing by several private firms. In effect, "the government is doing in Taiwan what forward and backward integration does for companies" [68, p. 67].

The large countries were also very interventionist in their industrial and technology policies. Brazil promoted several large public research organizations, and its giant public enterprises invested in R&D. It intervened in technology imports to support the development of local capabilities in the selected industries (the best-known case being minicomputers). Despite its heavy investments and major successes in some specifically targeted areas (aircraft, minicomputers, special steels, armaments), however, Brazilian strategy in technology development was to a large extent ineffective in achieving competitiveness for large parts of industry [10]. Mexico also pursued policies to build up domestic industry behind import protection, but did not adapt Brazilian-style interventions to develop specific technologies; it also lagged in the development of local capital goods. As a result, Mexican technological prowess is generally considered to be behind Brazil's.

India's industrial strategy has remained highly interventionist within its import substitution approach. The Indian government was suspicious of private enterprise in general, and large private firms and foreign investors in particular; and barriers to entry, exit, growth, and diversification were rife. It set up a large network of science and technology institutions, but these were divorced from manufacturing enterprises and excessively bureaucratic. The administration of its policies was slow, complex, and prone to corruption.

Capabilities

Let us start with human capital, measured via data on education. Based on 1958-1959 data, Harbison and Myers [31] developed a composite index of human resource development in a large international sample of countries. At that time, Argentina emerged with the highest rank in the developing world, followed by Korea and Taiwan. Then (of our sample) came India, Mexico, and Brazil (others were not included). In 1965, enrolment in secondary schools (as a percentage of the relevant age group) was distinctly higher in East Asia (Korea 35%, Taiwan 38%, Hong Kong 29%, Singapore 45%) than in other countries (Brazil 16%, Mexico 17%, India 27%, or Thailand 14%). Enrolment in tertiary education was also ahead (6%, 7%, 5%, 10% respectively in East Asia, 2% and 4% in Latin America, 2% in India and Thailand).

By 1985, the East Asian lead in secondary education had been maintained or widened, while that in tertiary education had been narrowed or eroded with the exception of Korea. Mexico and Thailand had made particularly large gains in tertiary education. (It should be noted that, according to Unesco data, Hong Kong and Singapore have large proportions of students in higher education overseas, 32% and 25% respectively, so the figures in table 2 are underestimates.) India has the smallest stock. In Latin America, Mexico is ahead of Brazil. Thailand is expanding very rapidly from a low base.

Figures for enrolment in education by themselves may be misleading. The true impact on technological capability development also depends on the drop-out rate, the technical orientation of the students, and the quality of teaching. Drop-out rates are exceptionally low in East Asian NICs [38, 58]. The technical orientation of education is highest in Singapore (60% of tertiary students are in science and technology subjects), followed by Mexico (48%), Hong Kong (46%), Korea (42%), Brazil (36%), India (27%), and Thailand (21%). There is no information on Taiwan, but we can safely assume the figure to be high.

More important is the proportion of each country's population enrolled in science and engineering. This broad measure of technological capacity is led by Korea (1.39), followed by Taiwan (1.06), Singapore (0.89), Mexico (0.7), Hong Kong (0.67), Brazil (0.4), and India (0.21). Allowing for students abroad (and taking the proportion in science and engineering to be the same as at home), the figures for Singapore and Hong Kong rise to 1.01 and 0.81. Korea's rises to 1.41, while those of others (Taiwan data are missing) are not affected. Taking engineering on its own, Taiwan leads the sample, followed by Singapore and Korea. These three NICs have figures some 10 times higher than India's, and four or five times higher than Brazil's.

The only relevant indicators of the quality of education are of the performance of primary and secondary school students on the International Education Review's test scores in science and mathematics. In one test, administered in 19 (mostly developed) countries, with only Korea and India included from our sample (quoted in ref. 85), Korea came second only to Japan in nearly all tests, and in one it beat Japan. It consistently outperformed countries like the United States, Britain, Germany, Sweden, Austria, and so on. Its primary school pupils did 2.5 times better than India; its secondary school pupils 3.8 times better. In another test, reported in OTA [59], two other sample countries, Hong Kong and Thailand, were included in a sample of 14, again mostly developed, countries. Twelfth graders (17-18 year olds) were tested in geometry and algebra in the mid 1980s. The top performer in both was Hong Kong, followed by Japan. The United States came twelfth in geometry and thirteenth in algebra. Thailand came last in both tests. These tests should, however, be treated with caution, because they may not be robust indicators of educational standards across the board.

