This post was co-authored by Marcelo Giugale.
Why is it that some countries are more developed than others? A country is "less developed" not only because it lack inputs (labor and capital) but because it uses them less efficiently. In fact, inputs are estimated to account for less than half of the differences in per capita income across nations. The rest is due to the inability to acquire, adopt and adapt better technologies to raise productivity. As an engine of growth, the potential of technological learning is huge -- and largely untapped. Four global trends have begun to unlock that potential, and are bound to continue.
First, the vertical decomposition of production across frontiers allows less-advanced countries to insert themselves in supply chains by initially specializing in single, simpler tasks. Second, the expansion of "South-South" trade (since 1990, at twice the speed of global trade) increases the availability of technologies that have been tested and adapted to developing-country settings. Third, information and communication technology is becoming ever cheaper, and more widely embraced. Fourth, as the middle-class grows in emerging economies, local technological adaptations begin to break even (India's US$2,000 Nano car is a good example).
It all looks promising. But, left by themselves, markets may not generate enough learning. Producers tend not to share profitable ideas. Why should they? Appropriating and protecting them creates (unnatural) monopolistic power -- any pharmaceutical company can attest to that. And financiers tend not to finance ideas they do not understand, which means most ideas. There is thus room for public policy. What can developing countries do, and what are they likely to do, to spur technological learning?
This is an issue we explore in depth in a recently released book on the main trends of economic policy (Canuto O. and M. Giugale, eds, 2010, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World, World Bank Publications, Washington D.C.). Each country's reality is different, of course. Each has an initial set of human capital, a technological inventory, a tax code, and a legal system to protect intellectual property. But successful strategies across the world have shown several common features. They focus on the incentives firms face -- competition, taxes, labor laws, corporate governance. They invest in management and worker skills alike. They make sure information spreads quickly to all. They provide public funding where necessary, especially to finance experimentation. They involve all actors, big and small, formal or informal, rich and poor. They connect local businesses with local academia (not an easy thing in countries with large, unionized public universities). They are part of an attempt at integration--at benefiting from globalization, not just surviving it. And they constantly benchmark, monitor, evaluate, and adjust.
It is interesting that sparking learning in the private sectors of developing countries calls for more, not less, public action. However, in contrast to past experience, that action is now more about reforms than resources, more about coordinating than controlling, and more about profit than principle.
This blog was originally posted on the World Bank Insititute Growth and Crisis website.
Otaviano Canuto is the World Bank's Vice President for Poverty Reduction and Economic Management, and Marcelo Giugale is the Sector Director of Poverty Reduction and Economic Management for the Latin America and the Caribbean Region. They are both the coeditors of The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World. To access the publication, please visit: http://go.worldbank.org/TPPWANWXR0 The book can also be read online and purchased (World Bank Publications; ISBN 978-08213-8498-5; $35) at http://publications.worldbank.org/18498, through bookstores, and through the World Bank's network of international distributors http://go.worldbank.org/6XBJT3DJA0.