Technological Learning, Industrial Policy, and Catch-up

Why is catch-up rare? And why have some nations succeeded while others failed? What are the prospects for successful learning and catch-up in the twenty-first century? This chapter introduces the aims, themes, and analytical perspectives of How Nations Learn, outlining the focus of each chapter, and considering pathways to the future. The volume examines how nations learn by reviewing key structural and contingent factors that contribute to dynamic learning and catch-up. It uses historical as well as firm-, industry-, and country-level evidence and experiences to identify sources and drivers of successful learning and catch-up and the lessons for late-latecomer countries. It aims to generate interest and debate among policymakers, practitioners, and researchers on the complexity of learning and catch-up, not only for late late developers but also for middle-income countries in the early stages of industrialization.

How Nations Learn

Historically, latecomer countries have moved up the development ladder by learning from forerunners and adopting what has been learned to their specific starting conditions and resource endowment. However, it has always been puzzling and difficult to understand why some nations managed to learn and emulate technologies and catch-up successfully while others encounter difficulties and remain lagging behind despite the opportunities to learn from or even copy others. To a large extent, these variations are influenced by the long-term strategies and types of policies that countries pursue to initiate economic development and kick-start the process of technological learning and industrialization. This volume has attempted to shed light on the ‘how’ aspect of the learning and catch-up processes and the potential for late-latecomer countries to promote technological learning and catch-up. The combination of theoretical perspectives and empirical evidence in this volume provides a particular contribution to the ongoing debate on the dynamics of learning and catch-up. This chapter looks into the future and considers the implications of its key findings for late-latecomer countries learning and catching up in the twenty-first century. The discussion focuses on the key dynamics of technological learning; industrial policy and manufacturing as prime drivers of learning and catch-up; and finally, catch-up and the scope for policy space in the twenty-first century.

Learning to Catch up in Africa

African countries are ‘late-latecomers’ to industrialization and have weak manufacturing sectors, poor export performance, low technological capability, and weak domestic linkages, unlike many successful South East Asian ‘late-comer’ countries, where export-led industrialization has been a driving force of technological learning, structural transformation, and catch-up. This chapter reviews two divergent cases of successful learning and catch-up in Ethiopia, the floriculture and cement industries, representing an export sector and a strategic basic industry, to demonstrate policy learning through sectoral-level industrial policies. Both successes and failures provide lessons on the dynamics of technological and policy learning, and show the complexity of learning and catch-up in Africa. Furthermore, Ethiopia’s recent university reforms, the largest in Africa, and the strategic and dynamic learning approach to the development of industrial hubs, are reviewed, together with implications for the progress, challenges, and complexities of national skill formation and the development of domestic absorptive capacity. This chapter argues that successful catch-up by African countries is linked to the intensity, pace, and direction of learning, and that policy learning by an active state is an essential element in industrial policy serving as a vehicle for catch-up.

China

China is one of a handful of economies that has successfully achieved rapid long-term growth since the Second World War and is one of the fastest technological learners among latecomers. Its technological progress and economic success is attributable to the grand transformation of its development strategy since 1978. With special economic zones and encouraging inflow of foreign direct investment, China created conditions to help comparative advantage-following industries to grow and integrate with the global supply chain, paving the way for institutional reform and turning a relatively closed economy into a global manufacturing powerhouse. The catching-up strategy proposed by development economics to latecomers fails to take into account the evolutionary nature of industrial structure and downplays the role of initial factor endowments. The New Structural Economics advocated by Justin Yifu Lin underscores the importance of comparative advantage and learning, linking endowment structure and rapid economic growth. Late latecomers following the NSE approach and accumulating physical and human capital through learning are most likely to achieve rapid development and to upgrade from imitation to innovation.

Industrial Policy and Learning

This chapter contributes to the understanding of how nations learn by looking at Latin America. It focuses on the experiences of some of the most advanced countries in the region, notably Brazil, Colombia, Chile, Mexico, and Uruguay. Industrial policies have been no strangers in these countries, however, diversifying the economy and catching up are still pending challenges. The analysis of the evolution of policies for industrialization and technological development from the 1950s onward clarifies why, in most cases, they had limited impact on domestic learning and catching-up dynamics. The review of some recent successful cases (from Chile, Uruguay, and Mexico) sheds light on which specific institutional and political economy dynamics enabled the activation of learning and change in the economy. The achievements and the persistent shortcomings of the region contribute to identifying lessons for growth and development whose relevance goes beyond Latin America and contributes to the overall global debate on how countries can achieve prosperity.