The technical competence of an industrial workforce is improved by education imparted by various formal training systems and by infirm training. While the precise nature of the benefits of vocational as opposed to general training, and pre-employment as opposed to post-employment training, is still the subject of debate [17], it is indisputable that the speed of technical change in modern industry necessitates increasing inputs of training and retraining. Data are most readily available on vocational training (from Unesco); these are shown in table 2, in total and in relation to the size of the population. Korea and Taiwan are far in the lead (over 3% of the population of working age), exceeding relative levels in Latin America (about 2%) and other East Asian NICs. Singapore is also relatively low (0.5%), but this is misleading because of the large size of its employee training programmes run on a cooperative basis by government and industry. Hong Kong has a relatively poor showing (0.86%), behind that of Thailand, reflecting the specialized and technologically undemanding nature of its industrial structure. India has very small enrolments, suggesting widespread skill deficiencies.

In-firm training figures are not widely available, but McMahon [48] singles out Korea as an exceptional case, in that "since 1960 South Korea has insisted that companies spend at least 5 to 6% of their total budget on education and training programs, involving the private sector in the education process in a meaningful way" (p. 19). It is doubtful whether any other country in the sample has a training effort comparable with this: presumably, it has provided the basis for efficient production in Korea's rapid drive into new, demanding industries.

The impressions that emerge from these data are:

• The East Asian NICs have the largest stock of human capital in a broad sense (formal education at secondary and tertiary levels). They are followed by Mexico, then Brazil and Thailand, with India clearly at the bottom.
• In terms of technical education and vocational training, Korea and Taiwan are clear leaders (with Korea pulling ahead at general high level, and Taiwan in engineering, education), with Singapore close behind. Hong Kong comes next, followed by Mexico, then Brazil or Thailand (depending on the measure), with India again lagging well behind.
• In terms of the quality of education, patchy evidence suggests that the East Asian NICs, with their strong cultural emphasis on education, are ahead of the others.
• In firm-level training, Korea is likely to be the leader. Singapore leads in employee training provided externally.

These impressions conform broadly to the patterns of '`revealed national technological capabilities" discussed earlier. While the most successful countries have the largest investments in human capital formation, preceding and accompanying their industrial growth, Korea and Taiwan are in a different class from Hong Kong and Singapore. The larger relative technical-skill endowments of the former two explain their greater ability to tackle more complex, demanding industrial technologies. Hong Kong is distinctly behind Singapore, which conforms to the observed differences in their industrial structures and technological prowess. Interestingly, Singapore's heavy reliance on foreign investors in its high-tech industries does not relieve it of the need to provide educated and trained technical manpower; multinational corporations are able to set up such industries there only because of the availability of appropriate manpower (and Singapore is widely regarded as having one of the world's best systems for employee training).

Mexico seems to have a better trained workforce than Brazil by every measure. Its apparent lag in national technological capabilities must then be attributed to specific industrial and technological policies, which have failed to develop technological capabilities (at least in selected areas) as forcefully as Brazil. India's substantial lag in human resources may appear surprising, because of the general aura it has of a country with an oversupply of technical and educated manpower. There is certainly a large absolute supply (although of highly variable quality), and graduate unemployment and emigration are real problems. In relation to the size of the economy, however, the stock is poor, and what there is seems to be concentrated in the larger establishments. The apparent oversupply is more a reflection of the economy's poor performance than anything else: wrong policies have held back even the absorption and effective utilization of its meagre human resources.

Science and technology

The most common measure of national technological effort is total R&D spending in relation to GNP. By this measure, sample data (not available for Hong Kong) show that Korea, with 2.3% in 1987, is now well ahead of the others (more than double that of Taiwan, its nearest rival) and planning to reach 5% by 2000. Taiwan and India are close to each other, around 1%, followed by Brazil and Mexico, Singapore and Thailand.

