In 1973, the economist E.F. Schumacher published a book with the captivating title Small Is Beautiful, advocating the use in poor countries of human-scale, less capital-intensive technologies better suited to local conditions. It sparked a debate in the 1970s and 1980s on “appropriate technology.”
For developing countries, the ability to adopt new technologies created in the rich world is important. But technologies developed in advanced economies, where skills and capital are abundant, might constitute at best a mixed blessing. A recent panel discussion involving distinguished economists, convened by the International Economic Association (IEA), suggests there may be ground for concern today about the appropriateness of imported technologies.
As Frances Stewart, an Oxford economist who was at the centre of the earlier round of debates, pointed out during the panel, East Asia’s success with export-oriented industrialization seemed to belie the worry that manufacturing would fail to create enough jobs and improve living standards. South Korea, Taiwan and China all charted a route out of poverty and grew at unprecedented rates as modern industrial factories absorbed rural labour into more productive employment. But today, this approach no longer works the same way. Manufacturing technologies have become very skill-intensive, and automation and other forms of innovation have reduced labour’s share of manufacturing value added. As MIT’s Daron Acemoglu has pointed out, global competition, the growing power of corporations relative to workers and tax subsidies to capital have all encouraged labour-displacing innovation.
This is bad news for developing countries, because their comparative advantage lies in labour-intensive goods. The consequences are visible. Many low- and middle-income economies have been hit by ‘premature de-industrialization’, the plateauing and decline of manufacturing’s share of employment at low-income levels. Even where industrialization continues apace, employment growth in large modern firms has been anaemic. Moreover, Acemoglu presented data showing that new technologies are biased toward not just the more educated, but toward those with post-graduate degrees. The scarcity of such workers in low-income countries limits their ability to absorb frontier technologies. And, as Yale economist Fabrizio Zilibotti emphasized, it also creates a tension between the imperatives of technology transfer and labour-market equality.
One of the central points of contention in earlier debates was the degree to which producers have the flexibility to adopt techniques that may be more suited to local conditions. Globalization and cross-border supply chains may have diminished whatever scope for adaptation the technology affords. As Columbia University’s Eric Verhoogen pointed out, higher-quality products are typically associated with more capital- and skill-intensive techniques. Firms in developing countries cannot shift to more labour-intensive methods and still meet the requirements of major international companies or consumers.
Verhoogen also warned that, even where there is room for flexibility, departing from global norms could condemn local firms to inferior technological paths. A doctoral dissertation by Gustavo de Souza at University of Chicago provides some evidence on the downsides. De Souza found that a Brazilian programme that taxed the leasing of international technology lowered the share of skilled workers in affected firms and also reduced employment overall. Although Brazil is an upper-middle-income country with considerable tech capabilities, it stands to reason that there are limits to how much domestic technology can substitute foreign frontier technology. A more promising, if more challenging, task would be to reorient global innovation itself in a more labour-friendly direction.
After all, there is plenty of evidence in other domains that the direction of innovation responds to prevailing incentives. Recent work by Jacob Moscona of Harvard University and MIT, together with MIT’s Karthik Sastry, shows how biotech improvements in agriculture have focused on addressing specific local pathogens, making these innovations less transferable across climatic zones. Acemoglu pointed to a significant rise in US renewable-energy research once government programmes and social pressures combined to alter private-sector incentives. And encouraging the development of new military technologies has always been part of governments’ policy arsenal.
The question is whether it is possible to mount a similar effort to encourage more labour-friendly global innovation. Whether it is ‘collaborative robots’ in manufacturing that work with humans rather than replace them, or artificial-intelligence tools that allow teachers or nurses to perform more skilled, specialized tasks, proof of concept already exists in diverse forms. The challenge is to build on these examples and embody this new orientation in innovation policies.
It may be too much to ask advanced countries to re-imagine their approach to innovation with poorer economies’ interests in mind. But self-interest should push them in the same direction. Developed countries also suffer from labour-market polarization, the disappearance of good jobs and the attendant social and political ills. The implication seems clear: Bending the arc of technology to society’s needs, rather than expecting society to adjust to its demands, should be a priority for advanced economies as much as it is a challenge for others. ©2022/Project Syndicate
Dani Rodrik is professor of international political economy at Harvard University’s John F. Kennedy School of Government, and author of ‘Straight Talk on Trade: Ideas for a Sane World Economy’
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