The Journey of Ethiopian Airlines

Despite sceptics who believed Ethiopia lacked the comparative advantage to adopt the latest aviation technologies, Ethiopian Airlines (EAL) has in the past seven decades narrowed the gap between itself and leading global players in the aviation industry by upgrading its technological, organizational, and management capabilities. This chapter reviews EAL’s journey to build an internationally competitive airline, explores the challenges and complexities of learning for African firms, and examines implications for capability building and catch-up in late-latecomer countries. One key to EAL’s success was the partnership with a leading global player, TWA. Another was a strong commitment to ‘Ethiopianization’ from an early stage, which increased learning intensity and highlighted the industry’s narrow latitude for poor performance. In the early twenty-first century, EAL embarked on Vision 2025, at the heart of which are technological capability development, skills formation, aggressive new market development, and commitment to Pan-Africanism. The story shows that African firms can successfully move closer to the productivity frontier in a particularly challenging industry.

Learning to Catch up in South East Asia

The term ‘nation learning’ describes consistent and strategic cross-sector efforts to identify pathways towards economic catch-up. This chapter examines the global dynamics of national-level catch-up between 1995 and 2015 to gain insights into the relevance of nation-learning efforts. Over this period, most developing Asian countries made significant progress on catch-up. Focusing on their experience, the study finds capital accumulation and growth in total factor productivity to be crucial determinants of catch-up performance. However, some countries have lagged in promoting capital accumulation (Pakistan, Malaysia, and the Philippines) and total factor productivity (Vietnam, Indonesia, and Bangladesh). Focusing on these determinants, the chapter generates insights into relevant aspects of nation-learning efforts. Enablers of nation learning include pressures, leadership vision, and absorptive capacity; obstacles include the costs of learning and ‘status-quo bias’.

Catch-up and Learning in Taiwan

Taiwan’s post-war economic growth record has been phenomenal. This chapter examines how Taiwan managed to develop rapidly and catch up with the West. It shows that the state has played an important role and practised successful industrial policies. Industrial learning started with the import-substitution policy of the 1950s, then moved to export promotion in the 1960s and 1970s, and to entry into the high-tech sector from the 1980s. At every turn successful industrial upgrading was achieved due to suitable and adaptive industrial policies, in response to the changing environment.

The Origin of Absorptive Capacity in Korea

Absorptive capacity (AC), defined by Cohen and Levinthal (1989, 1990) as a firm’s ability to identify, value, assimilate, and exploit knowledge from the environment, is a binding constraint for latecomer economies. Its origin is particularly relevant for latecomer countries where firms rely on imported technology. This chapter investigates how latecomer firms in Korea built absorptive capacity before being able to conduct in-house R&D, and generate innovation outcomes. Three forms of foreign technology acquisition are distinguished: know-how-only licensing, know-how-and-patent licensing, and patent-only licensing. Korean firms tend to use know-how licensing before starting in-house R&D, whereas patent licensing is not significantly linked to R&D. It seems that that the origin of AC in Korea is the learning process that follows licenced import of foreign technology, especially tacit knowledge in the form of know-how. A specific policy implication is that technology licensing contracts for a latecomer firm should include know-how transfer, and the potential substituting effect of foreign patent licensing must be considered because it may interfere with formation of in-house AC.

Meiji Japan

In the second half of the nineteenth century, Japan transformed itself from an agro-based feudal society to one of the leading industrial nations of the world. This was attained by aggressive learning and local adaptations of Western technology. Meiji Japan’s learning began with simple methods such as book study and turnkey projects directed by foreign advisers, but in time progressed to the generation of a large number of proficient Japanese engineers, analysis and copy production of imported machinery, and selective acquisition of frontline technology through licensing, technical cooperation agreements, and joint ventures with foreign giants. In most cases, the Japanese side quickly mastered the technology offered and graduated from foreign help. Country ownership in technology transfer also increased over time. Private dynamism inherited from previous periods was the main driver of technology learning while policies of the Meiji government were mostly appropriate and supportive of private effort.