Total R&D expenditures may be less relevant a measure of industrial technical effort than R&D performed or financed by productive enterprises. Total R&D includes large elements of non-industrial R&D, or industrial R&D performed in government laboratories, or performed in productive enterprises but financed by others. Each has different implications for industry, in terms of effectiveness, control, and relevance. It is usually a safe assumption that R&D effectiveness is higher the more it is performed and financed by productive enterprises (Griliches [29] finds, for instance, that privately financed R&D in the United States yields much higher returns than R&D financed by the Federal government and performed by the same enterprises). On this criterion, table 2 shows again that Korea is far in the lead, with Taiwan some distance, and other countries much further, behind. The bulk of Korean private R&D is performed by its giant chaebol, themselves the products of earlier policies to select, protect, and subsidize large firms to lead the industrialization drive. In this sense, even the private R&D of Korea is traceable to selective intervention: to create chaebol, direct them into heavy and complex activities, and force them to compete internationally.

Patent data are also available but are notoriously difficult to compare meaningfully. Nevertheless, the figures on the proportion of patents taken out by residents (which may include foreigners) are suggestive [23]. Korea and Taiwan (69% and 56%) are far ahead of India (20%), Brazil and Mexico (9% each), or Singapore (8%). The commercial value of these patents may be questionable, but it is instructive in this context to refer to Fagerberg's [25] growth accounting exercise, which used patents taken out internationally as a measure of innovative activity, and included Asian NICs (Hong Kong, Korea, Taiwan) as well as Latin American NICs (Argentina, Brazil, Mexico) as sub-samples.

Fagerberg's calculations showed that both groups of NICs grew faster than the "frontier" countries (United States, Switzerland, Germany, Japan, Sweden), East Asia 6% faster and Latin America 1.9% faster. The difference between the two subgroups was primarily due to their innovative efforts. For Asian NICs, this contributed 2.9% of their relative growth performance, for Latin America -0.1%. Such exercises suffer from well-known limitations and interpretation problems, but the general results are plausible and in line with other sorts of evidence: innovative effort is important for growth even among NICs, and East Asia performs far better than Latin America.

The employment of scientists and engineers in R&D in relation to population is another common measure of technological effort. The figures in table 2 show Taiwan ahead of others (1,426 per million population in 1986, higher than France's 1,365 in 1984). Korea is a close second with 1,283, followed by Singapore with 960. There is then a large gap, with Brazil and Mexico having 256 and 217 respectively. Thailand has 1-50 and India 132. The quality of R&D scientists and engineers may differ by country, and their economic value may depend on the type of R&D they are engaged in, but there is no reason to believe that, as far as NICs are concerned, these factors would reduce the apparent lead of East Asia. If anything, they would strengthen it.

A similar measure of the total "potential stock" is the number of scientists and engineers. The data (taken from Unesco, which collects the figures by questionnaires) are sometimes dubious (especially for Hong Kong, where they appear to be overestimates), but they show the two island NICs of Asia with the highest stocks, followed by Brazil, Mexico, and Korea. India comes out ahead of Thailand on this measure, but well behind the others.

The technological data broadly support the trends revealed by the figures on education. The Asian NICs, in particular Korea and Taiwan, have invested not only in educating and training their populations, but also in technological innovation. This investment was primarily oriented to the commercial needs of productive enterprises, and has drawn upon a large pool of scientists and engineers. Combined with a highly skilled workforce, these investments yielded the competitiveness and dynamism that revealed themselves in growth and export performance. Export orientation played a permissive and stimulative role, and as such was necessary - but it was not sufficient.

Technology imports

All sample countries import large amounts of technology, but their patterns of import differ greatly. In part this is due to differing rules and controls on buying know-how and services abroad: the international technology market is subject to a spectrum of failures caused by asymmetric information, opportunism, missing markets, and so on, and different governments have adopted different measures to overcome such failures and help national enterprises to purchase technology on fair terms. In part, however, it is due to a more fundamental difference, national technological strategy. This concerns the relative roles of foreign and local enterprise in building indigenous capabilities. There are striking variations across the leading semi-industrial countries in the extent to which they have drawn on foreign direct investment (FDI) to provide technology and skills.

FDI can, in appropriate conditions, be a very efficient means of transferring a package of capital, skills, technology, brand names, and access to established international networks. It can also provide beneficial spillovers to local skill creation and, by demonstration and competition, to local firms. Where local skills and capabilities are inadequate, FDI can sometimes be the only means to upgrade technologies and enter high-tech activities. However, the very fact that FDI is such an efficient transmitter of packaged technology based on innovative activity performed in advanced countries has serious implications. With few exceptions, the developing country affiliate receives the results of innovation, not the innovative process itself: it is not efficient for the enterprise concerned to invest in the skill and linkage creation in a new location. The affiliate, in consequence, develops efficient capabilities up to a certain level, but not beyond: in the literature this is called the "truncation" of technology transfer. Such truncation can diminish not only the affiliate's own technological development, but also its linkages with the host country's technological and production infrastructure, and so beneficial externalities. Moreover, a strong foreign presence with advanced technology can prevent local competitors from investing in deepening their own capabilities (as opposed to becoming dependent on imported technology or, where the technology is not available at reasonable prices, withdrawing from the activity altogether).

For these reasons, countries with technological potential may find it beneficial to restrict FDI and import technology in "unpackaged" forms (including foreign minority-owned joint ventures). The choice of mode of technology imports is thus not neutral - some are more beneficial than others for certain strategies and at certain stages of development. The sample countries cover the whole range of FDI strategies. Rows A6 and A7 of table 2 set out data on stocks of foreign investment in each country and on FDI as a percentage of GDP in the relevant year as a measure of the relative significance of FDI. It shows, at one extreme, low levels of reliance on FDI by India and Korea, and, at the other, very high levels by Singapore and Hong Kong, and fairly high levels, among large countries, by Mexico, Thailand, and Brazil. The interesting cases are those of Korea and Singapore, both successful NICs that have opted for opposing strategies on foreign capital.

South Korea has developed arguably the most advanced and competitive base of technological capabilities in the developing world, drawing on foreign technology mainly in non-equity forms (i.e. by capital goods imports, licensing and minority foreign ventures [84, 83]). In order to nurture this massive effort, it followed the Japanese example of some decades earlier- protection against imports and selective exclusion of foreign investment, accompanied by the upgrading of skills, huge investments in R&D, and the sponsoring of the giant chaebol to internalize various markets and so cope with the rigours of international competition. The strategy may be characterized as one of "protecting domestic technological learning" at a stage of development when externalities and uncertainties abound, information linkages are imperfect, and basic capabilities are in their infancy. This stage is similar in many respects to the micro-level process of developing a new innovation by a developed country firm, when (as Grossman [30] argues) "the strongest case for government intervention may arise... [because this would] involve substantial research outlays and costly learning-by-doing [and] private firms often are unable to capture more than a fraction of the benefits they create for consumers and for other firms in the industry" (p. 119).

The Korean strategy went well beyond supporting R&D, to restricting imports and direct investment, because technological development by an industrializing developing country is different in a critical sense from a firm innovating a new technology: the developing country faces an external environment where several competitors have already undergone the learning process and have developed the necessary institutional structures. The need for intervention in developing countries is concomitantly greater. Korea demonstrates that protection of the learning process can be highly effective when complex, large-scale, fast-moving technologies are involved [83]. Singapore, by contrast, relied entirely on technology generated elsewhere, but intervened (selectively) to induce investors to move up the technological scale and (functionally) to provide a well-trained workforce. The strategy worked well for Singapore - but whether it can be emulated by larger economies, and whether it will lead to a broad base for sustained industrial development (à la Japan or Korea) is open to question. The Latin American economies have come somewhere in between. Brazil has set up large public enterprises and restricted foreign entry in certain sectors to protect indigenous learning, Mexico also doing so on a much smaller scale. The heavy reliance of these countries on multinational firms for a great deal of advanced technology may well have pre-empted indigenous capability development in the sectors concerned. India has had a very different experience, excluding multinationals in much of manufacturing, but also suffering technological lags and inefficiency as a result of its trade and industrial policies and poor human capital endowments.

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